SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14399
WESTERN PUBLISHING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1104930
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
444 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-4500
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 21,067,274 shares outstanding as
of December 1, 1995.
WESTERN PUBLISHING GROUP, INC. AND
SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets--
October 28, 1995 (Unaudited) and
January 28, 1995 4
Condensed Consolidated Statements of Operations--
Three months ended October 28, 1995 and
October 29, 1994 (Unaudited) 6
Condensed Consolidated Statements of Operations--
Nine months ended October 28, 1995 and
October 29, 1994 (Unaudited) 7
Condensed Consolidated Statements of Cash Flows--
Nine months ended October 28, 1995 and
October 29, 1994 (Unaudited) 8
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II OTHER INFORMATION
Item 3. Exhibits and reports on Form 8-K 17
SIGNATURES 18
EXHIBITS
Exhibit 15 - Letter re: unaudited interim financial
information 19
2
INDEPENDENT ACCOUNTANTS' REPORT
Western Publishing Group, Inc.
New York, New York
We have reviewed the accompanying condensed consolidated balance sheet of
Western Publishing Group, Inc. and subsidiaries as of October 28, 1995, and
the related condensed consolidated statements of operations and cash flows
for the nine and three-month periods ended October 28, 1995 and October 29,
1994. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Western Publishing Group, Inc.
and subsidiaries as of January 28, 1995, and the related consolidated
statements of operations, common stockholders' equity and cash flows for
the year then ended (not presented herein); and in our report dated April
21, 1995 (May 6, 1995 as to Note 6), we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
January 28, 1995 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Milwaukee, Wisconsin
December 11, 1995
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
October 28, January 28,
ASSETS 1995 1995
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 22,190 $ 85,406
Accounts receivable 88,374 83,251
Inventories 98,598 108,738
Prepublication and prepaid advertising costs 5,519 7,314
Royalty advances 1,599 2,221
Refundable income taxes 5,940
Deferred income taxes 10,676
Net assets held for sale 13,962 17,681
Other current assets 7,432 6,397
-------- --------
Total current assets 237,674 327,624
-------- --------
OTHER ASSETS 11,391 14,044
-------- --------
PROPERTY, PLANT AND EQUIPMENT 137,004 122,990
Less accumulated depreciation and amortization 57,804 47,325
-------- --------
Total property, plant and equipment 79,200 75,665
-------- --------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less
accumulated amortization of $20,697 and
$19,173, respectively 9,949 11,473
-------- --------
$338,214 $428,806
======== ========
See Notes to Condensed Consolidated
Financial Statements
4
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
October 28, January 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 20,472 $ 18,461
Accrued compensation and fringe benefits 7,348 9,812
Notes payable to banks 32,000
Other current liabilities 33,321 39,111
-------- --------
Total current liabilities 61,141 99,384
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 149,840 149,828
Accumulated postretirement benefit obligation 27,655 26,894
Other 2,441 1,921
-------- --------
Total noncurrent liabilities 179,936 178,643
-------- --------
CONVERTIBLE PREFERRED STOCK -Series A, 20,000
shares authorized, no par value, 19,970 shares
issued and outstanding; at mandatory redemption
amount 9,985 9,985
-------- --------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares
authorized, 21,276,074 and 21,232,074 shares
issued 213 212
Additional paid-in capital 81,430 80,914
Retained earnings 9,814 64,287
Cumulative translation adjustments (1,483) (1,797)
-------- --------
89,974 143,616
Less cost of Common Stock in treasury - 208,800
shares 2,822 2,822
-------- --------
Total common stockholders' equity 87,152 140,794
-------- --------
$338,214 $428,806
======== ========
See Notes to Condensed Consolidated
Financial Statements
5
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
Three Months Ended
October 28, October 29,
1995 1994
(Unaudited)
REVENUES: $105,216 $130,306
------- --------
COSTS AND EXPENSES:
Cost of sales 81,205 89,986
Selling, general and administrative 35,715 35,325
Provision for restructuring and closure of
operations 8,701
Gain on streamlining plan (20,352)
------- --------
Total costs and expenses 125,621 104,959
------- --------
(LOSS) INCOME BEFORE INTEREST EXPENSE AND
INCOME TAXES (20,405) 25,347
INTEREST EXPENSE 3,158 4,678
------- --------
(LOSS) INCOME BEFORE INCOME TAXES (23,563) 20,669
PROVISION FOR INCOME TAXES 13,925 15,286
------- --------
NET (LOSS) INCOME $(37,488) $ 5,383
======= ========
(LOSS) INCOME PER COMMON SHARE $ (1.79) $ 0.25
======= ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,043 21,020
======= ========
See Notes to Condensed Consolidated
Financial Statements
6
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
Nine Months Ended
October 28, October 29,
1995 1994
(Unaudited)
REVENUES: $285,370 $303,889
-------- --------
COSTS AND EXPENSES:
Cost of sales 213,952 222,705
Selling, general and administrative 95,200 94,851
Provision for restructuring and closure of
operations 8,701
Gain on streamlining plan (2,000) (20,352)
-------- --------
Total costs and expenses 315,853 297,204
-------- --------
(LOSS) INCOME BEFORE INTEREST EXPENSE AND
INCOME TAXES (30,483) 6,685
INTEREST EXPENSE 9,501 13,566
-------- --------
LOSS BEFORE INCOME TAXES (39,984) (6,881)
PROVISION FOR INCOME TAXES 13,853 4,686
-------- --------
NET LOSS $(53,837) $(11,567)
======== ========
LOSS PER COMMON SHARE $ (2.59) $ (0.58)
======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,030 20,988
======== ========
See Notes to Condensed Consolidated
Financial Statements
7
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
October 28, October 29,
1995 1994
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(53,837) $ (11,567)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 11,075 10,315
Provision for losses on accounts receivable 1,206 592
Gain on streamlining plan (2,000) (20,352)
Gain on disposition of plant and equipment (396)
Provision for restructuring and closure of
operations 8,701
Other 763 760
Changes in assets and liabilities:
Accounts receivable (6,537) 4,795
Inventories 8,253 4,037
Net assets held for sale (30,211)
Accounts payable 1,990 (17,036)
Deferred income taxes 13,886 8,483
Other assets and liabilities (9,770) 23,068
-------- --------
Net cash used in operating activities (26,666) (27,116)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of plant and equipment (12,010) (14,560)
Proceeds from streamlining plan 6,589 114,204
Proceeds from disposition of plant and equipment 629
Return of investment in joint venture 350 500
-------- --------
Net cash (used in) provided by investing
activities (4,442) 100,144
-------- --------
8
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
October 28, October 29,
1995 1994
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Common Stock (exercise
of options) $ 517 $ 640
Repayments under Credit Agreement (32,000) (26,000)
Costs in connection with amendment of credit
facility (767)
Dividends on Preferred Stock (637) (637)
Other (18)
-------- --------
Net cash used in financing activities (32,120) (26,782)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 12 31
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (63,216) 46,277
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 85,406 9,513
-------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 22,190 $ 55,790
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 11,828 $ 15,642
Income taxes, net of refunds received (5,101) 444
See Notes to Condensed Consolidated
Financial Statements
9
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of October 28, 1995, the results
of operations for the three and nine-month periods ended October 28, 1995
and October 29, 1994 and cash flows for the nine month periods ended
October 28, 1995 and October 29, 1994. Certain reclassifications have been
made in the prior year financial statements to conform with the current
year presentation.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company contained in the Company's
Form 10-K for the year ended January 28, 1995 ( Fiscal 1995 ).
NOTE B - Sale of Accounts Receivable
On September 29, 1995, Western Publishing Company, Inc. ( WPC ), a wholly-
owned subsidiary of the Company entered into an extendable one-year
Receivables Purchasing Agreement with a financial institution to sell in
pools, certain trade accounts receivable from WPC on a revolving basis, up
to a maximum of $62.5 million outstanding at any one time. The pools are
sold on a non-recourse basis for credit losses and subject to a discount
fee. During the quarter ended October 28, 1995, WPC sold $14.1 million of
receivables under this program. The proceeds from the sale of receivables
are reported as providing operating cash flow in the accompanying statement
of cash flows. The costs associated with this program of $.3 million are
included as a component of interest expense in the accompanying statement
of operations.
NOTE C - Inventories
Inventories consisted of the following:
October 28, January 28,
1995 1995
(In Thousands)
Raw materials $13,443 $ 9,934
Work in process 14,056 19,900
Finished goods 71,099 78,904
------- --------
$98,598 $108,738
======= ========
10
NOTE D - Net Assets Held for Sale and Streamlining Plan
During Fiscal 1995, the Company adopted a plan (the "streamlining plan")
designed to improve its competitive position and reduce its cost structure
through the sale, divestiture, consolidation or phase out of certain
operations, properties and products, and a workforce reduction. The
streamlining plan resulted in a net gain which was recorded in the third
quarter of Fiscal 1995. During the quarter ended July 29, 1995, an
additional gain of $2,000,000 from the streamlining plan was recorded as
certain costs and expenses of implementing the plan were less than
originally anticipated. As of October 28, 1995, the remaining net assets
held for sale primarily relate to the Company's Fayetteville, North
Carolina facility, which was closed in conjunction with the sale of its
game and puzzle business.
Net assets held for sale consisted of the following:
October 28, January 28,
1995 1995
(In Thousands)
Current assets $ 1,682 $ 2,181
Property, plant and equipment, net 14,280 17,500
------- -------
15,962 19,681
Less:
Current liabilities (2,000) (2,000)
------- -------
Net assets held for sale $13,962 $17,681
======= =======
NOTE E - Provision for Restructuring and Closure of Operations
During the quarter ended October 28, 1995, the Company recorded an $8.7
million provision for restructuring and closure of operations in a further
effort to reduce its operating cost structure and improve future operating
results, and to reflect the costs incurred in connection with the
termination of a previously announced transaction to sell a significant
interest in the Company. The provision includes a non-cash charge of $2.0
million and consists of the following components:
o Severance costs associated with the Company s previously announced
workforce reductions of salaried and hourly personnel in the fourth
quarter of Fiscal 1996.
o Unrecoverable assets and closing costs to be incurred in connection
with the Company's decision to close a portion of its retail store
operations.
o Transaction costs resulting from the Company s October 17, 1995
announcement of the termination of its agreement in principle to sell
a significant interest in the Company to Warburg, Pincus Ventures,
L.P. and Richard E. Snyder.
11
NOTE F - Income Taxes
The provision for income taxes for the three and nine-month periods ended
October 28, 1995 include a non-cash charge of $13.9 million, reflecting an
increase in the Company s income tax valuation allowance. Based upon the
Company s results of operations, future realization of existing deductible
net temporary differences is uncertain.
NOTE G - (Loss) Income Per Common Share
(Loss) income per common share was computed as follows:
Three Months Ended Nine Months Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
(In Thousands except for per share data)
Net (loss) income $(37,488) $ 5,383 $(53,837) $(11,567)
Preferred dividend requirements (212) (212) (637) (637)
-------- ------- -------- --------
(Loss) income applicable
to common stock $(37,700) $ 5,171 $(54,474) $(12,204)
======== ======= ======== ========
Weighted average common shares
outstanding 21,043 21,020 21,030 20,988
======== ======= ======== ========
(Loss) income per common share $(1.79) $0.25 $ (2.59) $ (0.58)
======== ======= ======== ========
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues for the quarter ended October 28, 1995 decreased $25.1 million
(19.3%) to $105.2 million as compared to $130.3 million for the quarter
ended October 29, 1994 and decreased $18.5 million (6.1%) to $285.4 million
as compared to $303.9 million for the nine months ended October 29, 1994.
Consumer Products Segment revenues decreased $25.3 million (21.7%) for the
quarter and decreased $24.1 million (9.0%) for the nine months ended
October 28, 1995. The decrease for the three and nine-month periods
represented broad based sales declines across the majority of its core
Consumer Products categories. Solid sales increases in the picture and
activity book categories generated in the first half of Fiscal 1996 were
essentially offset by third quarter declines in those categories.
Children s books and activity products sales as a component of Retail Sales
trailed the comparable period of the prior year as customer traffic in the
Company s primary retail accounts was down resulting in a significantly
reduced sales order rate. The first half decline in the sales of
interactive electronic storybooks continued through the third quarter
reflecting the competitive environment and the maturity of certain older
formats that had historically generated greater sales in the aggregate and
as a percentage of the total category. All product categories experienced
lower sales of licensed products associated with major motion pictures as
film releases in Fiscal 1996 did not generate the level of product sales
experienced in the comparable period of Fiscal 1995. Further, the declines
were exacerbated by the non-quantifiable impact of the personnel
distractions resulting from the contemplated sale of a major interest in
the Company and the resulting change in management. Commercial Products
Segment revenues which are comprised of printing services, increased $.2
million (1.4%) and $5.6 million (15.1%) for the quarter and nine months
ended October 28, 1995. The increase for the quarter reflects the
continued growth in the Company s graphic products and kit businesses,
partially offset by a decline in custom publishing sales. For the nine
months ended October 28, 1995, the Company has experienced significant
growth in all three of its primary Commercial Products segment categories.
Price decreases in the Consumer Products Segment were approximately 3%.
This decline resulted from pricing adjustments of the Company s older
electronic storybook formats to reflect the ongoing competitive pressures
in this category partially offset by minor price increases in other product
categories. Sales of printing services in the Commercial Products Segment
are the result of individual agreements entered into with customers as to
price and services performed. Accordingly, the effects on inflation cannot
be determined on the sales of printing services.
The loss before interest expense and income taxes excluding non-recurring
items for the quarter ended October 28, 1995 was $11.7 million as compared
to income of $5.0 million for the quarter ended October 29, 1994. The
$16.7 million decrease was the result of a $16.3 million decrease in gross
profit, and a $.4 million increase in selling, general and administrative
expenses. The Company recorded an $8.7 million provision for restructuring
and closure of operations in the three and nine-month periods ended October
28, 1995 and a gain on streamlining plan of $20.4 million in the comparable
periods of the prior year. The provision for restructuring and closure of
operations includes a non-cash charge of $2.0 million for unrecoverable
assets. For the nine months ended October 28, 1995, the loss before
interest expense and income taxes excluding non-recurring items was $23.8
million as compared to a loss of $13.7 million for the nine months ended
October 29, 1994. The $10.1 million decrease was the result of a $9.8
million decrease in gross profit and a $.3 million increase in selling,
general and administrative expenses. In addition to the non-recurring
items above, the Company recorded an additional $2.0 million gain on
streamlining plan during the nine months ended October 28, 1995. This
13
additional gain resulted from costs and expenses of implementing the plan
being less than originally anticipated.
Gross profit decreased $16.3 million (40.4%) to $24.0 million for the
quarter ended October 28, 1995 as compared to $40.3 million for the quarter
ended October 29, 1994. Gross profit decreased $9.8 million (12.0%) to
$71.4 million for the nine months ended October 28, 1995 as compared to
$81.2 million for the nine months ended October 29, 1994. As a percentage
of revenues, the gross profit margin decreased to 22.8% and 25.0% for the
quarter and nine months ended October 28, 1995 from 30.9% and 26.7% for the
quarter and nine months ended October 29, 1994. In the Consumer Products
Segment, gross profit decreased $16.3 million (42.2%) to $22.3 million for
the quarter ended October 28, 1995 and decreased $11.7 million (15.1%) to
$65.7 million for the nine months as compared to the prior year. As a
percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 24.5% and 27.1% for the quarter and nine months of Fiscal 1996
as compared to 33.2% and 29.0% for the quarter and nine months of Fiscal
1995. A significant portion of the decrease in gross profit margin in the
third quarter resulted from unfavorable manufacturing variances as planned
production was deferred or reduced in response to a considerable decline in
the Company s sales order rate compared to the comparable period of the
prior year. Further, increased raw material prices for certain grades of
paper, certain price decreases in the Consumer Products segment and the
sell down of inventory related to non-core discontinued product categories
at less than historical margins contributed to the drain on gross profit
margins for the quarter and nine months. In the Commercial Products
Segment, the gross profit margin of printing services was 11.8% and 13.4%
for the quarter and nine months of Fiscal 1996 compared to 12.2% and 10.3%
for the quarter and nine months of Fiscal 1995. The decrease for the
quarter was due to an unfavorable shift in product mix. For the nine
months, the favorable shift in product mix to higher margin products
generated in the first six months of Fiscal 1996 more than offset the
negative impact of the third quarter. Additionally, lower unfavorable
manufacturing variances and effective sourcing of educational kit
components continued to contribute favorably to the increased gross profit
margin for the nine-month period.
Selling, general and administrative expenses for the quarter ended October
28, 1995 increased $.4 million (1.1%) to $35.7 million as compared to $35.3
million in Fiscal 1995 and increased $.3 million (.4%) to $95.2 million as
compared to $94.9 million in Fiscal 1995. This increase is primarily the
result of general increases in other administrative categories partially
offset by lower personnel costs resulting from organizational streamlining
in Fiscal 1995.
Interest expense for the quarter, including $.3 million of costs associated
with the accounts receivable sale program, decreased $1.5 million to $3.2
million as compared to $4.7 million in Fiscal 1995 and for the nine months
decreased $4.1 million to $9.5 million as compared to $13.6 million in
Fiscal 1995. The decrease was due to lower average debt outstanding as the
Company repaid all outstanding notes under its Revolving Credit Agreement
in the first quarter of Fiscal 1996, partially offset by higher interest
rates in the first quarter of Fiscal 1996. Total average debt outstanding
decreased to $153.9 million for the Fiscal 1996 period from $233.1 million
for the Fiscal 1995 period (see Financial Condition, Liquidity and Capital
Resources), while average interest rates increased to 8.5% for the Fiscal
1996 period as compared to 7.7% for the Fiscal 1995 period. The increase
in average interest rates resulted from an increase in short term rates and
the composition of the average debt outstanding.
The Company s income tax provision for the quarter and nine months ended
October 28, 1995 include a non-cash charge of $13.9 million, reflecting an
increase in the income tax valuation allowance as the future realization of
existing deductible net temporary differences is uncertain. Additionally,
the Fiscal 1996 period does not include an income tax benefit from
operations as no tax benefit was provided on
14
operating losses. Profitable operating results in subsequent periods will
benefit from an income tax rate which will be lower than the statutory rate
due to the reinstatement of deferred tax assets for which the valuation
allowance was established. For the quarter and nine months ended October
29, 1994, the income tax provision included income taxes resulting from the
streamlining plan gain and an effective income tax benefit rate from
operations of 12%. The disproportionate provision resulted from the
reversal of deferred income tax assets as a result of the sale of the
Advertising Specialty Division, the streamlining plan gain, alternative
minimum tax and losses for which no benefit was provided.
The loss for the quarter ended October 28, 1995 was $37.5 million or $1.79
per share, including on-going operating losses of $14.9 million or $.72 per
share and non-recurring charges of $22.6 million or $1.07 per share,
compared to income of $5.4 million or $.25 per share for the quarter ended
October 29, 1994, including on-going operating losses of $7.0 million or
$.34 per share and a non-recurring gain of $12.4 million or $.59 per
share. The loss for the nine months ended October 28, 1995 was $53.8
million or $2.59 per share, including on-going operating losses of $33.2
million or $1.61 per share and net non-recurring charges of $20.6 million
or $.98 per share, compared to a loss of $11.6 million or $.58 per share
for the nine months ended October 29, 1994, including on-going operating
losses of $24.0 million or $1.17 per share and a non-recurring gain of
$12.4 million or $.59 per share. The operations for the nine months ended
October 28, 1995 reflect the normal seasonality of the Company's business.
Financial Condition, Liquidity and Capital Resources
Operations for the nine months ended October 28, 1995, excluding the
streamlining plan gain, the provision for restructuring and closure of
operations, non-cash charges for depreciation, amortization and the
provision for losses on accounts receivable utilized cash of $34.9
million. The operations for the nine months ended October 29, 1994,
excluding the streamlining plan gain, non-cash charges for depreciation,
amortization and the provision for losses on accounts receivable utilized
cash of $21.0 million. During the nine months ended October 28, 1995 and
October 29, 1994, other changes in assets and liabilities resulting from
operating
activities, provided cash of $8.2 million and utilized cash of $6.1
million, respectively, resulting in net cash used in operating activities
of $26.7 million and $27.1 million, respectively. Acquisitions of
property, plant and equipment were $12.0 million during the nine months
ended October 28, 1995 as compared to $14.6 million during the nine months
ended October 29, 1994. Capital expenditures for the nine months ended
October 28, 1995 include costs associated with the Company s new order
processing, customer service and inventory management system, the
acquisition of a five unit web press, retail fixtures utilized in its
category management programs and the installation of emission control
equipment in one of its manufacturing facilities. During the second
quarter of Fiscal 1996, the Company commenced a facility expansion of its
paper tableware and party goods operations in Kalamazoo, Michigan, which is
expected to be completed in Fiscal 1997. The construction of the building
addition phase of the expansion, is estimated to cost $5.1 million; of
which $1.1 million has been expended through October 28, 1995.
During the nine months ended October 28, 1995, the Company utilized cash
from financing activities of $32.1 million primarily by repaying $32.0
million of outstanding borrowings under its Revolving Credit Agreement and
the Agreement was terminated. Cash used in financing activities during the
nine months ended October 29, 1994 was primarily from the repayment of
$26.0 million of outstanding borrowings under the Company s Revolving
Credit Agreement.
15
Working capital decreased to $174.7 million from $228.2 million at January
28, 1995. This decrease resulted from the Company s investment in
property, plant and equipment and the funds required for its operations
during the Fiscal 1996 period. While the Company did not experience any
interruption in its business because of the reduced availability of certain
grades of paper in the first half of Fiscal 1996, manufacturing costs were
impacted by the resulting cost increases.
The Company s Board of Directors adopted a proposal, subject to shareholder
approval, to change the mandatory redemption date of the Series A Preferred
Stock from March 31, 1996 to March 31, 1998. The proposal has been
approved by a majority of the outstanding preferred shares and will be put
to a common shareholder vote in the fourth quarter of Fiscal 1996.
During the quarter ended October 28, 1995, Western Publishing Company,
Inc., a wholly-owned subsidiary of the Company, entered into an extendable
one-year Receivables Purchasing Agreement with a financial institution
providing for the sale of certain trade accounts receivable on a revolving
basis, up to a maximum of $62.5 million outstanding at any one time. In
the opinion of management, this Agreement will provide adequate working
capital to satisfy planned operating levels.
16
PART II OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibit 15 - Letter re: unaudited interim financial information.
b. Form 8-K - as of September 29, 1995.
17
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WESTERN PUBLISHING GROUP, INC.
December 12, 1995 /s/ Richard A. Bernstein
----------------------------
Richard A. Bernstein
Chairman
December 12, 1995 /s/ Steven M. Grossman
----------------------------
Steven M. Grossman
Chief Financial Officer
18
EXHIBIT 15
Western Publishing Group, Inc.
New York, New York
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Western Publishing Group, Inc. and subsidiaries for the
periods ended October 28, 1995 and October 29, 1994, as indicated in our
report dated December 11, 1995; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended October 28, 1995, is
incorporated by reference in the following Registration Statements:
Form S-8:
File No. 33-18430
File No. 33-18692
File No. 33-18693
File No. 33-28019
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
Deloitte & Touche LLP
Milwaukee, Wisconsin
December 11, 1995
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Western
Publishing Group, Inc. and Subsidiaries Condensed Consolidated Financial
Statements as of and for the nine months ended October 28, 1995. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> OCT-28-1995
<CASH> 22,190
<SECURITIES> 0
<RECEIVABLES> 96,190
<ALLOWANCES> 7,816
<INVENTORY> 98,598
<CURRENT-ASSETS> 237,674
<PP&E> 137,004
<DEPRECIATION> 57,804
<TOTAL-ASSETS> 338,214
<CURRENT-LIABILITIES> 61,141
<BONDS> 149,840
9,985
0
<COMMON> 213
<OTHER-SE> 86,939
<TOTAL-LIABILITY-AND-EQUITY> 338,214
<SALES> 281,604
<TOTAL-REVENUES> 285,370
<CGS> 213,952
<TOTAL-COSTS> 95,200
<OTHER-EXPENSES> 6,701
<LOSS-PROVISION> 1,206
<INTEREST-EXPENSE> 9,501
<INCOME-PRETAX> (39,984)
<INCOME-TAX> 13,853
<INCOME-CONTINUING> (33,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,837)
<EPS-PRIMARY> (2.59)
<EPS-DILUTED> 0
</TABLE>
