<PAGE>
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 May 4, 1996
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
GOLDEN BOOKS FAMILY ENTERTAINMENT, 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.)
850 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 783-8500
Western Publishing Group, Inc., 444 Madison Avenue, New York, New York 10022
(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: 21,862,137 shares outstanding as of
June 5, 1996.
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND
SUBSIDIARIES
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TABLE OF CONTENTS
Page
Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report 3
Condensed Consolidated Balance Sheets--
May 4, 1996 (Unaudited) and
February 3, 1996 4
Condensed Consolidated Statements of Operations-- Three
months ended May 4, 1996 and April 29, 1995 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows-- Three
months ended May 4, 1996 and April 29, 1995 (Unaudited) 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 15
Item 6. Exhibits and reports on Form 8-K 16
SIGNATURES 17
EXHIBITS
Exhibit 15 - Letter re: unaudited interim financial information 18
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INDEPENDENT ACCOUNTANTS' REPORT
Golden Books Family Entertainment, Inc.
New York, New York
We have reviewed the accompanying condensed consolidated balance sheet
of Golden Books Family Entertainment, Inc. (formerly Western Publishing
Group, Inc.) and subsidiaries as of May 4, 1996, and the related condensed
consolidated statements of operations and cash flows for the three-month
periods ended May 4, 1996 and April 29, 1995. 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 Golden Books Family
Entertainment, Inc. (formerly Western Publishing Group, Inc.) and subsidiaries
as of February 3, 1996, 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 2, 1996, 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 February 3, 1996 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
June 17, 1996
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0135273.01
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
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May 4, 1996 February 3, 1996
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(Unaudited)
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ASSETS
Current Assets
Cash and Cash Equivalents $ 33,025 $ 45,223
Accounts Receivable 56,272 61,033
Inventories 78,562 84,354
Prepublication Costs 4,469 4,716
Royalty Advances 3,039 3,240
Refundable Income Taxes 2,492 2,492
Net Assets Held For Sale 12,850 13,302
Other Current Assets 8,393 8,663
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TOTAL CURRENT ASSETS 199,102 223,023
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Other Assets 13,723 14,429
---------- ----------
Property, Plant and Equipment 136,085 134,016
Less Accumulated Depreciation and Amortization 61,168 58,566
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT 74,917 75,450
---------- ----------
Identified Intangibles and Cost in Excess of Net Assets Acquired
(Goodwill), less accumulated amortization of $21,710 and $21,205,
respectively 8,558 9,063
---------- ----------
$ 296,300 $ 321,965
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
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May 4, 1996 February 3, 1996
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Accounts Payable $ 11,310 $ 19,000
Accrued Compensation and Fringe Benefits 4,201 8,073
Other Current Liabilities 25,051 30,641
---------- ----------
TOTAL CURRENT LIABILITIES 40,562 57,714
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Noncurrent Liabilities:
Long-Term Debt 149,850 149,845
Accumulated Postretirement Benefit Obligation 27,917 27,572
Other 2,546 2,481
---------- ----------
TOTAL NONCURRENT LIABILITIES 180,313 179,898
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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
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COMMON STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 40,000,000 shares authorized,
21,886,439 and 21,875,539 shares issued 219 219
Additional Paid-in Capital 87,172 87,044
Note Receivable From Sale of Common Stock (4,796) (4,796)
Retained Earnings (Deficit) (12,584) (3,608)
Cumulative Translation Adjustments (1,749) (1,669)
---------- ----------
68,262 77,190
Less Cost of Common Stock in Treasury - 208,800 Shares 2,822 2,822
---------- ----------
TOTAL COMMON STOCKHOLDERS' EQUITY 65,440 74,368
---------- ----------
$ 296,300 $ 321,965
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
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Three Months Ended
------------------------------------
May 4, 1996 April 29, 1995
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(Unaudited)
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REVENUES: $ 68,888 $ 85,945
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Costs and Expenses:
Cost of Sales 51,919 65,598
Selling, General and Administrative 22,725 30,100
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TOTAL COSTS AND EXPENSES 74,644 95,698
---------- ----------
Loss Before Interest Expense and (Benefit) Provision for Income Taxes:
(5,756) (9,753)
Interest Expense 3,060 3,542
---------- ----------
Loss Before (Benefit) Provision for Income Taxes (8,816) (13,295)
(Benefit) Provision for Income Taxes (52) 13
---------- ----------
Net Loss $ (8,764) $ (13,308)
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Loss per Common Share $ (0.41) $ (0.64)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,667 21,023
========== ==========
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Three Months Ended
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May 4, 1996 April 29, 1995
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(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,764) $ (13,308)
Adjustments to Reconcile Net Loss to Net Cash Provided By (used
in) Operating Activities
Depreciation and Amortization 4,134 4,152
Provision for Losses on Accounts Receivable 284 182
Loss (Gain) on Disposition of Plant and Equipment 77 (361)
Other 374 264
Changes in Assets and Liabilities
Accounts Receivable 4,477 4,311
Inventories 5,792 6,100
Accounts Payable (7,690) (1,840)
Accrued Compensation and Fringe Benefits (3,872) (3,771)
Other Assets and Liabilities (5,326) (9,024)
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NET CASH USED IN
OPERATING ACTIVITIES (10,514) (13,295)
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Cash Flows From Investing Activities:
Acquisitions of Plant and Equipment (2,287) (2,311)
Proceeds from Streamlining Plan 452 865
Proceeds from Disposition of Plant and Equipment 23 517
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NET CASH USED IN INVESTING ACTIVITIES (1,812) (929)
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Three Months Ended
-----------------------------------
May 4, 1996 April 29, 1995
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(Unaudited)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments Under Credit Agreement $ $ (32,000)
Proceeds From Sale of Common Stock (Exercise of Options) 128
Dividends Paid on Preferred Stock (212)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
128 (32,212)
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Effect of Exchange Rate Changes on Cash 8
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Net Decrease in Cash and Cash Equivalents (12,198) (46,428)
Cash and Cash Equivalents, Beginning of Period 45,223 85,406
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Cash and Cash Equivalents, End of Period $ 33,025 $ 38,978
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Period For
Interest $ 5,817 $ 6,091
Income Taxes, Net of Refunds Received (11) 151
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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GOLDEN BOOKS FAMILY ENTERTAINMENT, 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 May 4, 1996 and the results of operations
and cash flows for the three month periods ended May 4, 1996 and April 29,
1995. 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 Golden Books Family Entertainment, Inc. (formerly
Western Publishing Group, Inc.) (the "Company") contained in the Company's
Form 10-K for the year ended February 3, 1996 ("Fiscal 1996").
NOTE B - Inventories
Inventories consisted of the following:
May 4, February 3,
1996 1996
(In Thousands)
Raw materials $ 10,086 $ 10,877
Work in process 12,731 13,014
Finished goods 55,745 60,463
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$ 78,562 $ 84,354
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NOTE C - Net Assets Held for Sale
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. As of May 4,
1996, the remaining net assets held for sale primarily relate to the Company's
Fayetteville facility, which was closed in conjunction with the sale of its
game and puzzle business.
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NOTE D - Stockholders' Equity
On May 8, 1996, pursuant to the sale of a significant equity interest in the
Company to Golden Press Holding, L.L.C. and the requisite vote of the
stockholders of the Company (see Note F), an amendment to increase the
authorized number of shares of Common Stock from 40,000,000 shares to
60,000,000 shares was approved and an amendment to increase the number of
shares available under the 1995 Stock Option Plan from 750,000 shares to
2,250,000 shares was approved.
NOTE E - Loss Per Common Share
Loss per common share was computed as follows:
Three Months Ended
-----------------------
May 4, April 29,
1996 1995
(In Thousands
except for per share data)
Net loss $ (8,764) $ (13,308)
Preferred dividend requirements (212) (212)
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Loss applicable to common stock $ (8,976) $ (13,520)
============ =============
Weighted average common shares outstanding 21,667 21,023
============ =============
Loss per common share $ (0.41) $ (0.64)
============ =============
NOTE F - Change in Control of Registrant
On May 8, 1996, the Company completed the sale of a significant equity
interest to Golden Press Holding, L.L.C., a Delaware limited liability company
owned by Richard E. Snyder, Barry Diller and Warburg, Pincus Ventures, L.P.
("GP Holding"). In the transaction, which was approved by the requisite vote
of the stockholders of the Company at a special meeting held on the same date
(the "Stockholder Meeting"), and pursuant to the Securities Purchase
Agreement, dated as of January 31, 1996, between the Company and GP Holding,
the Company issued to GP Holding, for an aggregate purchase price of
$65,000,000, (i) 13,000 shares of the Company's Series B Convertible Preferred
Stock, no par value (the "Series B Preferred Stock"), and (ii) a Warrant to
purchase 3,250,000 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), at an exercise price of $10.00 per share.
The Series B Preferred Stock entitles GP Holding, for so long as it owns a
significant portion of the Series B Preferred Stock, to elect one-third of the
directors of the Company (the "Series B Directors"). Additionally, the Series
B Preferred Stock, which is initially convertible into shares of Common Stock
representing approximately 23% of the outstanding shares of Common Stock, will
vote on an as-if-
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converted basis together with the Common Stock as a single class on all
matters submitted to a vote of the stockholders of the Company, including the
election of directors other than the Series B Directors. The Series B
Preferred Stock has a dividend rate of 12% per annum, is convertible at $10
per share, and does not have a mandatory redemption date. The preferred stock
dividend is payable quarterly in 195,000 shares of Common Stock for the first
four years, subject to certain adjustments based on the market price of the
Common Stock at that time. Thereafter, preferred stock dividends will be paid
in cash. In addition, the Company's Series A Convertible Preferred Stock was
redeemed at its face amount plus accrued dividends.
On January 31, 1996, the Company entered into an interim employment agreement
(the "Interim Employment Agreement") with Richard E. Snyder, whereby Mr.
Snyder became President of the Company. Pursuant to the Interim Employment
Agreement, the Company issued 599,465 shares of Common Stock to Mr. Snyder at
a price of $8 per share in exchange for a non-recourse note in the amount of
the purchase price, secured by a pledge of the shares. Concurrent with the
execution of the Agreement, the Interim Employment Agreement was superseded by
a five year employment agreement . Under the terms of the new agreement, Mr.
Snyder will receive annual compensation of $500,000 and an annual bonus
opportunity of up to $1 million. Additionally, on May 8, 1996, Mr. Snyder
received options to acquire 1,113,293 shares of the Company's Common Stock at
fair value, a one-time special bonus based on the market price of the
Company's Common Stock, supplemental retirement benefits, post-retirement
medical benefits and certain other benefits. A substantial portion of the
costs associated with Mr. Snyder's agreement will be charged to operations in
the second quarter of Fiscal 1997.
Prior to the consummation of the Agreement, Mr. Snyder was not directly
involved in the Company's business or financial decisions. Consequently, Mr.
Snyder is in the process of developing his plans regarding future operations
including the evaluation of the performance of Penn Corporation. Such plans
will be finalized during Fiscal 1997 and may involve a restructuring of
operations which is likely to result in substantial charges to operations or
changes in the classification of the Company's assets and liabilities.
Also, the Company effected a reorganization of certain of its subsidiaries
(the "Reorganization"). First, the Company conveyed to Golden Books, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("GB"), (x)
all of the issued and outstanding shares of capital stock of Penn Corporation,
a Delaware corporation and wholly-owned subsidiary of the Company, and (y) all
of the issued and outstanding shares of capital stock of Western Publishing
Company, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company ("WPC"). Immediately thereafter, the Company caused GB to merge with
and into WPC. In connection with the Reorganization, the Company, WPC and GB
entered into a First Supplemental Indenture, dated as of May 8, 1996, with
Marine Midland Bank, a New York banking and trust company, as Successor
Trustee pursuant to which WPC assumed the obligations of the Company with
respect to the 7.65% Senior Notes due 2002 originally issued by the Company.
In connection with the transactions described above, and as approved by
the requisite vote of the Company's stockholders at the Stockholder
Meeting, the name of the Company was changed from Western Publishing Group,
Inc. to Golden Books Family Entertainment, Inc. The Company's listing
symbol was changed from "WPGI" to "GBFE". In addition, the name of Western
Publishing Company, Inc. was changed to Golden Books Publishing Company, Inc.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On May 8, 1996, the Company completed the sale of a significant equity
interest to Golden Press Holding, L.L.C., a Delaware limited liability company
owned by Richard E. Snyder, Barry Diller and Warburg, Pincus Ventures, L.P.
("GP Holding"). Accordingly, the operating results for the quarter ended May
4, 1996 and the financial condition at such date reflect the results of the
prior management group of the Company.
Revenues for the quarter ended May 4, 1996 decreased $17.0 million (19.9%) to
$68.9 million as compared to $85.9 million for the quarter ended April 29,
1995. Consumer Products Segment revenues decreased $16.6 million (23.3%) for
the quarter ended May 4, 1996. The decrease resulted from (i) the continuing
decline in sales of the Company's interactive electronic storybooks reflecting
competitive factors, limited new product introductions and price reductions
implemented on certain of the Company's mature formats, (ii) the
discontinuation of the sourcing and sale of third party ("guest") publisher
product for Storyland locations at Wal-Mart, as the previously announced
decision to return the operation of the program to Wal-Mart management was
implemented at the beginning of the fiscal year, (iii) the decline in sales of
the Company's international operations as product utilizing licenses
associated with major motion pictures released in Fiscal 1996 and certain new
character licenses did not have the consumer acceptance or longevity of prior
years' products; and (iv) the continuing sales decline at the Company's paper
tableware and party goods division reflecting a combination of the declining
popularity of products utilizing licensed characters released in prior years,
the success of new product introductions featuring competitors' licensed
characters and the impending loss of a significant license at the end of 1996.
Commercial Product Segment revenues which are comprised of printing services,
decreased $.4 million (3.4%) for the quarter ended May 4, 1996. The decrease
for the quarter was due to the decline in the Company's educational kit
business, which more than offset increases in the sales of graphic products
and custom publishing services. However, the decline in the educational kit
business was primarily due to the timing of scheduled projects.
Price increases in the Consumer Products Segment were approximately 12.5%.
Sales of printing services 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 the (benefit) provision for income taxes
for the quarter ended May 4, 1996 was $5.8 million as compared to a loss of
$9.8 million for the quarter ended April 29, 1995. The $4.0 million
improvement was the result of a $3.4 million decrease in gross profit offset
by a $7.4 million decrease in selling, general and administrative expenses.
Gross profit decreased $3.4 million (16.6%) to $16.9 million for the quarter
ended May 4, 1996 as compared to $20.3 million for the quarter ended April 29,
1995. As a percentage of revenues, the gross profit margin increased to 24.6%
for the quarter ended May 4, 1996 from 23.7% for the quarter ended April 29,
1995. In the Consumer Products Segment, gross profit decreased $2.9 million
(16.0%) to $15.2 million for the quarter ended May 4, 1996 as compared to the
quarter ended April 29, 1995. As a percentage of revenues, the Consumer
Products Segment gross profit margin increased to 27.9% for the Fiscal 1997
period as compared to 25.5% for the Fiscal 1996 period. The increase in gross
profit margin resulted from price increases across several of the Company's
core Consumer Products categories, lower product returns and a favorable shift
in product mix. These gross margin improvements were partially offset by the
reduction in the carrying value of certain non-core discontinued product
categories.
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In the Commercial Products Segment, the gross profit margin of printing
services decreased to 12.2% for the quarter ended May 4, 1996 from 15.1% for
the quarter ended April 29, 1995. The decrease was primarily due to
unfavorable manufacturing variances.
Selling, general and administrative expenses for the quarter ended May 4, 1996
decreased $7.4 million (24.5%) to $22.7 million as compared to $30.1 million
for the quarter ended April 29, 1995. This decrease is primarily the result of
a significant reduction in selling expenses resulting from the sales and
merchandising force reorganization which was completed in January, 1996. In
addition, sales promotion costs, including the costs of corrugate displays,
sell sheets and co-op advertising declined as operating cost efficiencies were
realized.
Interest expense for the quarter decreased $.5 million to $3.0 million as
compared to $3.5 million in Fiscal 1996. The decrease was due to lower average
debt outstanding as the Company repaid all outstanding notes under its
Revolving Credit Agreement during the first quarter of Fiscal 1996 and lower
interest rates in the first quarter of Fiscal 1997. Total average outstanding
debt decreased to $149.8 million for the Fiscal 1997 period from $164.9
million for the Fiscal 1996 period (see Financial Condition, Liquidity and
Capital Resources), while average interest rates decreased to 8.0% for the
Fiscal 1997 period as compared to 8.5% for the Fiscal 1996 period. The
decrease in the average interest rates resulted primarily from the composition
of the average debt outstanding.
The Company does not anticipate any significant provision or benefit for
income taxes in Fiscal 1997. As such, operations for the first quarter do not
include an income tax benefit from domestic operations as no tax benefit was
provided on 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 a
valuation allowance was established. For the quarter ended April 29, 1995, an
income tax benefit from operations was not provided as no income tax provision
or benefit was anticipated.
The loss for the quarter ended May 4, 1996 was $8.8 million or $0.41 per
share, compared to a loss of $13.3 million or $0.64 per share for the quarter
ended April 29, 1995. The operating results reflect the normal seasonality of
the Company's business, which historically incurs an operating loss in the
first quarter. As the Consumer Products Segment ships product to its retailing
customers in anticipation of the holiday selling season, the Company
experiences a greater portion of its total revenues in the second half of the
fiscal year.
During Fiscal 1996, the Financial Accounting Standards Board ("FASB") issued
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". The adoption of this statement in the
first quarter of Fiscal 1997 did not have a material effect on the Company's
financial statements.
Financial Condition, Liquidity and Capital Resources
Operations for the quarter ended May 4, 1996, excluding non-cash charges for
depreciation, amortization and the provision for losses on accounts receivable
utilized cash of $4.3 million as compared to $9.0 million for the quarter
ended April 29, 1995. For the quarters ended May 4, 1996 and April 29, 1995,
other changes in assets and liabilities resulting from operating activities,
utilized cash of $6.2 million and $4.3 million, respectively, resulting in net
cash used in operating activities of $10.5 million and $13.3 million,
respectively. Acquisitions of property, plant and equipment were $2.3 million
during the quarters ended May 4, 1996 and April 29, 1995. Capital expenditures
include costs associated with the completion of the acquisition of a five unit
web press and conveyoring equipment for the Company's distribution centers. In
addition, during the second quarter of Fiscal 1996 the Company commenced a
facility
<PAGE>
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 $4.4 million has been expended through May 4, 1996.
Working capital decreased to $158.5 million from $165.3 million at February 3,
1996. This decrease resulted from the Company's investment in property, plant
and equipment and the funds required for its operations during the first
quarter of Fiscal 1997.
Equity Investment
On May 8, 1996, the Company (formerly Western Publishing Group, Inc.)
completed the sale of a significant equity interest to Golden Press Holding,
L.L.C., a Delaware limited liability company owned by Richard E. Snyder, Barry
Diller and Warburg, Pincus Ventures, L.P. ("GP Holding") (see Note F to the
Notes to the Condensed Consolidated Financial Statements).
Pursuant to the sale agreement (the "Agreement"), GP Holding invested $65
million of cash in the Company in exchange for $65 million newly-issued Series
B Convertible Preferred Stock and a warrant to purchase 3,250,000 shares of
Common Stock (the "Warrant"). The Series B Convertible Preferred Stock has a
dividend rate of 12% per annum, is convertible at $10 per share, and does not
have a mandatory redemption date. The preferred stock dividend is payable
quarterly in 195,000 shares of Common Stock for the first four years, subject
to certain adjustments based on the market price of the Common Stock at that
time. Thereafter, preferred stock dividends will be paid in cash. The
Warrant, which is not exercisable for the first two years, has a seven year
term and an exercise price of $10 per share. In addition, the Company's Series
A Convertible Preferred Stock was redeemed at its face amount plus accrued
dividends.
On January 31, 1996, the Company entered into an interim employment agreement
(the "Interim Employment Agreement") with Richard E. Snyder, whereby Mr.
Snyder became President of the Company. Pursuant to the Interim Employment
Agreement, the Company issued 599,465 shares of Common Stock to Mr. Snyder at
a price of $8 per share in exchange for a non-recourse note in the amount of
the purchase price, secured by a pledge of the shares. Concurrent with the
execution of the Agreement, the Interim Employment Agreement was superseded by
a five year employment agreement . Under the terms of the new agreement, Mr.
Snyder will receive annual compensation of $500,000 and an annual bonus
opportunity of up to $1 million. Additionally, on May 8, 1996, Mr. Snyder
received options to acquire 1,113,293 shares of the Company's Common Stock at
fair value, a one-time special bonus based on the market price of the
Company's Common Stock, supplemental retirement benefits, post-retirement
medical benefits and certain other benefits. A substantial portion of the
costs associated with Mr. Snyder's agreement will be charged to operations in
the second quarter of Fiscal 1997.
Prior to the consummation of the Agreement, Mr. Snyder was not directly
involved in the Company's business or financial decisions. Consequently, Mr.
Snyder is in the process of developing his plans regarding future operations
including the evaluation of the performance of Penn Corporation. Such plans
will be finalized during Fiscal 1997 and may involve a restructuring of
operations which is likely to result in substantial charges to operations or
changes in the classification of the Company's assets and liabilities.
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. A Special Meeting of Stockholders of the Company was held on May
8, 1996.
b. The following persons were elected as directors of the Company:
SHARES VOTING
INDIVIDUAL FOR WITHHELD ABSTAIN
- ---------- --- -------- -------
Shahara Ahmad-Llewellyn 16,942,448 394,697 --
Barry Diller 16,944,342 392,803 --
Linda L. Janklow 16,941,409 395,736 --
Marshall Rose 16,943,937 393,208 --
Richard E. Snyder 16,947,803 389,342 --
H. Brian Thompson 16,947,937 389,208 --
c. Other matters voted upon:
(1) By a vote of 11,233,988 to 292,147 with 3,675,251
abstentions, the Securities Purchase Agreement and the
performance by the Company of all transactions and acts on
the part of the Company contemplated thereby, including,
without limitation, the issuance by the Company and sale to
Golden Press Holding, L.L.C., for a cash purchase price of
$65 million, of (i) 13,000 shares of the Company's Series B
Convertible Preferred Stock, without par value (the "Series
B Convertible Preferred Stock"), together with the shares of
Common Stock, par value $.01 per share, of the Company (the
"Common Stock") issuable upon conversion of the Series B
Convertible Preferred Stock and as dividends on the Series B
Convertible Preferred Stock, and (ii) a warrant (the
"Warrant") to purchase 3,250,000 shares of Common Stock,
together with the shares of Common Stock issuable upon the
exercise of the Warrant was approved.
(2) By a vote of 12,994,204 to 652,349 with 3,690,592
abstentions, the adoption of several amendments to the
Company's 1995 Stock Option Plan was approved.
(3) By a vote of 13,455,030 to 175,488 with 3,706,627
abstentions, the adoption of the Executive Officer Bonus
Plan was approved.
(4) By a vote of 17,297,828 to 24,398 with 14,919 abstentions,
an amendment to Article First of the Company's Amended and
Restated Certificate of Incorporation (the "Restated
Certificate") to change the name of the Company to "Golden
Books Family Entertainment, Inc." was approved.
(5) By a vote of 13,002,471 to 629,118 with 3,705,556
abstentions, an amendment to Article Fourth of the Restated
Certificate to increase the authorized number of shares of
Common Stock from 40,000,000 shares to 60,000,000 shares was
approved.
(6) By a vote of 8,243,970 to 3,238,232 with 3,719,184
abstentions, an amendment to Article Fourth of the Restated
Certificate to increase the authorized number of shares of
the Company's preferred stock from 100,000 shares to 200,000
shares was not approved.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibit 15 - Letter re: unaudited interim financial information.
b. Form 8-K - as of May 8, 1996.
<PAGE>
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.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
June 18, 1996 /s/ Richard E. Snyder
---------------------
Richard E. Snyder
Chairman of the Board, President and
Chief Executive Officer
June 18, 1996 /s/ David R. Haas
-----------------
David R. Haas
Treasurer
<PAGE>
EXHIBIT 15
June 17, 1996
Golden Books Family Entertainment, 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 Golden Books Family Entertainment, Inc. (formerly Western
Publishing Group, Inc.) and subsidiaries for the periods ended May 4, 1996 and
April 29, 1995, as indicated in our report dated June 17, 1996; 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 May 4, 1996, 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
June 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000790706
<NAME> GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1996
<PERIOD-END> MAY-04-1996
<CASH> 33,025
<SECURITIES> 0
<RECEIVABLES> 62,905
<ALLOWANCES> 6,633
<INVENTORY> 78,562
<CURRENT-ASSETS> 199,102
<PP&E> 136,185
<DEPRECIATION> 61,168
<TOTAL-ASSETS> 296,300
<CURRENT-LIABILITIES> 40,563
<BONDS> 149,850
<COMMON> 219
9,985
0
<OTHER-SE> 68,042
<TOTAL-LIABILITY-AND-EQUITY> 296,300
<SALES> 68,100
<TOTAL-REVENUES> 68,888
<CGS> 51,919
<TOTAL-COSTS> 74,644
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 284
<INTEREST-EXPENSE> 3,060
<INCOME-PRETAX> (8,816)
<INCOME-TAX> (52)
<INCOME-CONTINUING> (8,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,764)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0
<FN>
For the attached financials, the value EPS-DILUTED is not applicable.
</TABLE>
