-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BI4iSZ71zALnCryzue5hLnZ217ai+d8Oz01HKGD8iJBgnsz90qC5rB1rK3Oq2EVF lEIk1xPktg1cYnBnxq8Jfg== 0000889812-95-000750.txt : 19951213 0000889812-95-000750.hdr.sgml : 19951213 ACCESSION NUMBER: 0000889812-95-000750 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN PUBLISHING GROUP INC CENTRAL INDEX KEY: 0000790706 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 061104930 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14399 FILM NUMBER: 95600969 BUSINESS ADDRESS: STREET 1: 444 MADISON AVE STREET 2: STE 601 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126884500 MAIL ADDRESS: STREET 1: 444 MADISON AVE STREET 2: STE 601 CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 QUARTERLY REPORT 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 EX-15 2 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 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. 1,000 9-MOS FEB-3-1996 OCT-28-1995 22,190 0 96,190 7,816 98,598 237,674 137,004 57,804 338,214 61,141 149,840 9,985 0 213 86,939 338,214 281,604 285,370 213,952 95,200 6,701 1,206 9,501 (39,984) 13,853 (33,250) 0 0 0 (53,837) (2.59) 0
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