888 Seventh Avenue
New York, New York 10106
Telephone: (212) 547-6700
Fax: (212) 547-6788
Incorporated: 1910 as Western Printing & Lithographing Co.
Sales: $243.6 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: GBFE
NAIC: 51113 Book Publishers; 323117 Book Printing; 51211 Motion Picture & Video Production
The company owns one of the world's largest libraries of family entertainment copyrights and creates, publishes, and markets entertainment and educational products for children and their families through all media. Its extensive library includes Pat the Bunny, The Lone Ranger, Lassie, Underdog, Little Lulu, The Poky Little Puppy, Turok, popular holiday animated programs, such as Rudolph the Red-Nosed Reindeer and Frosty the Snowman, and Shari Lewis' Charlie Horse, Lamb Chop and Friends.
Since 1996 when a new investor group took control of the company, Golden Books Family Entertainment, Inc., a leading publisher of children's books in the North American market, has been in a period of transition and restructuring that resulted in Chapter 11 bankruptcy filings in February 1999. Perhaps best known for its Little Golden Books line of children's books, which it began publishing in 1942, the company, under CEO Dick Snyder, was striving in the late 1990s to reach a broader audience as a producer of children's and family-oriented entertainment in all media. In the process, the company was restructured into three main business segments: Consumer Products, which included the Children's and Adult Publishing divisions; Entertainment, which included the Golden Books Entertainment Group (GBEG); and Commercial Products, which included the Commercial Printing division. In 1999, despite low sales and cash reserves, mounting losses, and a recent slump in stock value from $12 to 25 cents per share, a plan for emerging from its heavy debt load kept Golden Books afloat into the 21st century.
Early 1900s Origins
Golden Books can trace its beginnings to a printing operation begun in Racine, Wisconsin, in the early 1900s. In 1907 Edward Henry Wadewitz, with help from his brother, Al, purchased the West Side Printing Co. in Racine, Wisconsin. The following year Roy A. Spencer, a journeyman printer, joined West Side and together with the Wadewitzes developed a small firm, which was incorporated as Western Printing & Lithographing Co. in 1910.
In 1915 Western began printing books for the Hamming-Whitman Publishing Co., and when Hamming-Whitman defaulted on its bills, Western decided to liquidate the book stock itself. The next year Western acquired Hamming-Whitman's assets and formed a new subsidiary, Whitman Publishing Co. Soon the Whitman children's books were being sold on a grander scale at Woolworth Co. and other retail chains.
During the 1920s Western grew through a series of acquisitions. In 1923 it acquired the Broecker Box Co., which made boxed games and jigsaw puzzles, and purchased its first large press for high-volume book printing. Other acquisitions during this time included the Sheffer Playing Card Co. (1925) and the Stationers Engraving Co. (1929) of Chicago.
During the 1930s Western sought to establish a presence nearer the hub of the publishing industry, purchasing plant facilities in Poughkeepsie, New York, and opening two offices in New York City, one for Whitman Publishing Co. and the other for its Artists and Writers Guild Inc. (AWG) subsidiary, which was created to oversee new product development. AWG's presence in New York soon led to collaborative efforts with publishing giant Simon & Schuster, creating a relationship that would prove beneficial to Western. Also during this time, Western signed a contract with Walt Disney giving it exclusive book rights to all of Disney's licensed characters. Soon AWG and Simon & Schuster entered the juvenile book market together with the Walt Disney title Bambi.
The First Little Golden Books in 1942
While working on Bambi, executives at AWG and Simon & Schuster decided that a whole line of affordable books for American children might prove popular, and in 1942 the first Little Golden Books for children were published through a joint venture between Simon & Schuster and Western's AWG. Specifically, Simon & Schuster was the publisher of Little Golden Books, AWG produced them, and Western printed them. The Little Golden Books represented a new direction in publishing for children in that they were inexpensive, easily available, and featured sturdy cardboard covers. According to former Western chairman Richard Bernstein, "They were the first books designed to be owned and cherished by children rather than borrowed from their parents.'
The first 12 Little Golden Books titles to go on sale in October 1942 were priced at 25 cents apiece and included what would become enduring classics: The Poky Little Puppy, Prayers for Children, and Three Little Kittens. All 12 titles proved extremely popular, with an estimated 1.5 million copies printed within five months. By the mid-1940s, most of the 12 titles had gone into their seventh printings. The number of titles being offered by Little Golden Books increased rapidly; in January 1951, the 101st title, Doctor Dan, the Bandage Man, was released. In 1958 Western joined with Pocket Books Inc. to purchase Simon & Schuster's interest in Golden Books, and the new subsidiary was dubbed Golden Press, Inc.
Western established a reputation as an innovative publisher and printer. The company put out the first touch-and-feel book for children, Pat the Bunny, as well as the first scratch-and-sniff books and books that glowed in the dark.
Public Offerings and Acquisitions: 1960s-90s
In 1960 Western Publishing and Lithographing went public and shortened its name to Western Publishing. In 1961 it acquired Capitol Publishing, which made games, play kits, and other products. Western would enjoy great success in the late 1980s with its popular game Pictionary. By that time, however, Western had become a subsidiary of the toy manufacturer Mattel, Inc., which took over Western in 1978 during an acquisition spree. For the next five years, Western would not turn a profit, as parent Mattel stumbled to keep its holdings together.
In 1984 Richard Bernstein and some senior Western executives acquired a controlling interest in Western. Bernstein, a major real estate manager in Manhattan during the 1970s and a candidate for New York City comptroller in 1981, was attracted to Western, which had very little debt and about $29 million in cash reserves.
In 1986 Bernstein took the Western Publishing Group, Inc. public again, raising $80 million from the stock offering. At that time, the company had two subsidiaries: Western Publishing Co. and Penn Corp. Penn manufactured and marketed disposable paper tableware and party goods, stationery and advertising specialties, and promotional business products. These products typically featured characters from Western's books.
The following year Western came out with a blockbuster boardgame called Pictionary, a variation of charades in which players took turns depicting names and phrases with pencil and paper for their teammates to guess. Book production continued apace as well, and new management believed they had turned the company around, as earnings hit a record $30 million on revenues of $550 million in 1989. By fiscal 1991 Western's revenues had increased to $554.5 million.
In 1992 Western celebrated the 50th anniversary of Little Golden Books. It was estimated that Western had sold 1.5 billion books in those 50 years. Having concentrated on mass market retail outlets for its books, in 1992 the company committed itself to improving relations with independent bookstores. However, retailers such as Kmart and Wal-Mart would remain the company's chief distributors. Also during this time Western adopted a policy of never letting its books go out of stock. The printing plants in Racine began creating excess inventories. As a result, the companies profits began to decline, as inventories eventually had to be sold for as little as five cents on the retail dollar.
As a result of this move, as well as from alleged financial mismanagement in general, Western lost more than $140 million from 1993 through 1996. In fiscal 1994, Western lost $55 million on sales of $617 million. Toward the end of 1993 Moody's Investors Service downgraded Western's bonds.
In response, Western began selling off parts of its business. After launching 20 new adult and juvenile games in 1993, the company completed the sale of its games and puzzles group to Hasbro Inc. in 1994. Also sold were its school book club business to Troll Associates and its direct marketing continuity clubs to Reader's Digest. The company's advertising specialty divisions were also sold.
New Ownership in the Mid-1990s
In 1996 an investment group led by Richard Snyder and media mogul Barry Diller, with the backing of venture capital firm Warburg, Pincus Ventures, paid $65 million for a controlling interest in Western and changed its name to Golden Books Family Entertainment, Inc. Snyder, former chairman and CEO of Simon & Schuster, became chairman and CEO of the newly named Golden Books. The deal was approved by Western's shareholders on May 8, 1996. While Snyder's long-term strategy was to "build a focused family entertainment company that goes well beyond books,' his immediate priority was to revitalize the company's core business, mass market children's books. At the time of the sale, Western was the largest children's book publisher with some 3,300 employees.
Acting quickly, Snyder fired most of the company's management team and began assembling a new one. The company adopted a new business strategy, namely, to build a leading family entertainment company that would publish, produce, market, and license children's and family-related entertainment products. The company planned to build on the highly recognized Golden Books brand to develop family-oriented content through multiple media.
One of Snyder's first moves was to bring in Bob Asahina, a former senior editor at Simon & Schuster, to head a new adult division that would publish nonfiction titles for the adult market. Snyder also lured Willa Perlman from Simon & Schuster to head Golden's children's book division. Her first assignment was to renew the company's Star Wars licenses with George Lucas, who had become disillusioned with Western under Bernstein. She also renewed the company's five-year licensing deal with Jim Henson Productions for the Muppet characters.
In August 1996 Golden Books acquired an extensive library of character-based properties from Broadway Video Entertainment, L.P. Golden reportedly paid $81 million in cash and $10 million in stock for the company's family video library. Broadway Video was founded by Lorne Michaels and held the copyright and licenses to a variety of characters, films, and television programs. With the acquisition, Golden Books formed the Golden Books Entertainment Group (GBEG), which would be headed by Eric Ellenbogen, president of Broadway Video Entertainment. GBEG would generate revenues by licensing properties from this library to third parties. Among the library titles were Rudolph the Red-Nosed Reindeer, Frosty the Snowman, Santa Claus Is Coming to Town, Lassie, The Lone Ranger, and selected episodes of Felix the Cat and Abbott and Costello, among other titles.
Also announced was a strategic alliance with greeting card giant Hallmark, in which Hallmark would acquire $25 million of Golden's common stock in September 1996 and invest another $25 million by the end of 1996. The two companies intended to work together to develop personal expression, family entertainment, and personal development products. Hallmark envisioned a Golden Books section in its Kid Zones kiosks being test marketed at its 8,000 stores. Hallmark's acquisition of Golden's stock for $25 million gave it a 9.3 percent interest in the company.
Golden Books also moved to get out of commercial printing and other noncore businesses. In November 1996 it sold its Penn Corp. subsidiary to Peacock Papers, Inc., and in December 1997 it sold its Cambridge printing operation. The company was then organized into three divisions: Children and Adult publishing, Golden Books Entertainment Group (GBEG), and Commercial Printing. Once the reorganization was completed at the end of 1996 (with 1997 to be a transition year), the company's editorial, creative, marketing, and licensing staffs of the children's publishing division were consolidated in Golden's New York office. These functions had previously been split between New York and Racine. The reorganization left only Golden's manufacturing business in Racine, along with other support functions such as its MIS, financial, human resources, and legal staffs, which would also be moved to New York eventually.
For the year 1996, Golden Books reported a net loss of $197.5 million on sales of $254 million. The loss, however, included restructuring and other one-time charges of $132.3 million, which included $36 million in extraordinary items.
At the end of 1996, Golden Books surprised some observers by opting to maintain its Racine printing plant. To entice Golden Books to stay in Racine, the city and state had put together a financial package worth an estimated $5 million. Moreover, the plant's printing unions made wage and benefit concessions and agreed to changes in certain work rules. The company planned to move its in-house printing operation to a more efficient facility in Racine and eliminate about 200 jobs. It would maintain a workforce there of about 500.
As the company's restructuring took place and its new business strategy was implemented, Golden signed new licensing agreements, launched new publishing initiatives, built the new facility in Racine, and reorganized its sales force. In September 1997 the company signed a new, five-year license agreement with Disney that allowed Golden to use all of Disney's animated characters in selected product categories.
The company also reorganized its Children's Publishing division sales force, with a goal toward strengthening ties with customers and expanding sales through new retail channels. Among its new publishing initiatives was the signing of an agreement to publish the very popular R.L. Stine Fear Street books starting in March 1998.
In July 1997 Golden established the Golden Value Books and Special Markets business unit within the Children's Publishing division. Its objectives were to develop lower-priced value products for all retail channels and to pursue other specialty publishing opportunities outside the traditional retail channels, including book clubs, direct mail, electronic retailing, and television shopping. These products would be published under the Merrigold Press imprint. In September of that year the company launched its Adult Publishing list. Stressing family-oriented titles, the list featured Stephen Covey's The Seven Habits of Highly Effective Families, a New York Times bestseller. One industry observer would later suggest that Golden Books had overpaid for the Covey title as well as for its licensing agreements, causing the company to lose money despite healthy sales of popular products.
Nevertheless, the focus on building Golden Books as a family entertainment empire continued. The entertainment division (GBEG) expanded its library and television production operations with the acquisition of Shari Lewis Enterprises, Inc., in July 1997. In non-book publishing areas, GBEG signed licensing agreements with Swat-Fame, Inc., a leading manufacturer of children's wear, and with Eden LLC, a leading creator and manufacturer of infant toys, to manufacture products based on characters from the company's library, including characters from Pat the Bunny and The Poky Little Puppy. GBEG also entered into a strategic alliance with Sony Wonder, a division of Sony Music, to develop children's home video and audio products. For 1997, its first full year of operations, the GBEG division's revenues were $29 million, up from $4.1 million for 1996.
In July 1997 construction began on a new $40 million state-of-the-art manufacturing facility in Racine. Through an arrangement with the developer, the building was erected to Golden's specifications, and Golden would lease it on a long-term basis from the developer. Manufacturing operations commenced in February 1998, but the new plant would soon come to be regarded as a costly mistake, as it could not handle the production required of it.
The company continued its strategy of disposing of noncore business assets by selling its printing operations in Cambridge, Maryland, for approximately $20.2 million. Also sold was the Racine building that had housed the company's main plant for $2.4 million. In an effort by Golden to streamline its distribution channels and supply chain, the distribution center in Coffeyville, Kansas, was scheduled to be shut down by June 1998 and consolidated into the company's distribution facility in Crawfordsville, Indiana.
Liquidity Crisis in 1998
While Golden Books continued to be a popular item, their profit margin became increasingly slim. Moreover, some critics alleged that the company was squandering money on executive pay raises and perks. Whatever the cause, toward the end of 1998 the company began to experience serious financial problems. On September 15, 1998, Golden Books deferred a $5.7 million interest payment on its senior notes for 30 days, after which it was in default. This resulted in the company being in default on two credit agreements totaling $55 million. In November of that year the company received a commitment from a lender to allow it to borrow up to $45 million to be secured by a lien against the company's inventory, receivables, trade name, and other intellectual property assets.
In mid-1998 filings with the Securities and Exchange Commission (SEC), Golden Books stated that its new strategy had not been fully implemented, and that it did not expect to generate positive net income until after 1999 at the earliest. For the second quarter of 1998, the company reported a net loss of $30.6 million on sales of $43.1 million.
Following the second quarter loss, Moody's Investors Service downgraded $150 million of the company's senior notes and $115 million of its convertible trust originated preferred securities. The bond rating service was concerned that Golden Books would be forced to seek a restructuring and even possibly a sale. It also noted that the company's stock price had gone down, reducing the possibility of further public investment as a possible source of funds.
At the same time the investment group Golden Press Holdings, which consisted of Barry Diller, Richard Snyder, and Warburg, Pincus Ventures, announced it would commit an additional $25 million in investment, if necessary, that could be used at the company's option.
In early 1999 the company was in the process of restructuring its financing in order to solve its liquidity deficiency. During the previous 12 months its stock had lost most of its value, and in February 1999 NASDAQ suspended trading of Golden Books stock. Then it was announced that Golden Books had developed a prearranged Chapter 11 bankruptcy plan. Under the plan, holders of preferred stock would receive 60 cents on the dollar and a 42 percent interest in the company. This move was expected to reduce the company's debt load from $300 million to around $87 million. Opponents to the plan were the common stockholders, including former CEO Bernstein, whose shares were annulled, or rendered valueless. Snyder, his board of directors, and management team, some of whom have left since the bankruptcy filings, hoped that this financial restructuring would enable Golden Books to continue operations and eventually become a healthy company in the next century.
Principal Divisions: Consumer Products; Entertainment; Commercial Products.
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