Western Publishing Group, Inc.

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Western Publishing Group, Inc.

444 Madison Avenue
New York, New York 10022
U.S.A.
(212) 688-4500
Fax: (212) 688-5025

Public Company
Incorporated: 1910 as Western Printing & Lithographing Co.
Employees: 5,000 (4,200 full-time)
Sales: $613.5 million
Stock Exchanges: NASDAQ
SICs: 2678 Stationery, Tablets and Related Products; 2731 Books: Publishing or Printing and Publishing; 2759 Commercial Printing

Western Publishing Group, Inc. is the holding company for Western Publishing Co., Inc., the largest creator, publisher, manufacturer, printer, and marketer of children’s books in the United States. It is also engaged in printing and in producing and marketing stationery and paper goods. In 1994 it sold other extensive interests, including its games and puzzles businesses, direct-marketing activities, and some of the businesses in the advertising specialty division of its Penn Corp. subsidiary.

The company traces its beginnings to Edward Henry (E.H) Wadewitz and his brother Al. The two men bought a financially troubled Racine, Wisconsin business called West Side Printing Co. for $2,504 in 1907. Neither of them knew anything about the printing business prior to the acquisition, but they obviously had some canny business sense, for in 1908 they made a respectable profit on only $5,000 in sales. One of E.H.’s first actions was to obtain accurate figures for all operations and overhead in order to establish the true cost of filling an order. During its first full year the company moved to bigger quarters, hired several new employees, and installed a cylinder press, two smaller presses, and an automatic power cutter.

The business was incorporated in 1910 as the Western Printing & Lithographic Co. The name was a reflection of another acquisition—its first lithographic offset press. Roy A. Spencer, a journeyman printer recruited from a local newspaper, became president, with E.H. as secretary-treasurer. Sales topped $127,000 by 1914, when the company installed a larger offset press and added electrotyping and engraving departments. Two years later it acquired the assets of Hamming-Whitman Publishing Co., a Chicago publisher of children’s books that had defaulted on its bills, and transformed it into a subsidiary named Whitman Publishing Co. Western introduced boxed games and jigsaw puzzles in 1923. With sales topping $1 million for the first time in 1925, it added another subsidiary, the Western Playing Card Co.

Sales passed $2.4 million in 1928, the year Western opened a small printing plant in Chicago and produced its ten-millionth children’s book. The following year it purchased a Chicago-based producer and seller of engraved stationery and greeting cards. In 1932 the Whitman Big Little Book line made its debut with Adventures of Dick Tracy. The following year Western won exclusive book rights to all Walt Disney licensed characters. In 1934 Western established an eastern printing plant in Poughkeepsie, New York. The facility became a major preparation and production source for Dell’s comic books and paperbacks over the course of its first year of operation.

Western began a fruitful collaboration with Simon and Schuster’s juvenile book division in 1938 and soon evolved into the division’s sole creative and production source. Executives of the two companies decided to issue 25-cent books for children called Little Golden Books, each with 42 pages, 16 of them in full color. Within five months of publication of the first run in 1942, three editions totaling 1.5 million books had sold out.

Big and Giant Golden Books were introduced in 1944, and Deluxe Golden Books in 1946. Golden Books became the first children’s books to appear at supermarket checkout counters. By the mid-1950s Simon and Schuster had published more children’s books than all other publishers combined.

Western added another major printing plant with the 1945 acquisition of the Wolff Printing Co. of St. Louis. Guild Press, Inc., a publisher of Catholic books, religious greeting cards, and gift wrap, was purchased in the early 1950s. A new specialty printing plant was built in Hannibal, Missouri, in 1955. Western reached sales of $63 million in 1957, the year it celebrated its 50th anniversary. In the same year the company acquired Kable Printing Co., a large rotogravure magazine printer.

Western and Pocket Books, Inc. formed a new company— Golden Press, Inc.—at the end of 1958 following their joint purchase of all Golden Book properties from Simon and Schuster. The arrangement called for Western to continue creating and manufacturing Golden Books and for Pocket Books to promote, sell, and distribute them. The companies quickly reaped the benefits of their arrangement. By 1959 over 150 Little Golden Book titles had sold at least a million copies, and over 400 of the more than 1,000 Golden Book titles were in print in 13 different languages. The 16-volume Golden Book Encyclopedia, introduced in 1960, enjoyed sales of 60 million in two years, while sales of Golden Press books reached almost $39 million in 1960.

Western offered common stock to the public for the first time in 1960, when the name Western Publishing Co. was adopted. Almost 80 percent of the common stock remained in management and employee hands, however. By this time Western had established itself as a giant in the publishing industry. It was the largest creator, producer, and publisher of juvenile books in the United States, the largest producer and distributor of children’s games made from paper and paper products, and the largest creator and producer of comic books. It had operated profitably in every year since 1907 and had paid dividends every year since 1934. Net sales rose from $40.5 million in 1950 to $123.8 million in 1960, while net income rose from $3.1 million to $7.4 million in the same period.

The following year Western opened another printing plant, in Cambridge, Maryland. It also acquired several companies, including Odyssey Press, a publisher of high school and college textbooks, in 1970.

Western earned 65 percent of its total revenues in 1963 from juvenile literature (including games), 25 percent from commercial printing, and 10 percent from books for other publishers and miscellaneous activities. Whitman alone accounted for 35 percent of the company’s revenues. By contrast, the company’s half-share in Golden Press, Inc. had become a burden. Golden Press lost money in 1961 and 1962, and in 1963 its sales plummeted to $22.5 million from $32.9 million the previous year. In 1964 Western bought the other half-share from Pocket Books for 276,750 shares of its common stock, a purchase valued at nearly $7.4 million. Odyssey was given the job of selling and distributing adult Golden Books, while Western took over the task of handling the children’s titles.

Western Printing & Lithographing was the largest company unit in 1965, accounting for about 40 percent of sales. Another of the 14 active subsidiaries—Artists & Writers Press, Inc.—created books for publishers and commercial customers. These included not only the Golden Books, but also Betty Crocker cookbooks and the Arts of Mankind series for Golden Press and a four-volume Harper Encyclopedia of Science for Harper & Row. Other subsidiaries carved out strong positions as well. Capitol Publishing, purchased in 1961, was an originator and producer of educational materials and games for children, including toys and novelty products. The Kable Printing division produced more than 125,000 monthly magazines and other periodicals and a substantial volume of catalogues. The Watkins-Strathmore Co., acquired in 1957, also produced children’s books and games, including “Magic Slate.” Whitman, meanwhile, published almost every type of juvenile and adolescent books, numismatic books and coin cards, and a wide variety of games, playing cards, crayons, and gift wrapping. Other Western businesses included a Canadian subsidiary (established in 1959) and a French company (established in 1960).

Golden Press was one of 18 book publishers charged by the Justice Department in 1967 with illegally fixing prices of library editions of children’s books. Each agreed to the terms of a consent judgment that forbade them from submitting rigged bids or conspiring with book wholesalers to fix prices for sales to schools, libraries, and government agencies.

Western departed from ink-on-paper acquisitions for the first time in 1968 when it purchased Skil-Craft Playthings, Inc., for 100,000 shares of common stock. The Chicago-based company was a leader in craft kits and a manufacturer of laboratory science sets for children.

In 1970 Western’s sales were up for the seventh straight year, to $171.5 million, but its net income of $3.9 million was below levels posted during the previous decade. This was attributed to one-time factors such as acquisition of a computerized typesetting facility and an 11-week strike. Still, the company took several measures to boost its income. A strict cost-control program was adopted, and the Hannibal plant was closed. By mid-1974 employment had been reduced by 1,500. Net income that year was $10.1 million on sales of $215.6 million. Consumer products accounted for 62 percent of Western’s sales and 91 percent of pretax profits.

In 1971 Western reached an agreement with the Children’s Television Workshop to collaborate on a number of products, including Golden Books featuring Jim Henson’s Sesame Street Muppets. Big Little Books were a hit after their 1973 reintroduction. Dell Publishing Co. agreed in 1974 to a 10-year printing contract with Western estimated in excess of $50 million, and in the same year construction was begun in Fayetteville, North Carolina, on a new Western consumer products distribution and game-and-puzzle assembly center.

In 1976 Gerald J. Slade, chairman and president of Western, attributed some of the company’s financial gains to its strategy, initiated in 1971, of emphasizing direct-mail selling in place of traditional distribution channels like department and discount stores and supermarkets. By 1976 direct marketing accounted for about one-fourth of Western’s consumer product sales, which accounted for 70 percent of the company’s total sales. A hot direct-mail item was the Betty Crocker Recipe Card Program, through which millions of customers were sent monthly packets of recipes. Net income of $10.8 million in 1976 on $237.3 million of sales was a company record.

Western’s history as an independent company came to an end in 1979 when it was acquired by the toy and entertainment company Mattel, Inc. for $120.8 million in cash and stock. The new administration stressed market research and new product development in consumer products and involved Western’s creative staff in commercial printing. In 1980 Western launched the Sesame Street Book Club and relocated Skil-Craft’s manufacturing plant from Chicago to Fayetteville. Sales reached a record $277.9 million in 1981.

Mattel’s investment soon turned sour in the eyes of company management. In fiscal 1983 (ending January 31, 1983) Western registered sales of $246 million. But the company posted an operating loss of $2.4 million after a $7.5 million charge relating to the closing of its Poughkeepsie printing plant. Suffering from its own financial problems and strapped for cash, Mattel sold Western in December 1983 to Richard A. Bernstein, a New York City real estate investor, for $75 million as well as the assumption of certain liabilities later reckoned at $40 million. Bernstein reincorporated the firm as the Western Publishing Group, with headquarters in his Newsweek Building on Manhattan’s Madison Avenue. Western Publishing Co., now a subsidiary, continued to be based in Racine.

A self-made multimillionaire, Bernstein made his first fortune by purchasing commercial real estate during New York City’s fiscal crisis of the mid-1970s, an experience that convinced him “the herd is always wrong.” After purchasing Western, he made a number of changes. To cut printing costs, he invested in more efficient machines that reduced waste. The savings were used to moderate price increases in the Golden Books series and thus raise its market share. Videocassettes featuring Golden Book characters were introduced, and by the end of 1985 2.5 million copies of the original series of eight had been shipped. Western began developing games and producing them under license for companies like Hasbro and Tonka. The company also moved into what Bernstein called “sponsored publishing”—developing storybooks inscribed with company logos as promotional items. In 1986 it bought Penn Corp., a producer of paper party goods and advertising specialties, for $108 million.

When Bernstein took Western public in April 1986, he made more than $70 million on his original investment of $5 million while still retaining 21 percent of the stock. The company continued to do well; for the fiscal year ending January 31, 1989, earnings were nearly $30 million on sales of $551 million. The following year, however, sales dropped to $508 million and earnings were down to $23 million. Analysts noted that sales of Pictionary, a popular Western board game introduced in 1987, fell from $118 million to $42 million. In fiscal 1991 (ending January 31, 1991) earnings were down to $8 million on sales of $491 million. By late 1991 a share of Western stock, which had once traded as high as $28, was down to $9.

Western celebrated the 50th anniversary of the introduction of Little Golden Books in 1992. A boxed set of the 12 original titles was offered for $19.95. Special volumes of all-time favorites and new books by the nation’s most popular artists and illustrators of children’s books were produced to mark the occasion. A new Golden Little Nugget Book line sold more than 1.9 million units in six months. The following year Golden management decided to sell a line of trade books for children for the first time. These titles were published under the imprint Artists and Writers Guild Books.

Western enjoyed a recovery in fiscal 1992 and 1993, with net income of $13.7 million and $17.5 million, respectively, on net sales of $552.4 million and $649.1 million, respectively. In 1993, however, company fortunes took a disastrous turn. A $21.8-million writedown was taken on the advertising specialty division, which Western had decided to dismantle. The company also spent $10 million to test a concept whereby Western would run bookstores inside Toys “R” Us stores, but the merchandiser ultimately decided it could sell books without Western’s help. Another $20 million was added to costs because of Bernstein’s efforts to expand Western products into discount stores, supermarkets, and drugstore chains as well as toy and book stores. The direct-marketing division also lost money in its effort, begun in 1990, to market a school book club. For fiscal 1994 (ending January 29, 1994) the company lost $55.8 million on net income of $613.5 million.

Western’s big loss raised its debt to $250 million. Because of negative cash flow, its bonds were downgraded to junk grade. Bernstein, unable to sell the company, embarked on a major restructuring effort. In April 1994 he sold its games-and-puzzles business to Hasbro Inc. for $105 million. The Fayetteville distribution and manufacturing facility, whose operations were geared to games and puzzles, was also put on the block. The school book club division was sold to Troll for $4.3 million. Western also sold the Ritepoint and Adtrend businesses of Penn Corp.’s advertising specialty division and agreed to sell its direct-marketing continuity-club business. The company staff was reduced by roughly 28 percent. Bernstein said, however, that the company would continue to develop book sections within stores. It announced the introduction of 100 Just For Kids sections in Wal-Mart stores. These sections would feature video and music as well as books.

During the first three quarters of 1994, Western lost $11.6 million on revenues of $303.9 million. Its common stock, traded as high as $21 a share in 1993, was below $10 in April 1995. No dividend had been paid since Bernstein acquired the company from Mattel in 1984. In April 1994 Bernstein owned or controlled nearly 20 percent of the common stock. The Gabelli Group held about 17 percent, while Prudential Insurance Co. of America owned 8.6 percent. Long-term debt was $249.8 million.

At the end of 1994 Western Publishing Co. continued to create, publish, manufacture, print, and market children’s books under such imprints as Golden Books and Little Golden Books. It also produced a variety of activity books and products including coloring books, paper-doll books, pop-up books, crayons, and boxed activity products. Prerecorded video and audio cassettes for children were being produced for children under the Golden Book Videos and Golden Music trademarks. Coin-collecting products and other special-interest products were produced and marketed under the company’s Whitman trademark, and adult nonfiction books were sold under the Golden Guides trademark. Western also was involved in selling arts-and-crafts products under three trademarks and prerecorded audio cassette tapes packaged with books under its Book ‘n’ Tape trademark. The Penn Corp. subsidiary continued to design and produce quality decorated paper tableware, party accessories, invitations, gift-wrap products, stationery, and giftware under the Beach and Contempo trademarks and the Renner Davis name. Three Golden Book Showcase stores—Schaumberg, Illinois; Bur-bank, California; and Rockefeller Center in New York City— were opened as well in the early 1990s.