<PAGE>
UNITED STATES
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 June 28, 1997
----------------
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)
(212) 583-6700
--------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(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: 26,485,813 shares outstanding as of
August 8, 1997.
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
TABLE OF CONTENTS
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-- 3
June 28, 1997 (Unaudited) and
December 28, 1996
Condensed Consolidated Statements of Operations-- 5
Three months ended June 28, 1997 and
June 29, 1996 (Unaudited)
Condensed Consolidated Statements of Operations-- 6
Six months ended June 28, 1997 and
June 29, 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows-- 7
Six months ended June 28, 1997 and
June 29, 1996 (Unaudited)
Notes to Condensed Consolidated Financial 9
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
ASSETS JUNE 28, DECEMBER 28,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $100,470 $139,686
Accounts receivable, net 39,230 41,415
Inventories 29,731 27,608
Net assets held for sale 17,297 19,779
Other current assets 15,012 12,385
-------- --------
Total current assets 201,740 240,873
-------- --------
OTHER ASSETS
Accounts receivable - long term 1,820 1,001
Other noncurrent assets 12,390 8,102
-------- --------
Total other assets 14,210 9,103
-------- --------
PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation and
amortization of $41,174 as of June 28, 1997 and $40,672 as of December 28, 1996 29,286 27,504
FILM LIBRARY, net of accumulated amortization of $2,706 as of June 28, 1997
and $1,082 as of December 28, 1996 59,437 60,668
GOODWILL, net of accumulated amortization of $1,005 as of June 28, 1997 and
$405 as of December 28, 1996 28,487 29,087
-------- --------
TOTAL ASSETS $333,160 $367,235
======== ========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
3
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
JUNE 28, DECEMBER 28,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 18,972 $ 21,638
Accrued compensation and fringe benefits 2,365 5,787
Other current liabilities 37,486 45,238
--------- ---------
Total current liabilities 58,823 72,663
--------- ---------
NONCURRENT LIABILITIES
Long term debt 149,871 149,862
Accumulated postretirement benefit obligation 29,134 28,787
Deferred compensation and other deferred liabilities 23,466 25,072
--------- ---------
Total noncurrent liabilities 202,471 203,721
--------- ---------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE
COMPANY'S AND GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 110,593 110,488
STOCKHOLDERS' DEFICIT:
Convertible Preferred Stock - Series B, 13,000 shares authorized,
no par value, 13,000 shares issued and outstanding; 65,000 65,000
Common Stock, $.01 par value, 60,000,000 shares authorized,
26,465,900 and 25,964,711 shares issued as of June 28, 1997 and
December 28, 1996, respectively 265 259
Additional paid in capital 121,402 120,376
Accumulated deficit (221,275) (201,111)
Cumulative translation adjustments (1,297) (1,339)
--------- ---------
(35,905) (16,815)
Less cost of Common Stock in treasury - 208,800 shares 2,822 2,822
--------- ---------
Total stockholders' deficit (38,727) (19,637)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 333,160 $ 367,235
========= =========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
4
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
REVENUES:
Net sales $ 50,445 $ 72,317
Royalties and other income 186 292
-------- --------
Total revenues 50,631 72,609
-------- --------
COSTS AND EXPENSES:
Cost of sales 35,496 53,860
Selling, general and administrative 22,647 41,120
-------- --------
Total costs and expenses 58,143 94,980
-------- --------
LOSS BEFORE DISTRIBUTIONS ON GUARANTEED
PREFERRED BENEFICIAL INTERESTS IN THE
COMPANY'S AND GOLDEN BOOKS PUBLISHING
COMPANY, INC.'S CONVERTIBLE DEBENTURES,
INTEREST EXPENSE, AND BENEFIT FOR INCOME TAXES (7,512) (22,371)
DISTRIBUTIONS ON GUARANTEED PREFERRED
BENEFICIAL INTERESTS IN THE COMPANY'S AND
GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 2,516 --
INTEREST EXPENSE, net of interest income of $1,679
and $847, respectively 1,279 2,146
-------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (11,307) (24,517)
BENEFIT FOR INCOME TAXES (15) (53)
-------- --------
NET LOSS $(11,292) $(24,464)
======== ========
NET LOSS PER COMMON SHARE $ (0.52) $ (1.19)
======== ========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
5
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
REVENUES:
Net sales $ 116,069 $ 139,631
Royalties and other income 378 669
--------- ---------
Total revenues 116,447 140,300
--------- ---------
COSTS AND EXPENSES:
Cost of sales 80,497 101,077
Selling, general and administrative 48,772 67,909
--------- ---------
Total costs and expenses 129,269 168,986
--------- ---------
LOSS BEFORE DISTRIBUTIONS ON GUARANTEED PREFERRED BENEFICIAL
INTERESTS IN THE COMPANY'S AND GOLDEN BOOKS PUBLISHING
COMPANY, INC.'S CONVERTIBLE DEBENTURES, INTEREST EXPENSE,
AND (BENEFIT) PROVISION FOR INCOME TAXES (12,822) (28,686)
DISTRIBUTIONS ON GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
THE COMPANY'S AND GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 5,032 --
INTEREST EXPENSE, net of interest income of $3,578
and $1,122, respectively 2,333 5,020
--------- ---------
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES (20,187) (33,706)
(BENEFIT) PROVISION FOR INCOME TAXES (23) 1,458
--------- ---------
NET LOSS $ (20,164) $ (35,164)
========= =========
NET LOSS PER COMMON SHARE $ (0.93) $ (1.69)
========= =========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
6
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(20,164) $(35,164)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 5,273 7,735
Provision for losses on accounts receivable 1,879 738
Non cash compensation -- 12,786
Other-non-cash items 992 --
Changes in assets and liabilities:
Decrease in accounts receivable 305 13,063
(Increase) decrease in inventories (2,123) 10,648
(Increase) decrease in other current assets (2,627) 1,727
Decrease in accounts payable (2,666) (5,731)
Decrease in accrued compensation and fringe benefits
(3,422) (4,554)
Other assets and liabilities (9,431) (1,639)
-------- --------
Net cash used in operating activities (31,984) (391)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (4,519) (6,844)
Additions to film library (393) --
Collateral for letters of credit (3,305) --
-------- --------
Net cash used in investing activities (8,217) (6,844)
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
7
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,032 2,305
Proceeds of issuance of Preferred Stock - Series B -- 65,000
Issuance costs of Preferred Stock - Series B -- (6,162)
Redemption of Preferred Stock - Series A -- (9,985)
--------- ---------
Net cash provided by financing activities 1,032 51,158
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(47) (37)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(39,216) 43,886
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
139,686 33,840
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 100,470 $ 77,726
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and distribution on Guaranteed Preferred
Beneficial Interests in the Company's and Golden
Books Publishing Company, Inc.'s Convertible
Debentures $ 10,768 $ 5,845
========= =========
Income taxes, net of refunds received $ (317) $ (280)
========= =========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
8
<PAGE>
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 of Golden Books Family Entertainment, Inc. and
Subsidiaries (the "Company") as of June 28, 1997, and its results of
operations for the three month and six month periods ended June 28, 1997 and
June 29, 1996 and cash flows for the six month periods ended June 28, 1997 and
June 29, 1996. These unaudited condensed consolidated 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 eleven month period
ended December 28, 1996.
On November 30, 1996, the Company changed its fiscal year so as to end on the
last Saturday of December in each year. As a result of the foregoing, the
second quarter of fiscal 1997 ended on June 28, 1997 and the comparable period
of the prior year ended on June 29, 1996. Certain reclassifications have been
made to the prior year condensed consolidated financial statements to conform
with 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 period. The
business of the Company in general is seasonal and depends to a significant
extent on the Christmas selling season, resulting in a disproportionately
higher percentage of revenues in the Company's third and fourth fiscal
quarters.
The results of Golden Books Financing Trust (the "Trust") are included in the
Company's condensed consolidated financial statements since its inception on
August 20, 1996. The Trust, which is the issuer of 8 3/4% Convertible Trust
Originated Preferred Securities, referred to in the Company's financial
statements as "the 8 3/4% Guaranteed Preferred Beneficial Interests in the
Company's and Golden Books Publishing Company Inc.'s Convertible Debentures"
(the "Preferred Securities"), is wholly owned by the Company, has no
independent operations and its assets consist solely of the $118.6 million in
aggregate principle amount of 8 3/4% Convertible Debentures due 2016 of the
Company and Golden Books Publishing Company, Inc. ("Golden Books Publishing")
(see Note D). The obligations of the Trust, which consist of the Preferred
Securities, are fully and unconditionally guaranteed by the Company.
NOTE B - Inventories
Inventories consisted of the following:
June 28, December 28,
-------- ------------
1997 1996
---- ----
(In thousands)
Raw materials $ 2,931 $ 2,810
Work-in-process 4,601 1,829
Finished goods 18,949 19,719
Film library 3,250 3,250
------- -------
$29,731 $27,608
======= =======
NOTE C - Net Assets Held for Sale
As of June 28, 1997, net assets held for sale totaling approximately $17.3
million included, (i) the Fayetteville facility, which was closed in
conjunction with the sale of the Company's game and puzzle business, (ii) the
Cambridge facility, which is a part of the Commercial Printing Division, (iii)
the Fulford Street facility and (iv) the Creative Center, a facility of Golden
Books Publishing.
9
<PAGE>
NOTE D - Preferred Securities
During the eleven months ended December 28, 1996, the Company raised a total
of $115.0 million through a private placement of Preferred Securities (the
"Preferred Securities") under Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"). The Preferred Securities were issued by the
Trust, a Delaware business trust financing vehicle. The Company owns all of
the common securities of the Trust. The net proceeds of such offering, after
commissions and expenses, were approximately $110.4 million. The Preferred
Securities pay quarterly distributions at an annual distribution rate of 8
3/4% (subject to any deferral of interest payments on the Preferred Securities
by the Company and Golden Books Publishing), have an aggregate liquidation
preference of $115.0 million and are convertible at the option of their
holders into Convertible Debentures, which are immediately convertible into
Common Stock of the Company at an initial conversion price of $13.00 per
share. Effective January 10, 1997, the Company registered the resale of the
Preferred Securities with the Securities and Exchange Commission.
The Company and its subsidiary, Golden Books Publishing, are joint and several
obligors of the Preferred Securities and they have fully and unconditionally
guaranteed the Trust's obligations under the Preferred Securities. Separate
financial statements of Golden Books Publishing are not presented in their
entirety as the separate financial statements would not be materially
different from the consolidated financial statements of the Company.
Summarized financial statements of Golden Books Publishing as of and for the
three and six months ended June 28, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
June 28, 1997
------------
<S> <C>
Current assets $ 157,271
Noncurrent assets 126,091
------------
Total Assets $ 283,362
============
Current liabilities $ 106,766
Noncurrent liabilities 194,451
------------
Total Liabilities 301,217
Preferred Securities 110,593
Stockholders' Deficit (128,448)
------------
Total Liabilities and Stockholders' Deficit $ 283,362
============
<CAPTION>
Three Months Six Months
------------ ----------
Ended June 28, 1997
-------------------
<S> <C> <C>
Revenues $ 50,631 $ 116,447
Gross profit 15,135 35,950
Loss before interest expense and benefit for income taxes (9,858) (14,071)
Net loss (14,265) (22,743)
</TABLE>
The Indenture covering the Company's 7.65% Senior Notes due 2002 restricts the
ability of Golden Books Publishing to pay cash dividends or make other cash
distributions to the Company.
NOTE E - Loss Per Common Share
Loss per common share was computed as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
(In thousands except for per share data)
<S> <C> <C> <C> <C>
Net loss $(11,292) $(24,464) $(20,164) $(35,164)
Preferred dividend requirements (2,206) (1,631) (4,083) (1,843)
-------- -------- -------- --------
Loss applicable to common stock (13,498) (26,095) (24,247) (37,007)
======== ======== ======== ========
Weighted average common shares outstanding 26,139 21,980 26,061 21,825
Loss per common share $ (0.52) $ (1.19) $ (0.93) $ (1.69)
======== ======== ======== ========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share" (" Opinion
15"). FAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS which excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding during the period. The statement also requires dual presentation
of basic EPS and diluted EPS on the face of the income statement of all
periods presented. Diluted EPS is computed similarly to fully diluted EPS
pursuant to Opinion 15, with some modifications. FAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Early adoption is not permitted and the statement
requires restatement of all prior-period EPS data presented after the
effective date. The Company has not yet determined the impact which the
implementation of FAS 128 will have on the Company's per share amounts.
NOTE F - Contingencies
Golden Books Publishing and Penn Corporation ("Penn") have been informed by
the Environmental Protection Agency (the "EPA") and/or state regulatory
agencies that they may be potentially responsible parties ("PRPs") and face
liabilities under the Comprehensive Environmental Response, Compensation, and
Liability Act (commonly known as "CERCLA" or "Superfund") or similar state
laws. In all cases except those described below, the Company has resolved its
liability or is in the process of resolving its liability for amounts deemed
not material. Although the Company divested Penn in December, 1996, the
Company has agreed to indemnify Peacock Papers, Inc., the purchaser of Penn,
against certain of Penn's environmental liabilities, including the Cork Street
Landfill and Fulford Street Property, as discussed below.
The Wisconsin Department of Natural Resources (the "WDNR") alleges that the
Company is a responsible party for drums found at a site located in
unincorporated Racine County. The WDNR and the Company have entered into an
agreement which requires the Company to remove drums and soil from the site.
The disposal of these drums dates back almost 30 years. Golden Books
Publishing did not authorize disposal of its waste drums at the site. The
Company's obligations pursuant to this Agreement will be completed by the end
of the third quarter of 1997 at a cost of less than $150,000.
At the Hunt's Landfill site in Racine County, Wisconsin, Golden Books
Publishing's liability pursuant to the terms of a consent decree is limited to
approximately 4% of the total remedial costs. The current estimate of the
total costs is in the range of $22 million. In accordance with the consent
decree, the Company has provided for its share of the probable clean-up costs.
At the Hertel Landfill in Plattekill, New York, Golden Books Publishing is one
of five PRPs sued by the EPA in 1994 for recovery of past EPA response costs
of approximately $2.5 million. In September 1991, the EPA approved a remedial
action for the Hertel Landfill site that currently is estimated to cost $4.1
million other than groundwater remediation costs, if any are required. One of
the site's non-defendant PRPs has been complying with an EPA unilateral
administrative order requiring investigation and clean-up of the site and is
now seeking contribution towards its cost from Golden Books Publishing and
more than 20 other PRPs. At the time the 1991 order was issued, Golden Books
Publishing did not comply. As of June 26, 1996, representatives of Golden
Books Publishing reached agreement with the EPA to come into compliance with
the order and pay a penalty of $625,000 for previous non-compliance.
Additionally, during the fiscal year ended December 27, 1997 to date, Golden
Books Publishing has paid a total of $1,701,000 for the remediation of the
Hertel site, including settlement payments to other PRPs. The Company, other
PRPs and the government have reached a tentative allocation and are in the
process of negotiating a Consent Decree which will establish the Company's
future responsibilities at the site.
Golden Books Publishing also has been identified as a PRP at another site
located in Poughkeepsie, New York. Golden Books Publishing and eight other
PRPs received a notice letter in 1995 from the State of New York regarding
this site. New York State will be seeking recovery of its past oversight costs
of more than $600,000 plus future oversight and maintenance costs associated
with this site, currently estimated by the State at $830,000. There has been
no attempt made to develop an allocation or to identify all PRPs to date, but
the construction phase of the remedy has been completed by other parties
without Company involvement.
11
<PAGE>
On October 2, 1996, the Company received notice from the City Attorney of
Kalamazoo, Michigan that Beach Products, a division of Penn, will be asked to
participate in the remediation of the Cork Street Landfill site located in the
city, which was allegedly used by Beach Products in the past. Current cost
estimates for the remediation required at the site are as high as $24 million.
More that 70 entities will be requested to provide financial contribution to
the remediation.
On November 14, 1996, the Michigan Department of Environmental Quality
requested that corrective actions be taken as a result of the discovery of a
leaking underground storage tank system at the Fulford Street Property of the
Company on November 8, 1996. An initial site assessment has been completed by
the Company's outside consultant. Preliminary estimates indicate that the
costs associates with this release should not exceed $300,000.
In addition to these environmental matters, Golden Books Publishing filed an
action in 1994 in the United States District Court, Eastern District of
Wisconsin captioned as Western Publishing Company Inc. v. MindGames, Inc.
seeking a declaration of rights in regard to Golden Books Publishing's alleged
breach of various of its obligations under its licensing agreement with the
defendant for distribution through 1994 of the adult board game known as
"Clever Endeavor." This case involves the Company's now-discontinued adult and
children's game division. The defendant, believing its board game had the
potential to become one of the most popular of all time, has maintained that
certain of the alleged breaches entitle it to damages of as much as $40
million resulting from lost profits and unpaid royalties. The Court recently
granted Golden Books Publishing's partial motion for summary judgment and held
that the defendant is precluded from recovering lost profits. Accordingly, the
defendant's damage claim is now limited to its unpaid royalties of $1.2
million. Golden Books Publishing denies that it has any liability to the
defendant.
In consideration of the aforementioned matters, the Company has recorded
accruals in the deferred compensation and other deferred liabilities account
in its condensed consolidated balance sheet on June 28, 1997.
The Company and its subsidiaries are parties to certain other legal
proceedings which are incidental to their ordinary business, none of which the
Company believes are material to the Company and its subsidiaries taken
together as a whole.
The Company is actively pursuing resolution of the aforementioned matters or
is awaiting further government response. While it is not feasible to predict
or determine the outcomes of these proceedings, it is the opinion of
management that their outcomes have been adequately reserved for and will not
have a materially adverse effect on the Company's financial position or future
results of operations.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL AND ADOPTION OF NEW BUSINESS STRATEGY
CERTAIN OF THE MATTERS DISCUSSED IN THIS ITEM MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND, AS SUCH, MAY INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
OPERATIONS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements of Golden Books Family
Entertainment, Inc. and Subsidiaries (the "Company") for the three and six
months ended June 28, 1997 and June 29, 1996 and the related notes thereto.
The Company is the largest publisher of children's books in the North American
retail market. The Company creates, publishes and markets an extensive range
of children's entertainment products, including "Little Golden Books" and
other storybooks, coloring/activity books, electronic storybooks, puzzles,
educational workbooks, reference books and novelty book formats. The Company
has published its flagship product line, "Little Golden Books," for over 50
years. On May 8, 1996, Golden Press Holding, LLC ("Golden Press Holdings"), an
investment vehicle formed by Warburg, Pincus Ventures, L.P., Richard E. Snyder
and Barry Diller, invested $65.0 million in the Company. At that time, the
Company's name was changed from Western Publishing Group, Inc. to Golden Books
Family Entertainment, Inc. and Mr. Snyder, the former Chairman and Chief
Executive Officer of Simon & Schuster, was appointed Chairman and Chief
Executive Officer of the Company.
Since May 8, 1996, Mr. Snyder has assembled a new management team. Mr. Snyder
and his management team are implementing a new business strategy to build a
leading family entertainment company that creates, publishes and licenses
family entertainment products. The Company intends to build on its position as
a leader in the children's publishing market, utilizing the strength of the
Golden Books brand name to provide family-oriented content through multiple
media.
As part of management's plan to return the Company's core publishing business
to profitability and to redeploy assets, new management has taken a number of
strategic actions and, accordingly, made decisions with respect to certain of
the Company's assets as described in prior periodic reports of the Company.
The Company's return to profitability is dependent in part on the successful
implementation of management's new strategy. If the new strategy is
successful, the Company still does not expect to generate positive net income
until 1998 at the earliest.
THREE AND SIX MONTHS ENDED JUNE 28, 1997 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 29, 1996
Historically, the Company has reported operating results under two segments:
(i) the Consumer Products Segment; and (ii) the Commercial Products Segment.
In addition, for the three and six months ended June 28, 1997, the operating
results of the Entertainment Group (acquired on August 20, 1996) are reported
separately as the Entertainment Segment. The Consumer Products Segment
includes publishing operations ("Publishing") and, during the three and six
months ended June 29, 1996, Penn Corporation ("Penn"), which was sold on
December 23, 1996. The Commercial Products Segment includes the Commercial
Printing Division. The Entertainment Segment includes home video, television
program licensing, merchandising and other character licensing. In June 1997,
the Financial Accounting Standards Board issued Statement of Financial Account
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 131 significantly changes the way companies
report segment information in financial statements. The Company has not yet
determined the impact of the implementation of FAS 131 on the Company's
segment reporting.
Revenues
Revenues for the three months ended June 28, 1997 decreased $22.0 million
(30.3%) to $50.6 million, compared to $72.6 million for the three months ended
June 29, 1996, and decreased $23.9 million (17.0%) to $116.4 million from
13
<PAGE>
$140.3 million for the six months ended June 28, 1997 compared to the six
months ended June 29, 1996. Consumer Products Segment revenues decreased $23.7
million (39.2%) to $37.0 million for the three months ended June 28, 1997,
compared to $60.7 million for the three months ended June 29, 1996, and
decreased $36.0 million (31.9%) to $76.9 million from $112.9 million for the
six months ended June 28, 1997 compared to the six months ended June 29, 1996.
The decrease in revenue for Consumer Products Segment for the three months
ended June 28, 1997 resulted principally from the sale of Penn, which was sold
in December of 1996 (revenues of $12.6 million) and declines across most of
the publishing categories, and in particular, the Electronic Storybook
category. The decline for the six months ended June 28, 1997 is principally
the result of the sale of Penn (revenues of $24.7 million) and revenue
declines in the Electronic Storybooks and Premium Sales categories.
Commercial Products Segment revenues decreased $1.6 million (12.8%) to $10.3
million for the three months ended June 28, 1997, compared to $11.9 million
for the three months ended June 29, 1996, and decreased $1.3 million (4.9%) to
$26.1 million from $27.4 million for the six months ended June 28, 1997
compared to the six months ended June 29, 1996.
Entertainment Segment revenues for the three months and the six months ended
June 28, 1997, were $3.3 million and $13.4 million, respectively.
Gross Profit
Gross profit decreased $3.6 million (19.3%) for the three months ended June
28, 1997 to $15.1 million, compared to $18.7 million for the three months
ended June 29, 1996, and decreased $3.3 million (8.4%) from $39.2 million to
$35.9 million for the six months ended June 28, 1997, compared to the six
months ended June 29, 1996. Gross profit for the six months ended June 29,
1996 was positively impacted by an inventory valuation adjustment of $2.7
million which reduced cost of goods sold. As a percentage of revenues, the
gross profit margin increased to 29.9% for the three months ended June 28,
1997 from 25.8% for the three months ended June 29, 1996 and increased to
30.9% from 28.0% for the six months ended June 28, 1997, compared to the six
months ended June 29, 1996.
In the Consumer Products Segment, gross profit decreased $5.9 million (33.0%)
to $11.9 million for the three months ended June 28, 1997, compared to $17.8
million for the three months ended June 29, 1996, and decreased $11.2 million
(30.5%) to $25.5 million from $36.7 million for the six months ended June 28,
1997 compared to the six months ended June 29, 1996. As a percentage of
revenues, the gross profit margin for Consumer Products Segment increased to
32.4% for the three months ended June 28, 1997 from 29.4% for the three months
ended June 29, 1996 and increased to 33.2% from 32.5% for the six months ended
June 28, 1997, compared to six months ended June 29, 1996. The decrease in
Consumer Products Segment gross profit for the three months ended June 28,
1997, compared to the three months ended June 29, 1996, resulted from the
exclusion of gross profit associated with Penn ($2.8 million) and lower levels
of sales which were offset, in part, by lower manufacturing costs. The
decrease in Consumer Products Segment gross profit for the six months ended
June 28, 1997, compared to the six months ended June 29, 1996, resulted from
the exclusion of the gross profit associated with Penn ($6.5 million), the
impact of the $2.7 million inventory valuation adjustment described above and
lower sales levels offset by manufacturing cost reductions. The increase in
the Consumer Products Segment gross profit margin was due primarily to
manufacturing cost savings achieved during the three months and six months
ended June 28, 1997, offset by the inventory valuation adjustment in the six
months ended June 29, 1996.
Commercial Products Segment gross profit increased $0.2 million (15.8%) to
$1.1 million for the three months ended June 28, 1997, compared to $0.9
million for the three months ended June 29, 1996, and increased $0.5 million
(18.8%) to $3.0 million from $2.5 million for the six months ended June 28,
1997, compared to the six months ended June 29, 1996. As a percentage of
revenues, the gross profit margin for the Commercial Products Segment
increased to 10.3% for the three months ended June 28, 1997, compared to 7.7%
for the three months ended June 29, 1996, and increased to 11.5% for the six
months ended June 28, 1997, compared to 9.2% for the six months ended June 29,
1996. The increase in Commercial Products Segment gross profit and gross
profit margin was primarily due to cost savings achieved in the Racine and
Cambridge plants in the three and six month ended June 28, 1997, compared to
the three and six months ended June 29, 1996. The Entertainment Segment gross
profit was $2.1 million and $7.4 million for the three months and six months
ended June 28, 1997, respectively. As a percentage of revenues, the gross
profit margin was 63.4% and 55.2% for the three and six months ended
June 28, 1997, respectively.
14
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses, before consideration of $2.3
million of one time transition costs associated with the redirection of the
Company (comprised of consulting costs of $1.2 million, information systems
changeover costs of $0.8 million and costs associated with the move of the
Company's Racine, Wisconsin manufacturing facility of $0.3 million), were
$20.4 million for the three months ended June 28, 1997, a decrease of $4.5
million from $24.9 million, before consideration of $16.2 million ($3.6
million of severance and $12.6 million related to Richard E. Snyder's
employment agreement) in one time charges pertaining to an equity investment
in the Company by Golden Press Holding incurred during the three months
ended June 29, 1996. Before consideration of $5.1 million of one time
transition costs associated with the redirection of the Company (comprised of
consulting costs of $2.5 million, information systems changeover costs of $2.3
million and costs associated with the move of the Company's Racine, Wisconsin
manufacturing facility of $0.3 million) selling, general and administrative
expenses decreased $8.0 million to $43.7 million for the six months ended June
28, 1997 compared to $51.7 million, before consideration of $16.2 million
($3.6 million of severance and $12.6 million related to Richard E. Snyder's
employment agreement) in one time charges pertaining to an equity investment
in the Company by Golden Press Holding, for the six months ended June 29,
1996. The decreases for the three and six months ended June 28, 1997, compared
to the three and six months ended June 29, 1996, were primarily due to
headcount reductions, lower selling and marketing costs and the impact of the
disposal of Penn partly offset by the acquisition of the Entertainment
Segment.
Interest Expense, net
Interest income for the three months ended June 28, 1997 increased $0.9
million to $1.7 million from $0.8 million for the three months ended June 29,
1996 and increased $2.5 million to $3.6 million from $1.1 million for the six
months ended June 28, 1997 compared to the six months ended June 29, 1996. The
increase for the three and six months ended June 28, 1997, compared with the
three and six months ended June 29, 1996, was due to increased cash balances
resulting from (1) the sale of the Company's Series B Convertible Preferred
Stock to Golden Press Holding for an aggregate purchase price of $65.0 million
in May 1996, (2) the issuance of Preferred Securities for $115.0 million in
August 1996, (3) the sale of the Company's common stock for $25.0 million to
HC Crown Corporation, an affiliate of Hallmark Cards, Incorporated, in
September 1996 and (4) the Sale of Penn Corporation for consideration
including approximately $14.0 million in cash, partially offset by the
purchase of substantially all the assets of Broadway Video Entertainment, L.P.
in part for $81.0 million in cash in August 1996 and the redemption of the
Company's Series A Preferred Stock for $10.0 million in May 1996.
Net interest expense (including the distributions on the guaranteed preferred
beneficial interest in the Company's and Golden Books Publishing's Convertible
Debentures (i.e., the Preferred Securities)), for the three months ended June
28, 1997 increased by $1.7 million to $3.8 million, as compared to $2.1
million for the three months ended June 29, 1996, and increased $2.4 million
to $7.4 million from $5.0 million for the six months ended June 28, 1997,
compared to the six months ended June 29, 1996. The increase in net interest
expense was primarily due to higher average debt outstanding resulting from
the issuance of the Preferred Securities in August 1996, offset in part by
higher levels of interest income as described above. Total average outstanding
debt (including the Preferred Securities) increased to $265.0 million for the
three and six months ended June 28, 1997, compared to $148.9 million for the
three and six months ended June 29, 1996, due to the issuance of the Preferred
Securities.
Income Taxes
The Company does not anticipate any significant provision or benefit for
income taxes in the fiscal period ending December 27, 1997. As such,
operations for the three and six months ended June 28, 1997 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. The provision for the six months ended June 29,
1996 pertained principally to anticipated resolution of outstanding issues
from prior years.
15
<PAGE>
Net Loss
The net loss for the three months ended June 28, 1997 was $(11.3) million, or
$(0.52) per common share, compared to a net loss of $(24.5) million, or
$(1.19) per common share, for the three months ended June 29, 1996. For the
six months ended June 28, 1997, the net loss was $(20.2) million or $(0.93)
per common share, compared to a net loss of $(35.2) million, or $(1.69) per
common share, for the six months ended June 29, 1996. Results for the six
months ended June 28, 1997 included one time transition costs of $5.1 million,
as previously discussed, and the results for the six months ended June 29,
1996 included the $16.2 million in one time charges associated with the equity
investment by Golden Press Holding.
Financial Condition, Liquidity and Capital Resources
Operations for the six months ended June 28, 1997, excluding one time
transition costs of $5.1 million resulting from the strategic redirection of
the Company and payments of restructuring costs accrued during the period
ended December 28, 1996 of $2.8 million, utilized cash of approximately $39.2
million compared to cash provided of $43.9 million for the six months ended
June 29, 1996. The major source of cash flow in the six months ended June 29,
1996 was from the sale of the Company's Series B Convertible Preferred
Securities offset in part by the redemption of the Series A Preferred Stock.
Acquisitions of property, plant and equipment were $4.5 million during the six
months ended June 28, 1997, as compared to $6.8 million during the six months
ended June 29, 1996.
Working capital at June 28, 1997 was $142.9 million, as compared to $168.2
million at December 28, 1996. The decrease resulted from the investment in
property, plant and equipment, and the regular operating requirements of the
Company during the six months ended June 28, 1997.
The Company expects to spend approximately $16.0 million attributable to
transition costs to be incurred in connection with the strategic redirection
of the Company during the remainder of fiscal 1997. The Company's plan to
change it's strategic direction in order to return the core publishing
business to profitability originally anticipated incurring $20.5 million in
one time transition costs during 1997. Since this announcement the Company has
made additional decisions (as described below) which make it impractical for
all of these transition costs to be incurred during fiscal 1997. As a result,
the Company expects to incur approximately $5.0 million of one time transition
costs during fiscal 1998. The major factor impacting this change in timing is
management's decision to delay the construction and move of the Company's main
operating facility in Racine, Wisconsin until after the end of the year to
allow the heavy Christmas period demand to be fulfilled, to the extent
possible, by internal production capacity. As of June 28, 1997, the Company
maintained sufficient accruals for restructuring costs which are expected to
be paid out during the remainder of fiscal 1997 and fiscal 1998.
The Company believes that, based on the carrying value of both certain assets
held for sale and inventory to be discontinued or replaced in connection with
the Company's strategic actions, it will realize cash proceeds in excess of
$20.0 million on the sale of these assets. Such proceeds and cash attributable
to the Company's cost savings will be used in connection with the Company's
change in strategic focus and other strategic measures.
Additionally, the Company plans to sell its existing manufacturing facility in
Racine, Wisconsin and build a new facility to manufacture the core products of
the Company. The capital expenditures relating to such a facility will be
funded in part through low-cost financing. In connection with the
establishment of the new facility, the Company will also receive tax
incentives, as well as wage and benefit reductions and work rule changes from
each of the labor unions. All of the foregoing financial incentives aggregate
approximately $5.0 million.
As of June 28, 1997, the Company had approximately $100.5 million in cash and
cash equivalents. The Company believes that such amounts will be sufficient to
fund working capital needed for the foreseeable future and to pursue strategic
opportunities, including acquisitions and joint ventures. It is not possible
to ascertain the effect on the Company's liquidity that would result from
potential future acquisitions, dispositions or debt repurchases. The Company
expects to evaluate all viable forms of financing when examining potential
future acquisitions or its capital structure. This could take the form of,
among other things, additional sales of stock or notes, bank and/or
institutional borrowings, or seller financing, as well as internally generated
funds. There can be no assurance that events in the future will not require
the Company to seek additional capital or, if so required, that adequate
capital will be available on terms acceptable to the Company.
The Indenture covering the Company's 7.65% Senior Notes due 2002 restricts the
ability of Golden Books Publishing to pay cash dividends or make other cash
distributions to the Company.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Golden Books Family Entertainment, Inc. Amended and Restated 1995 Stock
Option Plan
10.2 Golden Books Family Entertainment, Inc. Amended and Restated Executive
Officer Bonus Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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.
August 12, 1997 /s/ Richard E. Snyder
-------------------------
Richard E. Snyder
Chairman of the Board, President and
Chief Executive Officer
August 12, 1997 /s/ Philip E. Rowley
----------------------
Philip E. Rowley
Executive Vice President and
Chief Financial Officer
18
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
1995 STOCK OPTION PLAN, AS AMENDED
Section 1. Purpose
The Plan authorizes the Committee to provide to Employees and
Consultants of the Corporation and its Subsidiaries and Non-Employee Directors
of the Corporation, who are in a position to contribute materially to the
long-term success of the Corporation, with options to acquire Common Stock,
par value $.0l per share, of the Corporation. The Corporation believes that
this incentive program will cause those persons to increase their interest in
the Corporation's welfare, and aid in attracting and retaining Employees,
Consultants and Non-Employee Directors of outstanding ability.
Section 2. Definitions
Unless the context clearly indicates otherwise, the following terms,
when used in this Plan, shall have the meanings set forth in this Section:
(a) 'Board' shall mean the Board of Directors of the Corporation.
(b) 'Cause' shall mean failure to comply with any agreements with, or
policies of, the Corporation concerning disclosure of confidential or
proprietary information or competition with, or employment by, a competitor of
the Corporation; fraud or misappropriation with respect to the business of the
Corporation or intentional material damage to the property or business of the
Corporation; willful failure to perform reasonable duties and responsibilities
consistent with the Grantee's position; breach of fiduciary duty or willful
material misrepresentation to the Corporation; willful failure to act in
accordance with any specific, reasonable and lawful instructions consistent
with Grantee's position; conviction of a felony or crime involving moral
turpitude; habitual abuse of alcohol, drugs or controlled substances; or other
proper cause as determined in the sole discretion of the Committee.
(c) 'Code' shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
(d) 'Committee' shall mean the Board, or any Committee of two or more
Directors that may be designated by the Board to administer the Plan.
(e) 'Consultant' shall mean any person who is engaged to perform
services for the Corporation or its Subsidiaries, other than as an Employee or
Director.
(f) 'Control Person' shall mean any person who, as of the date of
grant of an Option, owns (within the meaning of Section 422(b)(6) of the
<PAGE>
Code) stock possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Corporation or of any
parent or Subsidiary.
(g) 'Corporation' shall mean Golden Books Family Entertainment, Inc.,
a Delaware corporation.
(h) 'Director' shall mean any member of the Board.
(i) 'Employee' shall mean any full-time employee of the Corporation
or its Subsidiaries (including Directors who are otherwise employed on a
full-time basis by the Corporation or its Subsidiaries).
(j) 'Exchange Act' shall mean the Securities Exchange Act of 1934 as
it may be amended from time to time.
(k) 'Fair Market Value' of stock on a given date shall be based upon:
(i) if the Stock is listed on a national securities exchange or quoted in an
interdealer quotation system, the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the Stock on such
date (or, if there was not trading or quotation in the Stock on such date, on
the next preceding date on which there was trading or quotation) as provided
by one of such organizations; or (ii) if the Stock is not listed on a national
securities exchange or quoted in an interdealer quotation system, as
determined by the Committee in good faith in its sole discretion.
(1) 'Grantee' shall mean a person granted an option under the Plan.
(m) 'ISO' shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock and intended to qualify as an incentive stock
option under Section 422 of the Code, as now or hereafter constituted.
(n) 'Non-Employee Director' shall mean a member of the Board who is
not an Employee of the Corporation, its Parent or any Subsidiaries.
(o) 'NQSO' shall mean an option granted pursuant to the Plan to
purchase shares of the Stock that is not an ISO.
(p) 'Options' shall refer collectively to ISOs and NQSOs issued under
and subject to the Plan.
(q) 'Parent' shall mean any parent corporation as defined in Section
424 of the Code.
(r) 'Plan' shall mean this 1995 Stock Option Plan as set forth herein
and as amended from time to time.
(s) 'Stock' shall mean shares of the Common Stock of the Corporation.
<PAGE>
(t) 'Stock Option Agreement' shall mean a written agreement between
the Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of an Option hereunder and containing such terms and
conditions, not inconsistent with the Plan, as the Committee shall approve.
(u) 'Subsidiary' shall mean any corporation with respect to which the
Corporation owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation.
Section 3. Shares of Stock Subject to the Plan
Subject to the provisions of Section 9, the total amount of Stock
with respect to which options may be granted under the Plan shall not exceed
5,750,000. Stock issuable under the Plan may be authorized but unissued shares
or reacquired shares of Stock. If, prior to exercise, any options are
forfeited, lapse or terminate for any reason, the Stock covered thereby may
again be available for Option grants under the Plan.
Section 4. Administration of the Plan
The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have the authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of Stock Option
Agreements thereunder and to make all other determinations necessary or
advisable for the administration of the Plan. Any controversy or claim arising
out of or related to this Plan or the Options granted thereunder shall be
determined unilaterally by, and at the sole discretion of, the Committee. Any
action of the Committee with respect to the Plan shall be final, conclusive,
and binding on all persons, including the Corporation, subsidiaries of the
Corporation, Grantees, any person claiming any rights under the Plan from or
through any Grantee, and stockholders. The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. To the extent
necessary to comply with Rule 16b-3 under the Exchange Act, determinations
concerning Options granted to any person who is subject to Section 16(b) of
the Exchange Act shall be made by the Committee, all of whose members shall be
'disinterested persons' within the meaning of Rule 16b-3 under the Exchange
Act. The Committee may delegate to officers or managers of the Corporation or
any Subsidiary the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to persons
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
Section 5. Types of Options
Options granted under the Plan may be of two types: ISOs or NQSOs.
The Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs or both, but shall clearly designate the nature of
each Option at the time of grant in the Stock
<PAGE>
Option Agreement. Grantees who are not Employees of the Corporation or a
Subsidiary on the date an Option is granted shall only receive NQSOs.
Section 6. Grant of Options to Employees, Consultants and
Non-Employee Directors
(a) Employees and Consultants of the Corporation and its Subsidiaries
and Non-Employee Directors of the Corporation shall be eligible to receive
Options under the Plan.
(b) The exercise price per share of Stock subject to an Option
granted to an Employee or Consultant shall be determined by the Committee and
specified in the Stock Option Agreement, provided, however, that the exercise
price of each share subject to an Option shall be not less than (i) in the
case of an NQSO, 85%, (ii) in the case of an ISO granted to other than a
Control Person, 100%, and (iii) in the case of an ISO granted to a Control
Person, 110%, of the Fair Market Value of a share of the Stock on the date
such Option is granted.
(c) The term of each Option granted to an Employee or Consultant
shall be determined by the Committee and specified in a Stock Option
Agreement, provided that no Option shall be exercisable more than ten years
from the date such Option is granted, and provided further that no ISO granted
to a Control Person shall be exercisable more than five years from the date of
Option grant.
(d) Each Non-Employee Director who is elected or appointed as a
member of the Board on or after May 8, 1996, upon the date of such election or
appointment, shall receive an NQSO to purchase 5,000 shares of Stock, subject
to adjustment as provided in Section 9. Each year on the date of the annual
meeting of the stockholders of the Corporation subsequent to such election or
appointment, each Non-Employee Director shall automatically receive an NQSO to
purchase 3,000 shares of Stock, subject to adjustment as provided in Section
9. The exercise price per share of Stock subject to each NQSO granted under
this Section 6(d) shall equal 100% of the Fair Market Value of the Stock on
the date such NQSO is granted. No NQSO granted under this Section 6(d) shall
be exercisable after the expiration of ten years from the date such NQSO is
granted.
(e) The Committee shall determine and designate from time to time
Employees or Consultants who are to be granted options, and shall specify in
the Stock Option Agreement the nature of each Option granted and the number of
shares of Stock subject to each such Option, provided, however, that in any
calendar year, no Employee or Consultant may be granted an Option to purchase
more than 1,500,000 shares of Stock (determined without regard to when such
Option is exercisable), subject to adjustment pursuant to Section 9.
(f) Notwithstanding any other provisions hereof, the aggregate Fair
Market Value (determined at the time the ISO is granted) of the Stock with
respect to which ISOs are exercisable for the first time by any Employee
during any calendar year under all plans of the Corporation and any Parent or
Subsidiary corporation shall not exceed $100,000. To
<PAGE>
the extent the limitation set forth in the preceding sentence is exceeded, the
Options with respect to such excess all be treated as NQSOs.
(g) The Committee shall determine whether any Option granted to an
Employee or Consultant shall become exercisable in one or more installments
and specify the installment dates in the Stock Option Agreement and, with
respect to any outstanding option, the Committee may, at any time or upon the
occurrence of any event, accelerate the exercisability of any such
installment. The Committee may also specify in the Stock Option Agreement such
other provisions, not inconsistent with the terms of this Plan, as it may deem
desirable, including such provisions as it may deem necessary to qualify any
ISO under the provisions of Section 422 of the Code.
(h) The Committee may, at any time, grant new or additional options
to any eligible Employee or Consultant who has previously received options
under this Plan, or options under other plans, whether such prior options or
other options are still outstanding, have been exercised previously in whole
or in part, or have been canceled. The exercise price of such new or
additional options may be established by the Committee, subject to Section
6(b) hereof, without regard to such previously granted Options or other
options.
Section 7. Exercise of Options
(a) A Grantee shall exercise an Option by delivery of written notice
to the Corporation setting forth the number of shares with respect to which
the Option is to be exercised, together with cash, certified check, bank
draft, wire transfer, or postal or express money order payable to the order of
the Corporation for an amount equal to the Option price of such shares and any
income tax required to be withheld. The Committee may, in its sole discretion,
permit a Grantee to pay all or a portion of the exercise price by delivery of
Stock or other property (including notes or other contractual obligations of
Grantees to make payment on a deferred basis, such as through 'cashless
exercise' arrangements, to the extent permitted by applicable law), and the
methods by which Stock will be delivered or deemed to be delivered to
Grantees.
(b) Except as provided pursuant to Section 8(a), no option granted to
an Employee or Consultant shall be exercised unless at the time of such
exercise the Grantee is then an Employee or Consultant of the Corporation or a
Subsidiary.
(c) The number of shares of Stock which are issued pursuant to the
exercise of an Option shall be charged against the maximum limitation on
shares set forth in Section 3 hereof.
Section 8. Exercise of Options upon Termination
(a) Unless otherwise determined by the Committee and specified in the
Stock Option Agreement, upon the termination of a Grantee's relationship with
the Corporation and its Subsidiaries, the period
<PAGE>
during which such Grantee may exercise any outstanding and then exercisable
installments of his Options shall not exceed: (i) if such termination is due
to death, 90 days from the date of such termination, and (ii) in all other
cases, 30 days from the date of such termination, provided, however, that in
no event shall the period extend beyond the expiration of the Option term.
Notwithstanding the foregoing, all Options shall immediately terminate upon a
termination of a Grantee's employment if the Committee determines, in its sole
discretion, that such termination is for Cause.
(b) Unless otherwise determined by the Committee and specified in the
Stock Option Agreement, in no event shall any Option be exercisable for more
than the maximum number of shares that the Grantee was entitled to purchase at
the date of termination of the relationship with the Corporation and its
Subsidiaries.
(c) The sale of any Subsidiary shall be treated as a termination of
employment with respect to any Grantee employed by such Subsidiary.
(d) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
Section 9. Adjustment Upon Changes in Capitalization
In the event of any dividend or other distribution (whether in the
form of cash, Stock, or other property), recapitalization, forward or reverse
split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Optionees under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and kind of shares of Stock deemed to be available
thereafter for grants of Options under Section 3, (ii) the number and kind of
shares of Stock that may be delivered or deliverable in respect of outstanding
Options, (iii) the number of shares with respect to which Options may be
granted to a given Grantee in the specified period as set forth in Section
6(e), and (iv) the exercise price (or, if deemed appropriate, the Committee
may make provision for a cash payment with respect to any outstanding Option).
In addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Options (including, without
limitation, cash payments in exchange for an Option or substitution of Options
using stock of a successor or other entity) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Corporation or any Subsidiary or the
financial statements of the Corporation or any Subsidiary, or in response to
changes in applicable laws, regulations, or accounting principles.
Section 10. Restrictions on Issuing Shares
The Corporation shall not be obligated to deliver Stock upon the
exercise or settlement of any Option or take other actions under the Plan
until the Corporation shall have determined that applicable federal
<PAGE>
and state laws, rules, and regulations have been complied with and such
approvals of any regulatory or governmental agency have been obtained and
contractual obligations to which the option may be subject have been
satisfied. The Corporation, in its discretion, may postpone the issuance or
delivery of Stock under any Option until completion of such stock exchange
listing or registration or qualification of such Stock or other required
action under any federal or state law, rule, or regulation as the Corporation
may consider appropriate, and may require any Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Stock under the Plan.
Section 11. Tax Withholding
The Corporation shall have the right to require that the Grantee make
such provision, or furnish the Corporation such authorization, necessary or
desirable so that the Corporation may satisfy its obligation, under applicable
laws, to withhold or otherwise pay for income or other taxes of the Grantee
attributable to the grant or exercise of Options granted under the Plan or the
sale of Stock issued with respect to Options. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Grantee's tax obligations.
Section 12. Transferability
No Option shall be subject to anticipation, sale, assignment, pledge,
encumbrance, charge or transfer except by will or the laws of descent and
distribution, and an Option shall be exercisable during the Grantee's lifetime
only by the Grantee, provided, however, that the Committee may permit a
Grantee to transfer an Option to a family member or a trust created for the
benefit of family members. In the case of such a transfer, the transferee's
rights and obligations with respect to the Option shall be determined by
reference to the Grantee and the Grantee's rights and obligations with respect
to the Option had no transfer been made. Notwithstanding such transfer, the
Grantee shall remain obligated pursuant to Section 11 if required by
applicable law.
Section 13. General Provisions
(a) Each Option shall be evidenced by a Stock Option Agreement. The
terms and provisions of such Stock Option Agreements may vary among Grantees
and among different Options granted to the same Grantee.
(b) The grant of an Option in any year shall not give the Grantee any
right to similar grants in future years, any right to continue such Grantee's
employment relationship with the Corporation or its Subsidiaries, or, until
such Option is exercised and share certificates are issued, any rights as a
Stockholder of the Corporation. All Grantees shall remain subject to discharge
to the same extent as if the Plan were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by
<PAGE>
reason of any Option to any particular assets of the Corporation or its
Subsidiaries, or any shares of Stock allocated or reserved for the purposes of
the Plan or subject to any Option except as set forth herein. The Corporation
shall not be required to establish any fund or make any other segregation of
assets to assure the payment of any option.
(d) The issuance of shares of Stock to Grantees or to their legal
representatives shall be subject to any applicable taxes and other laws or
regulations of the United States or of any state having jurisdiction thereof.
Section 14. Amendment or Termination
The Board may, at any time, alter, amend, suspend, discontinue or
terminate this Plan; provided, however, that no such action shall adversely
affect the rights of Grantees to Options previously granted hereunder and,
provided further, however, that any shareholder approval necessary or
desirable in order to comply with Rule 16b-3 under the Exchange Act or with
Section 422 of the Code (or other applicable law or regulation) shall be
obtained in the manner required therein. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or
terminate, any Option theretofore granted and any Stock Option Agreement
relating thereto; provided, however, that, without the consent of an affected
Grantee, no such action may materially impair the rights of such Grantee under
such Option.
Section 15. Effective Date of Plan
This Plan is effective upon its adoption by the Board, conditional
upon approval of the Corporation's stockholders. No ISO may be granted more
than ten years after such date.
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
EXECUTIVE OFFICER BONUS PLAN
(AMENDED AND RESTATED AS OF MARCH 11, 1997)
This Plan amends and restates in its entirety the plan previously known as the
Western Publishing Group, Inc. Executive Officer Bonus Plan.
Section 1. PURPOSE
The Executive Officer Bonus Plan is intended to increase the profitability of
Golden Books Family Entertainment, Inc. and its subsidiaries by providing the
opportunity for key executives to earn incentive payments based upon
individual achievement and Corporation performance. It is the purpose of the
Plan to motivate key executives to the attainment of demanding goals by
providing recognition and rewards in the form of incentive awards. The Plan
has the further purpose of fulfilling the Corporation's objective of offering
a fully competitive total compensation package to its key employees, thus
enabling the Corporation to attract and retain executives of the highest
caliber and ability.
Section 2. DEFINITIONS
The following terms used in the Plan are defined as follows:
Award Year--the fiscal year of the Corporation during which Performance
Objectives must be achieved by the Participant.
Board of Directors--the Corporation's Board of Directors.
CEO--the Chief Executive Officer of the Corporation.
Code--the Internal Revenue Code of 1986, as amended.
Committee--the Compensation Committee, or a special subcommittee thereof, of
the Board of Directors. The Committee shall be composed solely of two or more
"outside directors" as defined in the regulations under Section 162(m) of the
Code.
Corporation--Golden Books Family Entertainment, Inc. and its subsidiaries.
Covered Employee--a key executive as contemplated by the regulations under
Section 162(m) of the Code.
Disability--means eligibility for disability benefits under the terms of the
Corporation's Long-Term Disability Plan in effect at the time the Participant
becomes disabled.
Management--the CEO and such other member of the Corporation management as the
CEO may from time to time designate to take action with respect to the Plan.
Option--an option, granted under and subject to the Stock Option Plan, to
purchase shares of common stock, par value $.01 per share, of the Corporation.
Participant--a key executive of the Corporation whose decisions and actions
significantly affect the Corporation's growth and profitability and who
receives an award opportunity under the Plan as determined by the Committee.
<PAGE>
Performance Objectives--significant financial or individual objectives to be
achieved by the Participant during the Award Year and upon which the
percentage or payment of the Target Award shall be based.
Plan--the Corporation's Executive Officer Bonus Plan.
Retirement--means termination of employment with the Corporation on or after
age 65.
Stock Option Plan--the Corporation's 1995 Stock Option Plan, as amended from
time to time.
Target Award--the payment that shall be made to the Participant if the
Participant's Performance Objectives are achieved during the applicable Award
Year, provided, however, that, to the extent and in the manner permitted by
the Committee in its sole discretion, the Participant may elect to receive all
or a portion of such payment in the form of an Option.
Section 3. EFFECTIVE DATE
Subject to compliance with all applicable legal requirements, the Plan, as
amended and restated, shall be effective as of January 1, 1997, subject to the
approval by shareholders of the Corporation at the 1997 Annual Meeting. The
1997 calendar year shall be the first Award Year of the Plan. No future awards
shall be granted subsequent to the 2002 Award Year unless the Plan is extended
by the Board of Directors and such extension is approved by the shareholders.
Section 4. ADMINISTRATION
The Committee shall be responsible for the implementation and administration
of the Plan. No Committee member shall be eligible for a Target Award under
the Plan while serving as a Committee member. The Committee's functions shall
include, but not be limited to: (i) interpretation of the Plan (which
interpretation shall be final and binding, unless otherwise determined by the
Board of Directors) and establishment of the rules and regulations governing
Plan administration; (ii) selection of Participants; (iii) determination of
Target Awards; (iv) approval of Performance Objectives; (v) determination of
the degree of the attainment of the Performance Objectives; and (vi)
determination of the size of individual awards and payments to Participants.
In reaching its decisions, the Committee shall consider recommendations made
by Management. The Committee may, in discharging its responsibilities under
the Plan, delegate such duties to officers or other employees of the
Corporation as it deems appropriate, with the exception of decisions which
affect the Covered Employees. In addition, the Committee is authorized to use
the services of the Corporation's accounting department and/or independent
auditors to determine the level of achievement of Performance Objectives,
subject to the certification of the Committee with respect to the achievement
of the Performance Objectives for the Covered Employees.
Section 5. ELIGIBILITY
The Committee shall select Participants based on recommendations of
Management. Selection as a Participant shall be limited to those key employees
of the Corporation who, by virtue of their positions, have a demonstrable
impact on either the profitability of a major business unit of the
Corporation, or upon the overall profitability of the Corporation. No
Committee member shall be eligible to be a Participant while serving as a
Committee member, but a director of the Corporation who is also a full-time
employee, but not a member of the Committee, shall be eligible to be a
Participant. No Participant or employee of the Corporation shall have any
right to be awarded any Target Award of actual payment under the Plan.
Section 6. TARGET AWARD
The amount of the Target Award for each Participant shall be determined by the
Committee at or near the start of the applicable Award Year based upon
Management's recommendation. For Covered Employees, the Target Award, the
related award schedule and the Performance Objective(s) shall be established
within 90 days of the beginning of the Award Year. Notwithstanding the
foregoing, to the extent and in the manner permitted by the Committee in its
sole discretion, the Target Award may be exchanged for an Option. For the 1997
Award Year only, options issued pursuant to the Plan shall have a value
(determined pursuant to the Black-Scholes method)
2
<PAGE>
equal to twice the amount of the Target Award elected to be exchanged by the
Participant, which option shall be subject to such vesting requirements as the
Committee may require pursuant to the terms of the Stock Option Plan.
Section 7. PERFORMANCE OBJECTIVES
Performance Objectives for each Participant shall be established as provided
in this section at demanding levels so that their achievement reflects
commendable performance by the Participant. The Performance Objectives may
consist of Financial Objectives, Individual Objectives or a combination of
Financial and Individual Objectives. With respect to Covered Employees, the
Performance Objectives shall consist of Financial Objectives only.
Financial and Individual Objectives are defined as follows:
(i) Financial Objectives--Financial Objectives shall be expressed in
terms of one or more of the following performance measures
established by the Committee for each year: earnings per share, net
income, net operating income, pre-tax profit, revenue growth, return
on sales, return on profit, return on equity, return on assets,
return on investment, total return to shareholders, and cash flow,
each of which may be established on a corporate-wide basis or
established with respect to one or more operating units, divisions,
acquired businesses, minority investments, partnerships or joint
ventures. At the same time, a "range" of achievement for financial
objectives ranging from "zero" to "target" (100% of Target Award
relating to Financial Objectives) to "maximum" (200% of Target Award
relating to Financial Objectives) shall be established. The
Committee shall have the authority to alter or adjust Financial
Objectives during the course of an Award Year, or to alter or adjust
the financial results otherwise reported or achieved by the
Corporation during such Award Year, if it is deemed appropriate to
do so, except with respect to the Covered Employees who are subject
to the terms of the last sentence of Section 9(ii).
(ii) Individual Objectives--Individual Objectives, if appropriate for a
Participant, shall be expressed in terms of significant qualitative
or quantitative individual goals to be achieved during the Award
Year. Individual Objectives usually shall be established jointly by
the Participant and the Participant's immediate superior, subject to
approval by the CEO, or his delegate. Individual Objectives for all
Participants shall be reviewed by the Committee for consistency with
overall Corporate goals and individual equity. A Participant's
Individual Objectives may be altered or amended during an Award
Year, if necessary, to properly reflect changed business conditions
and priorities, subject to approval by the CEO or his delegate.
Section 8. NOTICE OF AWARD
Except as may otherwise be determined by the Committee, a Participant shall be
notified in writing as soon as practicable after the start of the Award Year
of the amount of the Participant's Target Award and the applicable Performance
Objectives.
Section 9. AWARD DETERMINATION
As soon as practicable following the completion of each Award Year, the level
of achievement of Performance Objectives for each Participant and the amount
of the Award payment shall be determined by Management and, with respect to
Covered Employees, approved by the Committee. The Award payments for all
Participants, including the Covered Employees, are subject to review and
approval by the Committee. The level of achievement of the Performance
Objectives shall be determined in the following manner:
(i) Financial Objectives--For performance at or below the "zero" level
of achievement, there shall be no payment. Performance between the
"zero" level of achievement and the "target" level shall result in a
payment in accordance with the established range of achievement
payment schedule. Performance between the "target" and the "maximum"
level of achievement shall result in a payment in accordance with
the established range of achievement payment schedule.
3
<PAGE>
(ii) Adjustments in Financial Calculations--Except as provided below with
respect to Covered Employees, the Committee in its sole discretion
has the authority to effect adjustments from time to time in
connection with determining the degree of achievement of the
Financial Objectives for the Corporation or a business unit of the
Corporation for the applicable year in question, and to make any
other determinations, as it deems equitable, fair or advisable for
the purpose of ascertaining the amount of any payments under this
Plan. With respect to Covered Employees, the Committee shall have no
discretion to increase, but may decrease, the amount of an award
payable based upon the range of achievement of the Financial
Objectives established under Sections 6 and 7 hereof.
(iii) Individual Objectives--The attainment of Individual Objectives
shall be determined by the Participant's superior, subject to review
by Management and by the Committee for consistent and equitable
evaluations and judgments.
(iv) Actual Awards--The sum of the award based on achievement of
Financial Objectives and, if applicable, Individual Objectives.
(v) Maximum Awards--Where one or more objectives (but not necessarily
all) have been clearly and demonstrably exceeded, a Participant
(other than a Covered Employee) may be paid an amount in excess of
the portion of the award related to such objectives. The maximum
award payable to any Covered Employee for any Plan year is
$2,000,000.
Section 10. PAYMENT OF AWARDS
Award payments shall be made, less required tax and applicable benefits
withholdings, as soon as practicable after the determination and the final
approval of such payments as provided in Section 9; provided, however, that no
payments shall be made to the extent that Awards have been exchanged for an
Option as provided in Section 6.
Section 11. TERMINATION OF EMPLOYMENT
Upon the termination during an Award Year of a Participant's employment by the
Corporation by reason of death, Disability or Retirement, the Participant (or
the Participant's designated beneficiary or estate in the absence of a
surviving designated beneficiary) shall receive a pro rata Award payment based
on the portion of the Award Year the Participant was employed by the
Corporation in an eligible position while the Target Award was outstanding and
the degree to which during such Award Year the Performance Objectives were
achieved. A Participant whose employment with the Corporation terminates
during an Award Year for any other reason shall not be eligible for any
payment of an Award for such Award Year. Neither the Plan nor any action taken
hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Corporation.
Section 12. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors may at any time based upon a recommendation by the
Committee, amend, suspend, or terminate the Plan, except that, without
approval of the shareholders, the Board of Directors may not change (i) the
performance measures in Section 7(i) with respect to Covered Employees, (ii)
the individuals or class of individuals eligible to participate in the Plan or
(iii) the maximum amount payable to a Covered Employee under the Plan.
Section 13. NON-ASSIGNMENT OF RIGHTS
A Participant's Target Award may not be assigned or transferred, and is not
subject to attachment, garnishment, execution or other creditor's processes.
In the event of a Participant's death, the payment of the Award as provided in
the Plan, if any, shall be made to the Participant's designated beneficiary,
or estate in the absence of a surviving beneficiary.
4
<PAGE>
Section 14. COSTS OF PLAN
The expenses incurred in administering the Plan, including any Committee fees,
charges by the Corporation's independent auditors or other costs, shall be
borne by the Corporation.
Section 15. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, then immediately after
such event becomes effective (the "Effective Date"), the Corporation shall pay
to each Participant the pro rata amount of said participant's Target Award for
said Award Year, determined solely by the ratio which the number of calendar
quarters during which the award had been outstanding (including the calendar
quarter in which the Change of Control occurred) bears to four (4).
For purposes of this Plan, the term "Change of Control" shall mean any of the
following events:
(i) The acquisition (other than from the Corporation) by any person,
entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act"), (excluding, for this purpose, the Corporation, its
subsidiaries or any employee benefit plan of the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of
the Corporation's then outstanding voting securities entitled to
vote generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board (as of
the date hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the Directors of the
Corporation, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this
Plan, considered as though such person were a member of the
Incumbent Board; or
Approval by the stockholders of the Corporation of a reorganization, merger or
consolidation, in each case, with respect to which persons who were the
stockholders of the Corporation immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Corporation or of the sale of all or substantially all of
the assets of the Corporation.
Section 17. GOVERNING LAW
The validity, construction, interpretation, administration and effect of the
Plan, and rights relating to the Plan and to Awards granted under the Plan,
shall be governed by the substantive laws, but not the choice of law rules, of
the State of Delaware.
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000790706
<NAME> GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 100,470
<SECURITIES> 0
<RECEIVABLES> 61,284
<ALLOWANCES> 20,234
<INVENTORY> 29,731
<CURRENT-ASSETS> 201,740
<PP&E> 70,460
<DEPRECIATION> 41,174
<TOTAL-ASSETS> 333,160
<CURRENT-LIABILITIES> 58,823
<BONDS> 149,871
0
65,000
<COMMON> 265
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 333,160
<SALES> 116,069
<TOTAL-REVENUES> 116,447
<CGS> 80,497
<TOTAL-COSTS> 129,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,911
<INCOME-PRETAX> (20,187)
<INCOME-TAX> (23)
<INCOME-CONTINUING> (20,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,164)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>For the attached financials, the value EPS-DILUTED is not applicable
</FN>
</TABLE>
