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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 September 27, 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.)
888 Seventh Avenue, New York, New York 10106
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 547-6700
---------------
(Registrant's telephone number, including area code)
850 Third Avenue, New York, NY 10022
------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 26,887,313 shares outstanding as of
November 7, 1997.
1
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
TABLE OF CONTENTS
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-- 3
September 27, 1997 (Unaudited) and
December 28, 1996
Condensed Consolidated Statements of Operations-- 5
Three months ended September 27, 1997 and
September 28, 1996 (Unaudited)
Condensed Consolidated Statements of Operations-- 6
Nine months ended September 27, 1997 and
September 28, 1996 (Unaudited)
Condensed Consolidated Statements of Cash Flows-- 7
Nine months ended September 27, 1997 and
September 28, 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 19
SIGNATURES 20
2
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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)
- -------------------------------------------------------------------------------
ASSETS SEPTEMBER DECEMBER
27, 28,
1997 1996
---- ----
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 48,825 $139,686
Accounts receivable, net 42,774 41,415
Inventories 41,861 27,608
Net assets held for sale 17,324 19,779
Other current assets 17,843 12,385
--------- ---------
Total current assets 168,627 240,873
--------- ---------
OTHER ASSETS
Accounts receivable - long term 3,638 1,001
Other noncurrent assets 16,440 8,102
--------- ---------
Total other assets 20,078 9,103
--------- ---------
PROPERTY PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $42,632 as of
September 27, 1997 and $40,672 as of December 28, 1996 35,196 27,504
FILM LIBRARY, net of accumulated amortization of $3,519
as of September 27, 1997 and $1,082 as of December 28,
1996 63,438 60,668
GOODWILL, net of accumulated amortization of $1,305 as
of September 27, 1997 and $405 as of December 28, 1996 30,787 29,087
--------- ---------
TOTAL ASSETS $318,126 $367,235
========= =========
See Notes to Condensed Consolidated
Financial Statements
3
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT SEPTEMBER DECEMBER
27, 28,
1997 1996
---- ----
(unaudited)
CURRENT LIABILITIES
Accounts payable $ 24,723 $ 21,638
Accrued compensation and fringe benefits 6,326 5,787
Other current liabilities 31,830 45,238
---------- -----------
Total current liabilities 62,879 72,663
---------- -----------
NONCURRENT LIABILITIES
Long term debt 149,876 149,862
Accumulated postretirement benefit obligation 29,394 28,787
Deferred compensation and other deferred
liabilities 21,627 25,072
---------- -----------
Total noncurrent liabilities 200,897 203,721
---------- -----------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE
COMPANY'S AND GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 110,650 110,488
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, and 26,692,313 and 25,964,711 shares
issued as of September 27, 1997 and
December 28, 1996, respectively 267 259
Additional paid in capital 121,923 120,376
Accumulated deficit (239,174) (201,111)
Cumulative translation adjustments (1,494) (1,339)
---------- -----------
(53,478) (16,815)
Less cost of Common Stock in treasury - 208,800
shares 2,822 2,822
---------- -----------
Total stockholders' deficit (56,300) (19,637)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 318,126 $ 367,235
========== ===========
See Notes to Condensed Consolidated
Financial Statements
4
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
- -------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------
SEPTEMBER SEPTEMBER
27, 28,
1997 1996
---- ----
(unaudited)
REVENUES:
Net sales $ 52,805 $ 67,308
Royalties and other income 536 150
------------ ------------
Total revenues 53,341 67,458
------------ ------------
COSTS AND EXPENSES:
Cost of sales 37,742 78,799
Selling, general and administrative 29,421 41,670
Restructuring charges - 40,680
------------ ------------
Total costs and expenses 67,163 161,149
------------ ------------
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 (13,822) (93,691)
DISTRIBUTIONS ON GUARANTEED PREFERRED
BENEFICIAL INTERESTS IN THE COMPANY'S AND
GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 2,516 1,048
INTEREST EXPENSE, NET OF INTEREST INCOME OF
$1,325 AND $1,423, RESPECTIVELY 1,637 1,526
------------ ------------
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME
TAXES (17,975) (96,265)
(BENEFIT) PROVISION FOR INCOME TAXES (76) 550
------------ ------------
NET LOSS $ (17,899) $(96,815)
============ ============
NET LOSS PER COMMON SHARE $(0.76) $(4.29)
============ ============
See Notes to Condensed Consolidated
Financial Statements
5
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
- -------------------------------------------------------------------------------
NINE MONTHS ENDED
---------------------------
SEPTEMBER SEPTEMBER
27, 28,
1997 1996
---- ----
(unaudited)
REVENUES:
Net sales $ 168,874 $ 206,939
Royalties and other income 914 819
------------ ------------
Total revenues 169,788 207,758
------------ ------------
COSTS AND EXPENSES:
Cost of sales 118,239 179,876
Selling, general and administrative 78,193 109,579
Restructuring charges - 40,680
------------ ------------
Total costs and expenses 196,432 330,135
------------ ------------
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 (26,644) (122,377)
DISTRIBUTIONS ON GUARANTEED PREFERRED
BENEFICIAL INTERESTS IN THE COMPANY'S AND
GOLDEN BOOKS PUBLISHING COMPANY, INC.'S
CONVERTIBLE DEBENTURES 7,548 1,048
INTEREST EXPENSE, NET OF INTEREST INCOME OF
$4,903 AND $2,545, RESPECTIVELY 3,970 6,546
------------ ------------
LOSS BEFORE (BENEFIT) PROVISION FOR INCOME
TAXES (38,162) (129,971)
(BENEFIT) PROVISION FOR INCOME TAXES (99) 2,008
------------ ------------
NET LOSS $ (38,063) $(131,979)
============ ============
NET LOSS PER COMMON SHARE $(1.69) $(6.11)
============ ============
See Notes to Condensed Consolidated
Financial Statements
6
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- -------------------------------------------------------------------------------
NINE MONTHS ENDED
------------------------
SEPTEMBER SEPTEMBER
27, 28,
1997 1996
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (38,063) $ (131,979)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 8,016 11,912
Provision for losses on accounts
receivable 1,460 3,507
Restructuring charges - 40,680
Other non-cash charges associated
with strategic redirection of the Company - 39,450
Non cash compensation - 12,801
Other-non-cash items (84) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (5,456) 5,498
(Increase) decrease in inventories (14,253) 18,348
(Increase) decrease in other current assets (5,458) 1,055
Increase (decrease) in accounts payable 485 (8,464)
Increase (decrease) in accrued
compensation and fringe benefits 539 (2,482)
Other assets and liabilities (15,233) (488)
----------- ------------
Net cash used in operating activities (68,047) (10,162)
CASH FLOWS FROM INVESTING ACTIVITIES:
Broadway Video acquisition - (81,000)
Investment in joint venture - (2,250)
Acquisitions of property, plant and
equipment (11,898) (6,977)
Proceeds from streamlining plan - 1,382
Additions to film library (5,207) -
Collateral for letters of credit and
performance bonds (7,186) -
----------- ------------
Net cash used in investing
activities (24,291) (88,845)
See Notes to Condensed Consolidated
Financial Statements
7
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<TABLE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- ------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER SEPTEMBER
27, 28,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Guaranteed
Preferred Beneficial Interests in
the Company's and Golden Books
Publishing Company, Inc.'s
Convertible Debentures - 115,000
Issuance costs of Guaranteed
Preferred Beneficial Interests in
the Company's and Golden Books
Publishing Company, Inc.'s
Convertible Debentures - (4,579)
Proceeds of issuance of Preferred
Stock - Series B - 65,000
Issuance costs of Preferred Stock -
Series B - (6,248)
Redemption of Preferred Stock -
Series A - (9,985)
Proceeds from exercise of stock
options and sale of Common Stock,
including the Hallmark transaction 1,555 27,702
Dividends paid on Preferred Stock -
Series A - (646)
---------- ------------
Net cash provided by financing
activities 1,555 186,244
EFFECT OF EXCHANGE RATE CHANGES ON CASH (78) 3
---------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (90,861) 87,240
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 139,686 33,840
---------- ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 48,825 $ 121,080
========== ============
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 $ 19,021 $ 11,583
========== ============
Income taxes, net of refunds
received $ (276) $ (372)
========== ============
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
8
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of Golden Books Family Entertainment, Inc. and
Subsidiaries (the "Company") as of September 27, 1997, and its results of
operations for the three month and nine month periods ended September 27, 1997
and September 28, 1996 and cash flows for the nine month periods ended
September 27, 1997 and September 28, 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
third quarter of fiscal 1997 ended on September 27, 1997 and the comparable
period of the prior year ended on September 28, 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 fourth fiscal quarter.
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
("Convertible Debentures") 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:
September 27, December 28,
1997 1996
---- ----
(In thousands)
Raw materials $ 3,576 $ 2,810
Work-in-process 9,119 1,829
Finished goods 25,916 19,719
Film library 3,250 3,250
--------- ---------
$41,861 $27,608
========= =========
NOTE C - Net Assets Held for Sale
As of September 27, 1997, net assets held for sale totaling approximately
$17.3 million included, (i) the Fayetteville facility, which is currently
being leased to a third party as a result of the sale of the company's game
and puzzle operations, (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. On September 29, 1997,
the Company entered into a definitive agreement to sell the Cambridge facility
(see Note. G).
9
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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 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 exchangeable at the option of their holders for Convertible
Debentures, which are immediately convertible into Common Stock of the Company
at an initial conversion price of $13.00 per share. The Convertible Debentures
will mature on August 20, 2016, and may be redeemed, in whole or in part, at
any time after August 20, 1999 or at any time in certain circumstances upon
occurrence of a Tax Event or an Investment Company Event (both as defined).
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 nine months ended September 27, 1997 are as follows (in thousands):
September
27, 1997
--------
Current assets $ 150,304
Noncurrent assets 135,659
------------
Total Assets $ 285,963
============
Current liabilities $ 127,839
Noncurrent liabilities 192,849
------------
Total Liabilities 320,688
Preferred Securities 110,650
Stockholders' Deficit (145,375)
------------
Total Liabilities and Stockholders' Deficit $ 285,963
============
Three Months Nine Months
------------ -----------
Ended September 27, 1997
------------------------
Revenues $ 53,341 $ 169,788
Gross profit 15,599 51,549
Loss before interest expense and benefit (12,097) (26,167)
for income taxes
Net loss (16,730) (39,472)
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 Golden Books Family Entertainment, Inc.
NOTE E - Loss Per Common Share
Loss per common share was computed as follows:
Three Months Ended Nine Months Ended
-------------------- --------------------
September September September September
27, 28, 27, 28,
1997 1996 1997 1996
(In thousands except for per share data)
Net loss $(17,899) $(96,815) $ (38,063) $(131,979)
Preferred dividend requirements (2,169) (2,210) (6,252) (4,053)
--------- --------- ---------- ----------
Loss applicable to common stock (20,068) (99,025) (44,315) (136,032)
========= ========= ========== ==========
Weighted average common shares 26,489 23,098 26,204 22,249
outstanding
Loss per common share $ (0.76) $ (4.29) $ (1.69) $ (6.11)
========= ========= ========== ==========
10
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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 has completed the removal of drums and soil from the site.
On April 16, 1987, the EPA notified the Company that it may be a PRP 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 $18.0 million. In accordance with the consent
decree, the Company has provided for its share of the probable clean-up costs.
On August 14, 1991, the EPA notified the Company that it may be a PRP 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 ending 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.
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
11
<PAGE>
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 associated 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 September 27, 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.
Note G - Subsequent Events
As more fully described in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Company signed a new license
agreement with Disney Book Publishing, Inc. (the "New Disney License
Agreement"). The New Disney License Agreement commenced on October 1, 1997 and
runs through December 31, 2001 and may be extended under certain conditions
for an additional year through December 31, 2002. Royalty rates under the New
Disney License Agreement vary by product covered. The New Disney License
Agreement contains minimum royalty guarantees of $7,370,000 for the nine-month
period commencing January 1, 1998 and ending September 30, 1998, $11,670,000
for the second year of the term, $13,340,000 for the third year of the term,
$15,340,000 for the fourth year of the term and $5,280,000 for the period
commencing October 1, 2001 and ending December 31, 2001; provided that if
the New Disney License Agreement is extended for an additional year, the
minimum royalty guaranty for the year commencing October 1, 2001 shall be
$16,670,000, and for the period commencing October 1, 2002 and ending
December 31, 2002 shall be $5,610,000. In addition, upon the execution and
delivery of the agreement, Disney Enterprises, Inc. ("Disney") received
warrants to purchase 1.1 million shares of the Company's common stock at a
per share price of $11.375 (subject to certain adjustments), exercisable
beginning on the earlier of i) 90 days after the expiration of the agreement
or ii) 30 days after the announcement by either Disney or the Company that
they will a) be entering into a new license agreement or b) that they will
not be entering into a new licensing agreement, and expiring on March 31, 2008.
On October 29, 1997, the Company entered into a definitive agreement with
Mail-Well Inc. to sell the Company's commercial printing operations in
Cambridge, Maryland.
On October 31, 1997, the Company sold the building which houses the main
manufacturing facility in Racine, Wisconsin.
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 nine
months ended September 27, 1997 and September 28, 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 Holding"), 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 1999 at the earliest.
THREE AND NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 28, 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 nine months ended September 27, 1997 and
September 28, 1996, 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 nine months ended September 28, 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 Accounting 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 September 27, 1997 decreased $17.6 million
(24.8%) to $53.3 million, compared to $70.9 million (before consideration of
$3.4 million of one time charges to establish reserves to resolve differences
with customers), for the three months ended September 28, 1996, and decreased
$41.4 million (19.6%) to $169.8 million from
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$211.2 million (before consideration of $3.4 million of one time charges to
establish reserves to resolve differences with customers) for the nine months
ended September 27, 1997 compared to the nine months ended September 28, 1996.
Consumer Products Segment revenues decreased $16.9 million (29.3%) to $40.7
million for the three months ended September 27, 1997, compared to $57.6
million (before consideration of $3.4 million of one time charges to establish
reserves to resolve differences with customers) for the three months ended
September 28, 1996, and decreased $52.9 million (31.0%) to $117.6 million from
$170.5 million (before consideration of $3.4 million of one time charges to
establish reserves to resolve differences with customers) for the nine months
ended September 27, 1997 compared to the nine months ended September 28, 1996.
The decrease in revenue for the Consumer Products Segment for the three months
ended September 27, 1997 resulted principally from the sale of Penn, which was
sold in December of 1996 (revenues of $10.2 million) along with sales declines
across most of the Children's publishing categories, in particular, Electronic
Storybooks. These declines were caused in part by delays in the timing of
sales shipments although these declines were partially offset by strong sales
of Stephen Covey's "The Seven Habits of Highly Effective Families". The
decline for the nine months ended September 27, 1997 is principally the result
of the sale of Penn (revenues of $35.0 million) and revenue declines in the
Electronic Storybooks and Premium Sales categories.
Commercial Products Segment revenues decreased $4.0 million (33.3%) to $8.0
million for the three months ended September 27, 1997, compared to $12.0
million for the three months ended September 28, 1996, and decreased $5.3
million (13.5%) to $34.1 million from $39.4 million for the nine months ended
September 27, 1997, compared to the nine months ended September 28, 1996. The
revenue declines for the three and nine months ended September 27, 1997
compared to the three and nine months ended September 28, 1996 have largely
been due to internal production requirements as the Company builds inventory
levels in preparation for the move of the manufacturing facility early in
1998.
Entertainment Segment revenues increased $3.3 million to $4.6 million for the
three months ended September 27, 1997 compared to $1.3 million for the three
months ended September 28, 1996 and increased $16.8 million to $18.1 million
for the nine months ended September 27, 1997 compared to $1.3 million for the
nine months ended September 28, 1996. The increase in revenues for the three
and nine months ended September 27, 1997 compared to the three and nine months
ended September 28, 1996 was due to the fact that the Entertainment Segment
was active for only one month during these periods in 1996 compared to
complete periods of activity during 1997.
Gross Profit
Gross profit decreased $1.4 million (8.2%) for the three months ended
September 27, 1997 to $15.6 million, compared to $17.0 million (before
consideration of $28.4 million in one-time revenue and cost of sales charges
associated with the strategic redirection of the Company comprised $3.4
million in revenue reserves established to resolve differences with customers,
$17.6 million relating to the discontinuance or replacement of certain product
lines and $7.4 million of other inventory related costs) for the three months
ended September 28, 1996, and decreased $4.7 million (8.4%) to $51.5 million
for the nine months ended September 27, 1997, from $56.2 million (before
consideration of one time charges of $28.4 comprising $3.4 million in revenue
reserves established to resolve differences with customers, $17.6 million
relating to the discontinuance or replacement of certain product lines and
$7.4 million of other inventory related costs) for the nine months ended
September 28, 1996. Gross profit for the nine months ended September 28, 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 29.2% for the three months ended September 27, 1997
from 24.0% for the three months ended September 28, 1996 (before consideration
of one time charges associated with the strategic redirection of the Company)
and increased to 30.4% from 26.6% (before consideration of one time charges
associated with the strategic redirection of the Company) for the nine months
ended September 27, 1997, compared to the nine months ended September 28,
1996.
In the Consumer Products Segment, gross profit decreased $2.7 million (17.9%)
to $12.4 million for the three months ended September 27, 1997, compared to
$15.1 million for the three months ended September 28, 1996 (before
consideration of one time charges of $28.4 million described above), and
decreased $13.9 million (26.8%) to $37.9 million from $51.8 million for the
nine months ended September 27, 1997 (before consideration of one time
charges of $28.4 million described above), compared to the nine months ended
September 28, 1996. As a percentage of revenues, the gross profit margin for
the Consumer Products Segment increased to 30.5% for the three months ended
September 27, 1997 from 26.2% for the three months ended September 28, 1996
and increased to 32.3% from 30.4% for the nine months ended September 27, 1997,
compared to nine months ended September 28, 1996. The decrease in Consumer
Products Segment gross profit for the three months ended September 27, 1997,
compared to the three months ended September 28, 1996, resulted from the
exclusion of gross profit associated with Penn ($1.9 million) and lower levels
of sales which were offset, in part, by lower manufacturing costs. The
decrease in the
14
<PAGE>
Consumer Products Segment gross profit for the nine months ended September 27,
1997, compared to the nine months ended September 28, 1996, resulted from the
exclusion of the gross profit associated with Penn ($8.5 million), the impact
of the $2.7 million inventory valuation adjustment described above and lower
sales levels offset, in part, 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 nine months
ended September 27, 1997, offset by the inventory valuation adjustment in the
nine months ended September 28, 1996.
Commercial Products Segment gross profit decreased $0.1 million (9.1%) to $1.0
million for the three months ended September 27, 1997, compared to $1.1
million for the three months ended September 28, 1996, and increased $0.4
million (11.1%) to $4.0 million from $3.6 million for the nine months ended
September 27, 1997, compared to the nine months ended September 28, 1996. As a
percentage of revenues, the gross profit margin for the Commercial Products
Segment increased to 11.8% for the three months ended September 27, 1997,
compared to 9.3% for the three months ended September 28, 1996, and increased
to 11.6% for the nine months ended September 27, 1997, compared to 9.2% for
the nine months ended September 28, 1996. The increase in Commercial Products
Segment gross profit margin was primarily due to cost savings achieved in the
Racine and Cambridge plants in the three and nine month ended September 27,
1997 compared to the three and nine months ended September 28, 1996.
The Entertainment Segment gross profit increased $1.4 million to $2.2 million
for the three months ended September 27, 1997 compared to $0.8 million for the
three months ended September 28, 1996 and increased $8.8 million to $9.6
million for the nine months ended September 27, 1997, compared to $0.8 million
for the nine months ended September 28, 1996. As a percentage of revenues, the
gross profit margin was 48.5% for the three months ended September 27, 1997
compared to 64.9% for the three months ended September 28, 1996 and was 53.4%
for the nine months ended September 27, 1997, compared to 64.9% for the nine
months ended September 28, 1996. The decrease in the Entertainment gross
profit margin was primarily due to higher levels of home video sales activity
with lower gross margins in both the three and nine months ended September 27,
1997,compared to the three and nine months ended September 28, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, before consideration of $3.3
million of one time transition costs associated with the redirection of the
Company (comprised of consulting costs of $1.0 million, information systems
changeover costs of $1.7 million and costs associated with the move of the
Company's Racine, Wisconsin manufacturing facility of $0.6 million), were
$26.1 million for the three months ended September 27, 1997, a decrease of
$4.5 million from $30.6 million, before consideration of one time charges of
$11.0 million (to resolve certain legal and contractual matters) incurred
during the three months ended September 28, 1996. Before consideration of $8.4
million of one time transition costs associated with the redirection of the
Company (comprised of consulting costs of $3.5 million, information systems
changeover costs of $4.0 million and costs associated with the move of the
Company's Racine, Wisconsin manufacturing facility of $0.9 million) selling,
general and administrative expenses decreased $12.5 million to $69.8 million
for the nine months ended September 27, 1997 compared to $82.3 million, before
consideration of $27.2 million (comprising $16.2 million of charges relating
to an equity investment in the Company by Golden Press Holding and $11.0
million in charges to resolve certain legal and contractual matters), for the
nine months ended September 28, 1996. The decreases for the three and nine
months ended September 27, 1997, compared to the three and nine months ended
September 28, 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 September 27, 1997 decreased $0.1
million to $1.3 million from $1.4 million for the three months ended September
28, 1996 and increased $2.4 million to $4.9 million from $2.5 million for the
nine months ended September 27, 1997 compared to the nine months ended
September 28, 1996. The decrease for the three months ended September 27,
1997, compared with the three months ended September 28, 1996, was due to
lower average cash balances during the three months ended September 27, 1997.
The increase for the nine months ended September 27, 1997 compared to the nine
months ended September 28, 1996 results from higher average cash balances
during 1997 due to cash generated towards the end of 1996 which has
subsequently been reduced during 1997 to fund operations, previous period
restructure expenses and one time transition costs necessary to implement
management's plans to change the strategic direction of the Company. The cash
increases during 1996 were generated as follows (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
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<PAGE>
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
September 27, 1997 increased by $1.6 million to $4.2 million, as compared to
$2.6 million for the three months ended September 28, 1996, and increased $3.9
million to $11.5 million from $7.6 million for the nine months ended September
27, 1997, compared to the nine months ended September 28, 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 nine months ended September 27, 1997, compared to
$212.7 million for the three months ended September 28, 1997 and to $170.9
million for the nine months ended September 28, 1996, due to the issuance of
the Preferred Securities during August and September of 1996.
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 nine months ended September 27, 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 nine months ended
September 28, 1996 pertained principally to anticipated resolution of
outstanding issues from prior years.
Net Loss
The net loss for the three months ended September 27, 1997 was $(17.9)
million, or $(0.76) per common share, compared to a net loss of $(96.8)
million, or $(4.29) per common share, for the three months ended September 28,
1996. For the nine months ended September 27, 1997, the net loss was $(38.1)
million or $(1.69) per common share, compared to a net loss of $(132.0)
million, or $(6.11) per common share, for the nine months ended September 28,
1996. Results for the nine months ended September 27, 1997 included one time
transition costs of $8.4 million, as previously discussed, and the results for
the nine months ended September 28, 1996 included the $96.3 million in one
time charges associated with the strategic redirection of the Company ((i)
$16.2 million in connection with the sale of a significant equity interest to
Golden Press Holding; (ii) a restructuring charge totaling $40.7 million
pertaining to a $30.1 million writedown of the net assets of Penn to net
realizable value, a $3.0 million reduction in the net realizable value of the
Company's Fayetteville facility and $7.6 million in costs associated with the
termination of certain customer program initiatives; (iii) a cost of sales
adjustment of $25.0 million comprised of $17.6 million of costs pertaining to
the Company's decision to discontinue or replace certain product lines and
expeditiously liquidate related inventory and slow moving product and $7.4
million of other inventory related costs, consisting primarily of licensor and
prepublication costs; (iv) a selling, general and administrative charge of
$11.0 million relating to costs associated with management's revised plans to
resolve certain legal and contractual matters; and (v) adjustments to revenue
totaling $3.4 million to establish reserves in connection with the Company's
plans to resolve differences with customers with a view toward mending and
improving the Company's relationships with its customers).
Financial Condition, Liquidity and Capital Resources
Operations for the nine months ended September 27, 1997, including one time
transition costs of $8.4 million associated with the strategic redirection of
the Company and payments of restructuring costs accrued during the period
ended December 28, 1996 of $3.9 million, utilized cash of approximately $90.9
million compared to cash provided of $87.2 million for the nine months ended
September 28, 1996. The major source of cash flow in the nine months ended
September 28, 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, the issuance of Preferred Securities for $115.0 million in
August 1996, 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 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.
16
<PAGE>
Acquisitions of property, plant and equipment were $11.9 million during the
nine months ended September 27, 1997, as compared to $7.0 million during the
nine months ended September 28, 1996.
Working capital at September 27, 1997 was $105.7 million, as compared to
$168.2 million at December 28, 1996. The decrease resulted primarily from cash
reductions associated with investment in property, plant and equipment,
funding the loss from operations and transition costs associated with the
strategic redirection of the Company during the nine months ended September
27, 1997.
The Company expects to spend approximately $14.0 million attributable to
transition costs to be incurred in connection with the strategic redirection
of the Company during 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 1997. As a result, the Company expects that
approximately $7.0 million of one time transition costs will be incurred
during 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 September 27, 1997, the Company maintained
sufficient accruals for restructuring costs which are expected to be paid out
during the remainder of 1997 and 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 such 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, on October 31, the Company sold the building which houses its
existing manufacturing facility in Racine, Wisconsin, and is in the process of
building 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 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, including $3.4 million that
will be received before the end of 1997.
On September 26, 1997, the Company signed a new license agreement with Disney
Book Publishing, Inc. ("Disney") (the "New Disney License Agreement") (the
Company's previous main license agreement with Disney was to have expired on
December 31, 1997). The New Disney License Agreement commenced on October 1,
1997 and runs through December 31, 2001, and can be extended under certain
conditions for an additional year through December 31, 2002. The book formats
covered under the New Disney License Agreement include: coloring books,
activity books, Little Golden Books, First Little Golden Books, Look/Look
Books, Super Shape Books and Sturdy Shape Books. New formats approved by
Disney also may be covered under the New Disney License Agreement. Properties
covered under the New Disney License Agreement include Disney classic
characters as well as characters from major new Disney branded films released
during the term thereof.
Royalty rates under the New Disney License Agreement vary by product covered.
The New Disney License Agreement contains minimum royalty guarantees of
$7,370,000 for the nine-month period commencing January 1, 1998 and ending
September 30, 1998, $11,670,000 for the second year of the term, $13,340,000
for the third year of the term, $15,340,000 for the fourth year of the term
and $16,670,000 for the additional year (if applicable). In addition, upon the
execution and delivery thereof, Disney received warrants to purchase 1.1
million shares of the Company's common stock at a per share price of $11.375
(subject to certain adjustments), exercisable beginning on the earlier of i)
90 days after the expiration of the New Disney License Agreement or ii) 30
days after the announcement by either Disney or the Company that they will a)
be entering into a new license agreement or b) that they will not be entering
into a new licensing agreement, and expiring on March 31, 2008.
As of September 27, 1997, the Company had approximately $48.8 million in cash
and cash equivalents. The Company believes that such amounts will be
sufficient to fund working capital needed for the foreseeable future. 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
17
<PAGE>
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 Golden Books Family Entertainment, Inc.
18
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Current Report on Form 8-K dated October 1, 1997.
19
<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.
November 11, 1997 /s/ Richard E. Snyder
------------------------
Richard E. Snyder
Chairman of the Board,
President and
Chief Executive Officer
November 11, 1997 /s/ Philip E. Rowley
-----------------------
Philip E. Rowley
Executive Vice President and
Chief Financial Officer
20
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<PAGE>
<ARTICLE> 5
<LEGEND>
For the attached financials, the value EPS-DILUTED is not applicable.
</LEGEND>
<CIK> 0000790706
<NAME> GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 48,825
<SECURITIES> 0
<RECEIVABLES> 64,206
<ALLOWANCES> 21,432
<INVENTORY> 41,861
<CURRENT-ASSETS> 168,627
<PP&E> 77,828
<DEPRECIATION> 42,632
<TOTAL-ASSETS> 315,526
<CURRENT-LIABILITIES> 60,279
<BONDS> 149,876
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<COMMON> 65,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 315,526
<SALES> 168,874
<TOTAL-REVENUES> 169,788
<CGS> 118,239
<TOTAL-COSTS> 129,269
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 3,970
<INCOME-PRETAX> (38,162)
<INCOME-TAX> (99)
<INCOME-CONTINUING> (38,063)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (38,063)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> 0
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