Golden Comprehensive Security Program
Financial Statements
Years ended December 31, 1999 and 1998
Contents
Report of Independent Auditors................................................ 1
Financial Statements
Statements of Net Assets Available for Benefits............................... 2
Statements of Changes in Net Assets Available for Benefits.................... 3
Notes to Financial Statements................................................. 4
<PAGE>
Report of Independent Auditors
The Plan Administrator
Golden Comprehensive Security Program
We have audited the accompanying statements of net assets available for benefits
of the Golden Comprehensive Security Program (the Plan) as of December 31, 1999
and 1998, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
May 3, 2000
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Golden Comprehensive Security Program
Statements of Net Assets Available for Benefits
December 31
1999 1998
---------------------------------
Assets
Investment in Golden Books Publishing
Company, Inc. Master Retirement Trust
(Notes 2 and 3) $64,525,541 $58,890,992
Receivables:
Employer contribution receivable 28,573 54,358
Participant contribution receivable 87,056 172,413
---------------------------------
Total assets 64,641,170 59,117,763
Liabilities
Payable to third parties 105,285 105,285
---------------------------------
Net assets available for benefits $64,535,885 $59,012,478
=================================
See accompanying notes. 2
<PAGE>
Golden Comprehensive Security Program
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
-----------------------------
<S> <C> <C>
Additions:
Equity in earnings of Golden Books Publishing
Company, Inc. Master Retirement Trust
(Notes 2 and 3) $15,309,696 $ 7,480,235
Contributions:
Employer 462,813 530,455
Participants 1,530,803 3,192,521
-----------------------------
1,993,616 3,722,976
-----------------------------
17,303,312 11,203,211
Deductions:
Benefit payments and withdrawals 11,739,555 12,893,158
Administrative expenses 10,753 7,954
-----------------------------
11,750,308 12,901,112
Transfer of assets to other plans (29,597) (1,773)
-----------------------------
Net increase (decrease) 5,523,407 (1,699,674)
Net assets available for benefits at beginning of year 59,012,478 60,712,152
-----------------------------
Net assets available for benefits at end of year $64,535,885 $59,012,478
=============================
</TABLE>
See accompanying notes. 3
<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements
December 31, 1999
1. Description of the Plan
The following description of the Golden Comprehensive Security Program (the
Plan) provides only general information. Participants should refer to the
Summary Plan Description for a more complete description of the Plan's
provisions. The Plan is a contributory defined-contribution plan covering all
eligible employees of Golden Books Publishing Company, Inc. (the Company). The
Company is a subsidiary of Golden Books Family Entertainment, Inc. (Parent
Company). Employees of any United States subsidiary of the Parent Company which
adopts the Plan, with the consent of the Company, who meet certain eligibility
requirements are also eligible. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
On November 26, 1999, the Company consummated the sale of its manufacturing
facility in Racine, Wisconsin to Artech Printing, Inc. (Artech). Account
balances of Plan participants who became employees of Artech will be transferred
to the applicable Artech Plans in May 2000.
The Parent Company filed for bankruptcy on February 26, 1999, and filed a Joint
Plan of Reorganization on March 25, 1999, that was approved by the Company
Senior Notes and TOPrS holders. Under an order dated September 24, 1999, the
bankruptcy court confirmed the Parent Company's Amended Joint Plan of
Reorganization and significant components were approved by the court on December
22, 1999. On January 27, 2000, the Parent Company formally emerged from
protection under the bankruptcy code upon the consummation of the Amended Joint
Plan of Reorganization. Currently, there are no intentions to terminate the Plan
and the Company continues to make contributions to the Plan as required under
the Plan Document.
Each employee becomes a participant of the Plan on specified monthly entry dates
after meeting the following requirements:
a. Is a salaried employee or a member of a group or class of employees to
whom the Plan has been extended by the Board of Directors of the Company;
and
b. Is not a member of a collective bargaining unit of employees represented
by a collective bargaining representative, except to the extent that an
agreement between the participating company (Employer) and such
representative extends the Plan to such unit of employees; and
4
<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
c. Has completed one month of continuous employment (as defined in the Plan).
Participants may elect to make contributions to the Plan in amounts based on a
percentage of compensation, as defined in the Plan. A participating employee's
total contribution is limited to not less than 1% and not more than 16% of
compensation. Income deferral contributions were limited to no more than $10,000
in 1999 and 1998, in accordance with the Internal Revenue Code (IRC). The Plan
is intended to satisfy the requirements under Section 404(c) of ERISA and,
therefore, provides that participants may choose to direct their contributions
and all or part of their account balances among any of the Plan's investment
alternatives.
Each Employer contributes for each participant an amount equal to 60% of the
first 6% of income deferral contributions made by, or on behalf of the
participant who has completed one year of service. In addition, each Employer
annually contributes to the Plan a discretionary amount (based on the Company's
financial performance) equal to 0% to 3% of the aggregate compensation of
participants entitled to share in the contribution for that year. There were no
discretionary contributions for 1999 or 1998. Discretionary contributions are
allocated to the participants' accounts pro rata based on the eligible
compensation paid to the participant by the Employer in that Plan year. Employer
contributions are reduced forfeitures credited for the applicable period.
Interest, dividends and net realized and unrealized gains and losses on Plan
investments are allocated to participants' accounts daily based on their
proportionate share of the applicable investment fund's assets.
If a participant's employment terminates for any reason other than retirement,
disability or death, the participant is vested in Employer contributions
according to the following schedule:
Vested Percentage
Years of Continuous of Employer
Employment Contribution Account
---------------------------------- ---------------------------------
Less than 1 0%
1 but less than 2 25
2 but less than 3 50
3 but less than 4 75
4 or more 100
5
<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
In the event of a participant's retirement, disability or death, Employer
contributions not previously vested become fully vested and are not subject to
forfeiture, and the participant's account becomes immediately distributable. If
a participant's employment terminates for any reason, the participant's vested
account balance may be distributed to the participant or, in the event of death,
to the beneficiary by one or both of the following methods:
a. By a lump-sum distribution of any or all of the account balance.
b. By applying the cash equivalent of any or all such account balance towards
the purchase of an annuity contract, subject to certain requirements as
defined in the Plan.
A participant may elect to defer distribution of their vested account balance
until age 70 1/2.
No more often than once each quarter, a participant may elect to withdraw all or
any portion of the net credit balance in the participant's contribution account,
prior plan account or rollover account. Participants may borrow, up to certain
limits, against their account balance. Loans must be repaid over a period not to
exceed 60 months unless the proceeds were used for the purchase of a primary
residence in which case it must be repaid within 240 months. Generally, loan
repayments are made by payroll deduction.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of
accounting.
Investments
The Plan participates in investment accounts under the Golden Books Publishing
Company, Inc. Master Retirement Trust (the Master Trust). Investment income and
realized and unrealized appreciation or depreciation on assets held in the
Master Trust are allocated daily to each investment fund under the Plan based on
its proportionate share of Master Trust assets. Plan participation in the Master
Trust is adjusted monthly for withdrawals for benefit payments to Plan
participants and for contributions made to the Plan.
6
<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Valuation of Investments
The Master Trust's investment in mutual funds, common trust fund and parent
company stock are valued at fair value based on quoted redemption values on the
last business day of the Plan year. Investments in unallocated insurance
contracts are valued at contract value. Contract value represents contributions
made under the contract, plus interest, less benefit payments. The contracts are
fully benefit responsive, as that terminology is defined in AICPA Statement of
Position (SOP) No. 94-4, "Reporting of Investment Contracts Held by Health and
Welfare Benefit Plans and Defined Contribution Pension Plans." Participant loans
are valued at the remaining unpaid principal amount of the loans, which
approximates fair value.
Expenses
Investment management fees are paid by the Plan and other administrative
expenses of the Plan are paid by the Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Reclassifications
Certain 1998 balances were reclassified to conform to the 1999 presentation.
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<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
3. Investments in Master Trust
Assets held by the Master Trust are as follows:
December 31
1999 1998
-------------------------------
Investments, at fair value determined by
quoted market price:
Mutual funds $68,090,093 $60,561,106
Parent Company common stock 87,084 346,167
Common trust fund 26,265,663 17,750,976
Unallocated insurance contracts, at
contract value -- 7,710,528
Notes receivable from participants,
at estimated fair value 1,647,222 2,056,908
-------------------------------
96,090,062 88,425,685
Less amounts allocated to other plan 31,564,521 29,534,693
-------------------------------
$64,525,541 $58,890,992
===============================
The Plan's interest in the Master Trust assets was approximately 67% as of
December 31, 1999 and 1998.
On January 27, 2000, when the Parent Company formally emerged from protection
under the bankruptcy code (see Note 1), shares of Parent Company common stock
(Old Company Stock) were canceled and holders of Old Company Stock received
warrants to purchase successor company common stock. The warrants have a nominal
fair value and all transactions involving this investment are suspended until
the Plan receives guidance from the Department of Labor as to the proper
disposition of the warrants.
The interest rates on the unallocated insurance contracts held by the Master
Trust were 6.4% % in 1999 and 6.05% to 6.40% in 1998. The average yield was 6.3%
and 6.1% in 1999 and 1998, respectively. Contracts in the Master Trust matured
in 1999.
Interest and dividend income earned by the Master Trust is as follows:
Year ended December 31
1999 1998
-----------------------------
Interest and dividend income earned
by the Master Trust $6,335,288 $4,839,630
Less amount allocated to other plan 2,144,113 1,690,427
-----------------------------
$4,191,175 $3,149,203
=============================
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<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
3. Investments in Master Trust (continued)
The Master Trust's investments (including investments bought and sold, as well
as held during the year) appreciated (depreciated) in value and were allocated
to the Plan as follows:
Year ended December 31
1999 1998
------------------------------
Investments at fair value as determined
by quoted market prices:
Mutual funds $14,319,350 $ 8,646,742
Investments in the Parent Company's
common stock 308,931 (3,030,117)
------------------------------
14,628,281 5,616,625
Less amounts allocated to other plan 3,509,760 1,285,593
------------------------------
$11,118,521 $ 4,331,032
==============================
4. Income Tax Status
The Internal Revenue Service ruled November 24, 1995, that the Plan is qualified
under Section 401(a) of the IRC and, therefore, the related trust is exempt from
taxation. Once qualified, the Plan is required to operate in conformity with the
IRC to maintain its qualification. The Administrative Committee believes the
Plan is being operated in compliance with the applicable requirements of the IRC
and, therefore, believes the Plan is qualified and the related trust is tax
exempt.
5. Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become fully vested in their accounts.
6. Transactions with Parties In Interest
The Master Trust invests in common stock of the Parent Company.
9
<PAGE>
Golden Comprehensive Security Program
Notes to Financial Statements (continued)
7. Reconciliation of Financial Statements to Form 5500
The following reconciles net assets available for benefits per the financial
statements to the Form 5500:
December 31
1999 1998
------------------------------
Net assets available for benefits per
financial statements $64,535,885 $59,012,478
Employer contribution receivable (28,573) (54,358)
Participant contribution receivable (87,056) (172,413)
Payable to third parties 105,285 105,285
------------------------------
Net assets available for benefits per
the Form 5500 $64,525,541 $58,890,992
==============================
The following reconciles contributions per the financial statements to the Form
5500:
Year ended December 31
1999 1998
-----------------------------
Contributions per financial statements $1,993,616 $3,722,976
Less: Contribution receivables at end of year (115,629) (226,771)
Add: Contribution receivables at beginning
of year 226,771 771,161
-----------------------------
Contributions per the Form 5500 $2,104,758 $4,267,366
=============================
Differences between the financial statements and the Form 5500 are due to the
financial statements being prepared on the accrual basis and the Form 5500
prepared on the cash basis.
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