Company has many hurdles to overcome before it reaches profitability

Golden Books may have reached an agreement with its creditors' committee to reorganize its debt (News, Mar. 1), but the company has a long way to go before it sees any profits. In its 10-K filing with the Securities &Exchange Commission, Golden reported a net loss of $128.6 million in 1998, compared to 1997's loss of $49.7 million. Revenues fell to $193.6 million from $242.5 million in '97.

Revenues in Golden's consumer division, comprising mainly its book publishing operations, fell 12% to $150.7 million. The decline was attributed to lower electronic and education category sales, higher returns and a temporary reduction in buying by such major retailers as Kmart and Zellers in the first half of the year. Sales were up in Golden's Merrigold line as well as in the trade and novelty categories. Entertainment revenues were virtually flat at $29 million, while sales in the commercial division fell 32.9% to $14.5 million. The decline in revenues and higher operating losses resulted in a further downsizing of the publisher, which had 950 employees at the end of 1998, compared to 1200 in 1997.

The uncertain future of Golden was underscored by the report of its auditors, Ernst &Young. The firm noted that Golden has had operating losses, working capital deficiencies and negative cash flow and is currently in default under substantially all of its debt agreements. If Golden is unable to gain approval for its reorganization plan, Ernst &Young indicated that there would be sufficient doubt as to Golden's ability to move forward.

A May 10 hearing has been set by the Bankruptcy Court to discuss Golden's reorganization plan, which the company hopes will be consummated in June or July. The 10-K filing noted that if the reorganization is approved, Golden's future will depend on its ability to obtain adequate exit financing and to generate enough cash flow to meet its medium-term operational and financing needs. Under the reorganization plan, as long as the new $87 million secured note is outstanding, Golden's obtaining of exit financing will be limited to $60 million, and initially to $45 million.

During the year, the company reworked some of its license agreements. The biggest change was with Parachute Press, which limits Golden's publication of R.L. Stine's Fear Street series to the Seniors line; Golden had originally planned to publish three different Fear Street series (News, Aug. 18, 1997). The company also reworked its agreement with Disney so that it is paying more royalties up front. Golden is now due to pay Disney a minimum of $13.4 million by the end of 1999 and $14.9 million by the close of 2000.

Golden hopes to generate funds with the completion of the $11-million sale of its adult division to St. Martin's. The Bankruptcy Court approved the sale at the end of March, and the deal could close as soon as this week.

Under new contract agreements, Golden chairman Dick Snyder will receive a base salary of $750,000 annually. His lieutenants Phil Galanes and Richard Collin will each earn $350,00, while Colin Finkelstein will earn $300,000. All are eligible to receive performance bonuses.