bankruptcy and restructuring at marvel entertainment group
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Bankruptcy and Restructuring at Marvel Entertainment GroupHarvard Business School Case 9-298-059
Case Software 2-298-715
Copyright © 1998 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate effective or ineffective handling of an administrative situation and
was prepared using only public sources and has not been approved by
Marvel Entertainment Group.
Exhibit 4
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9 MonthsEnding For Years Ended December 31,
Sept. 1996 1995 1994 1993 1992
Assets
Current Assets:
Cash $35.90 $37.00 $18.10 $17.00 $10.60
Accounts receivable, net 257.2 240 189.5 77.9 69
Inventories 99.1 82.4 51 23.2 16.3
Deferred income taxes 32.5 50.4 7.3 8.3 12.3
Income tax receivable 18.2 24.6 - - -
Prepaid expenses and other 58.2 42.9 31 6.1 2.2
Total current assets 501.1 477.3 296.9 132.5 110.4
Property, plant and equipment, net 87.7 71.3 39.7 12.4 10.9
Goodwill and other intangibles, net 595.7 603.6 433.6 299 302
3.2 3.2 20.6 14.2 -
Deferred charges and other 72.7 57.6 37.9 13.9 16.7
Total assets $1,260.4 $1,213.0 $828.7 $472.0 $440.0
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $95.80 $104.80 $69.60 $19.90 $14.90
Accrued expenses and other 170.1 194.8 110.8 44.5 64.3
Short-term borrowings 28.7 - - - -
Current portion of long-term debt 625.8 5.2 20.2 45.1 35.1
Total current liabilities 920.4 304.8 200.6 109.5 114.3
Long-term debt - 581.3 364.1 205.1 201.2
Other long-term liabilities 56.6 48.7 21 10.1 39.8
Total liabilities 977 934.8 585.7 324.7 355.3
Minority interest in Toy Biz 102.9 70.4 - - -
Stockholders' Equity:
- - - - -
1 1 1 1 1
Additional paid-in capital 93.1 92.4 81.2 47 39.8
Retained earnings 86.1 114.1 162.5 100.7 44.7
Cumulative translation adjustment 0.3 0.3 -1.7 -1.4 -0.8
Total stockholders' equity 180.5 207.8 243 147.3 84.7
Exhibit 4 Marvel Entertainment Group, Inc.—Consolidated Balance Sheets ($ millions)
Investment in and advances to unconsolidated subsidiaries
Preferred stock, $.01 par value; 50,000,000 shares authorized, none issued
Common stock, $0.1 par value; 250,000,000 shares authorized, 101,702,664 and 100,655,724 shares issued and outstanding on Dec. 31, 1995 and 1994, respectively
Exhibit 4
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$1,260.4 $1,213.0 $828.7 $472.0 $440.0
Source: Company Annual Reports
Total liabilities and stockholders' equity
Exhibit 4
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Exhibit 5
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9 Months
Ending For the Years Ended December 31,
Sept. 1996 1995 1994 1993 1992 1991
Net revenues $581.2 $829.3 $514.8 $415.2 $223.8 $115.1
Cost of sales 372.4 538.3 275.3 215.3 112.6 58.2
SG&A expenses 168 231.3 119.7 85.3 43.4 21.4
Restructuring charges 25 - - - -
32.4 29.5 10.9 10.1 4.6 2.1
Interest expense, net 42.7 43.2 16.5 14.6 6.5 3.5
Other income 19.8 14.3 1.7 - - -
Equity in net income of unconsolidated subs. (0.6) 1.7 10.2 4.5 -
(15.1) (22.0) 104.3 94.4 56.7 29.9
Provision for income taxes (0.7) 5.7 42.5 38.4 24.1 13.4
(Loss) income before minority interest and extrao (14.4) (27.7) 61.8 56 32.6 16.5
Minority interest in earnings of Toy Biz 13.5 17.4 - - -
(Loss) income before extraordinary item ($27.9) ($45.1) 61.8 56 32.6 16.5
Extraordinary item, net of taxes - (3.3) - - - (0.4)
Net (loss) income ($27.9) ($48.4) $61.8 $56.0 $32.6 $16.1
(Loss) earnings per share:
(Loss) income before extraordinary item ($0.27) ($0.45) $0.60 $0.55 $0.33 $0.17
Extraordinary item - $0.03 - - - (0.01)
Net (loss) income ($0.27) ($0.48) $0.60 $0.55 $0.33 $0.16
101.8 101.3 103.7 102.6 98.6 97.7
Source: Company Annual Reports
Exhibit 5 Marvel Entertainment Group, Inc.—Consolidated Statement of Operations ($ millions)
Amortization of goodwill, intangibles and deferred charges
(Loss) Income before provision for income taxes, minority interest and extraordinary item
Weighted average number of common and common equivalent shares outstanding (in millions)
Exhibit 5
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Marvel Entertainment Group, Inc.—Consolidated Statement of Operations ($ millions)
Exhibit 6
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Promised Collateral Percent
Face Interest Shares of Old
Issue Value Rate 10/8/1996 1/31/1997 (millions)
Issue
Marvel Holdings $517.4) 11.25% $0.774 $0.175 47.2%
Senior secured
Discount notes
Marvel Parent Holdin $251.7) 11.875% $0.781 $0.140 20.0 19.6%
Senior secured
Discount notes
Marvel III Holdings $125.0) 9.125% $0.899 $0.139 9.3 9.1%
Senior secured notes
Total $894.1) 77.3 75.9%
Notes:
Exhibit 6 Marvel Public Debt at the Time of the Reorganization Plan
Market Price ona
Sharesb
48.0d
Source: Bloomberg, Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint
Plan of Reorganization, Wilmington, Delaware, January 28, 1997.
aMarket prices are quoted per dollar of face value.bTotal number of existing ("Old") shares was 101.8 million.cTotal number of post-reorganization ("New") shares was 528.8 million.dMarvel Holdings held an additional 2.93 million shares of Marvel stock for other creditors.
Exhibit 6
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Percent
of New
9.1%
3.8%
1.8%
14.6%
Sharesc
Disclosure Statement Relating to First Amended Joint
Exhibit 7
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$447.0
Chapter 7 costs
4.5
6.0
Total Chapter 7 costs 10.5
Net proceeds from disposition of operating assets 436.5
Less Panini debt 192.1
Net proceeds available for other creditors 244.4
124.7
Total net proceeds available for other creditors 369.1
535.4
Percent recovery against secured claims (mainly debt) 68.9%
Proceeds available for other claims 0.0%
94.1
Percent recovery against other administrative claims 0%
Unsecured deficiency claims 166.3
Percent recovery against unsecured deficiency claims 0%
Proceeds available for common equity shareholders $0.0
Notes:
Exhibit 7 Liquidation Analysis ($ millions)
Gross proceeds from disposition of operating assetsa
Transaction costsb
Case related administrative expensesc
Net proceeds available for other creditors from sale of Toy Biz sharesd
Secured claimse
Other administrative claimsf,g
Source: Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of Reorganization, Wilmington, Delaware, January 28, 1997.
Exhibit 7
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nature of the liquidation. The disposition is assumed to be completed at the end of the third quarter of 1997.
sales proceeds.
administrative expenses
November 11, 1996. Gross proceeds are reduced by 5% to reflect the costs associated with such sales.
a Assumes that purchasers discount the low end of the going concern value by 20% to reflect the "fire sale"
b Investment banks' fees, legal fees, closing costs and other expenses were estimated at 1% of gross
c Includes estimated Chapter 7 trustee's fees, professional costs and other associated
d Assumes sale of 7.39 million shares at $17.75 per share, the closing price of Toy Biz stock on
e Amounts projected to be outstanding at March 31, 1997.f Includes $5.0 million of severance payments to certain officers and employeesg Includes estimates for accounts payable and other accrued liabilities.
Exhibit 7
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nature of the liquidation. The disposition is assumed to be completed at the end of the third quarter of 1997.
November 11, 1996. Gross proceeds are reduced by 5% to reflect the costs associated with such sales.
Assumes that purchasers discount the low end of the going concern value by 20% to reflect the "fire sale"
Exhibit 8
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Proposed Proposed Projected Pro
Projected Toy Biz Bank Debt Forma as
Preconfirmation Investment Agreement Reorganized
ASSETS
Current assets:
Cash $13.3 $98.8
Accounts receivable, net 210.0 210.0
Inventories, net 77.5 77.5
Deferred income taxes 40.1 88.6
Income tax receivable 11.1 11.1
Prepaid expenses and other 55.0 55.0
Total current assets $407.0 $541.0
Property, plant and equipment, net 78.7 78.7
Goodwill and other intangibles, net 317.4 519.7
Deferred charges and other 65.9 73.9
Total assets $869.0 $1,213.3
Current liabilities:
Accounts payable $99.4 $99.40
Accrued expenses and other 143.1 153.1
Short-term borrowings 40.0 40.0
DIP financing 50.0 —
Current portion of long-term debt 635.4 10.7
Total current liabilities $967.9 $303.2
Long-term debt — 754.7
Other long-term liabilities 49.7 48.0
Total liabilities $1,017.6 $1,105.9
Exhibit 8 Marvel Entertainment Group, Inc. - Projected Pro Forma Consolidated Balance Sheet
$33.5a $52.0c
48.5b,2
202.3b
8.0c
LIABILITIES AND STOCKHOLDERS’ EQUITY
10.0b,1
(50.0)c
(624.7)d
20.0b 624.7d
110.0c
(1.7)b
Exhibit 8
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Minority interest in Toy Biz $109.0
Stockholders’ equity:
Common stock 1.0 1.0
Additional paid-in capital 93.1 458.1
Retained earnings (351.7) (351.7)
Total stockholders’ equity ($257.6) $107.4
Total liabilities and stockholders $869.0 $1,213.3
(109.0)b
365.0a
Source: Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of
Reorganization, Wilmmington, Delaware, January 28, 1997.
Exhibit 8
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Marvel Entertainment Group, Inc. - Projected Pro Forma Consolidated Balance Sheet
Exhibit 8
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Disclosure Statement Relating to First Amended Joint Plan of
Exhibit 9
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At
Closing Year Ending December 31,
3/31/1997 1997 1998 1999
INCOME STATEMENT
Net revenues $929.8 $1,128.3 $1,155.8
Cost of sales 550.4 647.2 666.9
Gross profit 379.4 481.1 488.9
SG&A expense 262.4 305.4 313.4
Depreciation and amortization 34.5 43.4 44.1
Operating income 82.5 132.3 131.4
Reorganization expense 6.7 — —
Amortization of goodwill 30.5 21.8 21.5
Interest expense, net 71.0 68.0 64.6
Toy Biz performance plan expenses — — 55
Equity in net (loss) income in unconsolidated subsidiaries (0.1) (0.2) 2.2
(Loss) income before taxes (25.8) 42.3 (7.5)
Provision for income taxes 6.9 24.8 4.6
(Loss) before minority interest (32.7) 17.5 (12.1)
Minority interest in Toy Biz 3.0 — —
Net (loss) income (35.7) 17.5 (12.1)
CASH FLOW DATA
Provision for deferred taxes $9.8 $8.3 $6.3
Undistributed earnings in unconsolidated subsidiaries 0.1 0.2 (2.2)
Minority interest in Toy Biz earnings 3.0 — —
Change in net working capital (75.4) (11.5) 44.3
Capital expenditures (83.0) (67.4) (47.4)
Exhibit 9 Projected Financial Data (in millions)
Exhibit 9
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BALANCE SHEET DATA
Cash balance $98.8 $19.1 $2.0 $2.0
Goodwill and other intangibles 519.7 504.8 484.9 465.1
Total assets 1,213.3 1,213.5 1,234.5 1,230.3
Short-term debt 40.0 33.0 28.7 40.8
Long-term debt 765.4 769.5 744.4 612.2
Refinanced long-term debt — — — 65.5
Shareholders' equity 107.4 102.7 120.3 108.3
Total capital 912.8 905.2 893.4 826.8
Debt-to-Total Capital (book value) 88.2% 88.7% 86.5% 86.9%
Wilmington, Delaware, January 28, 1997.
Note: Projections assume Marvel acquires Toy Biz for $326.8 million and issues 427 million common shares to Andrews Group
Incorporated for $365 million.
WACC
Asset Beta 0.65
Debt 637.9
Equity 207.8
Beta 1.847213667
Rf 5.04%
Risk premium 5%
Ke 14.28%
Kd 11.25%
WACC 8.60%
Source: Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of Reorganization,
Exhibit 9
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1 2 3
1997 1998 1999
NI (35.7) 17.5 (12.1)
Year Ending December 31, Add Dep. 34.5 43.4 44.1
2000 2001 Less WC change (75.4) (11.5) 44.3
Pre tax interest 71.0 68.0 64.6
Less Cap Ex. (83.0) (67.4) (47.4)
FCF 86.2 71.8 -29.5
$1,200.6 $1,247.5 Disount CF 79.37 71.80 -29.50
694.9 724.2 Terminal Value
505.7 523.3 Enterprise value 1501.86
Less debt 637.9
324.5 336 863.96
44.8 45.9
136.4 141.4
— —
21.2 21.5
61.0 56.6
— —
3.2 4.4
57.4 67.7
29.8 34.1
27.6 33.6
— —
27.6 33.6
$8.1 $5.8
(3.2) (4.4)
— —
(42.0) 2.0
(46.7) (45.1)
Exhibit 9
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$2.0 $2.0
445.2 425.4
1,206.6 1,191.6
37.3 37.3
389.8 120
281.2 492.5
135.9 169.4
844.7 819
83.9% 79.3%
Note: Projections assume Marvel acquires Toy Biz for $326.8 million and issues 427 million common shares to Andrews Group
Disclosure Statement Relating to First Amended Joint Plan of Reorganization,
Exhibit 9
Page 20
4 5
2000 2001
27.6 33.6
44.8 45.9
(42.0) 2.0
61.0 56.6
(46.7) (45.1)
100.1 66.0
100.10 66.00
1214.08956
Exhibit 10
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January 31, 1997
Yields on U.S. Treasury Bills, Notes, and Bonds
3 month 5.04%
6 month 5.10
1-year 5.62
2-year 6.03
5-year 6.36
10-year 6.62
3.33
30 year 6.89
Yields on Long-term Corporate Bonds
Aaa 7.48
Aa 7.69
A 7.75
Baa 8.12
Interest Rates
Federal Funds 5.18
3-month Commercial Paper 5.45
3-month Certificate of Deposit 5.42
Prime Rate 8.25
0.65
Notes:
Treasury Notes which provide a guaranteed rate of return above the rate of inflation.
Exhibit 10 Selected Financial Market Data
10-year inflation indexed bondsa
Marvel Entertainment Group Asset Betab
Source: Bloomberg, Federal Reserve Bulletin, Casewriter estimates.
aOn January 29, 1997, the U.S. Treasury Department issued the first inflation-indexed
Exhibit 10
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1/1/95 to 6/30/96 and the Scholes-Williams adjustment for non synchronous trading.
bThe equity beta used to calculate the asset beta was estimated using daily data from