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Bankruptcy and Restructuring at Marvel Entertainment Group Harvard 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 illustrate effective or ineffective handling of an administrative administrative situation and was prepared using only public sources and has not been approved by Marvel Entertainment Group.
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Exhibit 4
Exhibit 4
Marvel Entertainment Group, Inc.—Consolidated Balance Sheets ($ millions) 9 Months Ending For Years Ended December 31, Sept. 1996 1995 1994 1993 1992
Assets Current Assets: Cash Accounts receivable, net Inventories Deferred income taxes Income tax receivable Prepaid expenses and other Total current assets
Property, plant and equipment, net Goodwill and other intangibles, net nves men n an a vances o unconsolidated subsidiaries Deferred charges and other Total assets
Liabilities and Stockholders' Equity Current Liabilities: Accounts payable Accrued expenses and other Short-term borrowings Current portion of long-term debt Total current liabilities
Long-term debt Other long-term liabilities Total liabilities Minority interest in Toy Biz Stockholders' Equity: re erre s oc , . par va ue; 50,000,000 shares authorized, , . none issued 250,000,000 shares authorized, 101,702,664 and 100,655,724 shares issued and outstanding on Dec. 31, 1995 and 1994, respectively Additional paid-in capita l Retained earnings Cumulative translation adjustment Total stockholders' equity oa a es an s oc o ers equity
$35.90 257.2 99.1 32.5 18.2 58.2 501.1 87.7 595.7
$37.00 ###### ###### ###### 240 189.5 77.9 69 82.4 51 23.2 16.3 50.4 7.3 8.3 12.3 24.6 42.9 31 6.1 2.2 477.3 296.9 132.5 110.4 71.3 603.6
39.7 433.6
12.4 299
10.9 302
3.2 3.2 20.6 14.2 72.7 57.6 37.9 13.9 16.7 $1,260.4 $1,213.0 $828.7 $472.0 $440.0
$95 .80 $104.8 0 ## #### ###### #### ## 170.1 194.8 110.8 44.5 64.3 28.7 625.8 5.2 20.2 45.1 35.1 920.4 304.8 200.6 109.5 114.3 56.6 977 102.9
581.3 48.7 934.8 70.4
364.1 21 585.7 -
205.1 10.1 324.7 -
201.2 39.8 355.3 -
-
-
-
-
-
1 93.1 86.1 0.3 180.5
1 92.4 114.1 0.3 207.8
1 81.2 162.5 -1.7 243
1 47 100.7 -1.4 147.3
1 39.8 44.7 -0.8 84.7
$1,260.4 $1,213.0 $828.7 $472.0 $440.0
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Exhibit 4
Source:
Company Annual Reports
Page 3
Exhibit 5
Exhibit 5
Marvel Entertainment Group, Inc.—Consolidated Statement of Operations ($ millions)
9 Months Ending Sept. 1996
Net revenues Cost of sales SG&A expenses Restructuring charges Amortization of goodwill, in tangibles and deferred charges Interest expense, net Other income Equity in net income of unconsolidated subs.
For the Years Ended December 31, 1995 1994 1993 1992 1991
$581.2 ###### ###### ###### ###### ###### 372.4 538.3 275.3 215.3 112.6 58.2 168 231.3 119.7 85.3 43.4 21.4 25 32.4 42.7 19.8 (0.6)
29.5 43.2 14.3 1.7
10.9 16.5 1.7 10.2
10.1 14.6 4.5
4.6 6.5 -
2.1 3.5 -
(15.1)
(22.0)
104.3
94.4
56.7
29.9
(0.7) (14.4) 13.5
5.7 (27.7) 17.4
42.5 61.8 -
38.4 56 -
24.1 32.6 -
13.4 16.5
(Loss) income before extraordinary item
($27.9) ($45.1)
61.8
56
32.6
16.5
Extraordinary item, net of taxes Net (loss) income
(3.3) ($27.9) ($48.4)
$61.8
$56.0
$32.6
(0.4) $16.1
(Loss) earnings per share: (Loss) income before extraordinary item Extraordinary item Net (loss) income
($0.27) ($0.45) $0.60 $0.55 $0.33 $0.17 - $0.03 - (0.01) ($0.27) ($0.48) $0.60 $0.55 $0.33 $0.16
oss ncome e ore prov s on or income taxes, minority interest and extraordinary item Provision for income taxes (Loss) income before minority interest and extrao Minority interest in earnings of Toy Biz
e g e average num er o common and common equivalent shares outstanding (in millions)
Source:
101.8
101.3
Company Annual Reports
Page 4
103.7
102.6
98.6
97.7
Exhibit 6
Exhibit 6
Marvel Public Debt at the T ime of the Reorganization Plan
Promised Market Price on
Face
Interest
Value
Rate
Marvel Holdings Senior secured Discount notes
$517.4)
11.25%
$0.774
$0.175
Marvel Parent Holding Senior secured Discount notes
$251.7) 11.875%
$0.781
$0.140
Marvel III Holdings Senior secured notes
$125.0)
$0.899
$0.139
Issue
10/8/1996
1/31/1997
Collateral
Percent
Percent
Shares
of Old
of New
(millions)
Shares
Shares
Issue
Total
Source:
9.125%
$894.1)
48.0
d
47.2%
9.1%
20.0
19.6%
3.8%
9.3
9.1%
1.8%
77.3
75.9%
14.6%
Bloomberg, Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of Reorganization, Wilmington, Delaware, January 28, 1997.
Notes: a
Market prices are quoted per dollar of face value.
b
Total number of existing ("Old") shares was 101.8 million.
c
Total number of post-reorganization ("New") shares was 528.8 million.
d
Marvel Holdings held an additional 2.93 million shares of Marvel stock for other creditors.
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Exhibit 7
Exhibit 7
Liquidation Analysis ($ millions)
Gross proceeds from disposition of operating assets
a
$447.0
Chapter 7 costs Transaction costs
b
4.5
Case related administrative expenses Total Chapter 7 costs
c
6.0 10.5
Net proceeds from disposition of operating assets Less Panini debt
436.5 192.1
Net proceeds available for other creditors
244.4
Net proceeds available for other creditors from sale of Toy Biz shares Total net proceeds available for other creditors
124.7 369.1
e
Secured claims Percent recovery against secured claims (mainly debt)
535.4 68.9%
Proceeds available for other claims
0.0%
f,g
Other administrative claims Percent recovery against other administrative claims Unsecured deficiency claims Percent recovery against unsecured deficiency claims
94.1 0% 166.3 0%
Proceeds available for common equity shareholders
$0.0
,
.,
Statement Relating to First Amended Joint Plan of Reorganization, Wilmington, Delaware, January 28, 1997.
Notes: a
Assumes that purchasers dis count the low end of the going concern value by 20% to reflect the "fire sale" nature of the liquidation. The disposition is assumed to be completed at the end of the third quarter of 1997.
b
Investment banks' fees, legal fees, closing costs and other expenses were estimated at 1% of gross sales proceeds.
c
Includes estimated Chapter 7 trustee's fees, professional c osts and other associated administrative expenses
d
Assumes sale of 7.39 million shares at $17.75 per share, the closing pric e of Toy Biz stock on November 11, 1996. Gross proceeds are reduced by 5% to reflect the costs associated with such sales.
e
Amounts projected to be outstanding at March 31, 1997. Includes $5.0 million of severance payments to c ertain officers and employees
Page 6
Exhibit 7
g
Includes estimates for accounts payable and other accrued liabilities.
Page 7
Exhibit 8
Exhibit 8
Marvel Entertainment Group, Inc. - Projected Pro Forma Consolidated Balance Sheet
Proposed Proposed Projected Toy Biz Bank Debt Preconfirmation Investment Agreement
Projected Pro Forma as Reorganized
ASSETS Current assets:
Cash Accounts receivable, net Inventories, net Deferred income taxes Income tax receivable Prepaid expenses and other Total current assets Property, plant and equipment, net Goodwill and other intangibles, net Deferred charges and other Total assets
$13.3 210.0 77.5
$33.5
40.1 11.1 55.0 $407.0
48.5
a
$52.0
c
b,2
88.6 11.1 55.0 $541.0
78.7 317.4
$98.8 210.0 77.5
78.7 202.3
b
519.7 c
8.0
65.9 $869.0
73.9 $1,213.3
STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable Accrued expenses and other Short-term borrowings DIP financing Current portion of long-term debt Total current liabilities Long-term debt
$99.4 143.1 40.0
$99.40 10.0
b,1
(50.0)
50.0 635.4 $967.9 —
153.1 40.0
20.0
b
(624.7)
d
624.7
d
110.0 Other long-term liabilities Total liabilities Minority interest in Toy Biz
49.7 $1,017.6
(1.7)
b
$109.0
(109.0)
b
365.0
a
c
—
10.7 $303.2 754.7
c
48.0 $1,105.9
Stockholders’ equity:
Common stock Additional paid-in capital Retained earnings Total stockholders’ equity Total liabilities and stockholders
Source:
1.0 93.1 (351.7) ($257.6)
1.0
$869.0
458.1 (351.7) $107.4 $1,213.3
Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of Reorganization, Wilmmington, Delaware, January 28, 1997.
Page 8
Exhibit 9
Projected Financial Data (in millions)
Exhibit 9
Net revenues
$929.8 $1,128.3 $1,155.8 $1,200.6 $1,247.5
Cost of sales Gross profit SG&A expense
550.4
647.2
666.9
694.9
724.2
379.4
481.1
488.9
505.7
523.3
262.4
305.4
313.4
324.5
336
Depreciation and amortization
34.5
43.4
44.1
44.8
45.9
Operating income
82.5
132.3
131.4
136.4
141.4
Reorganization expense
6.7
Amortization of goodwill
30.5
21.8
21.5
21.2
21.5
Interest expense, net
71.0
68.0
64.6
61.0
56.6
Toy Biz performance plan expenses
55
Equity in net (loss) income in unconsolidated subsidiaries (Loss) income before taxes Provision for income taxes (Loss) before minority interest Minority interest in Toy Biz
(0.1)
(0.2)
2.2
3.2
4.4
(25.8)
42.3
(7.5)
57.4
67.7
6.9
24.8
4.6
29.8
34.1
(32.7)
17.5
(12.1)
27.6
33.6
(35.7)
17.5
(12.1)
27.6
33.6
3.0
Net (loss) income
Provision for deferred taxes
$9.8
$8.3
$6.3
$8.1
$5.8
Undistributed earnings in unconsolidated subsidiaries
0.1
0.2
(2.2)
(3.2)
(4.4)
Minority interest in Toy Biz earnings
3.0
Change in net working capital
(75.4)
(11.5)
44.3
(42.0)
2.0
Capital expenditures
(83.0)
(67.4)
(47.4)
(46.7)
(45.1)
Cash balance Goodwill and other intangibles Total assets
$98.8
$19.1
$2.0
$2.0
$2.0
$2.0
519.7
504.8
484.9
465.1
445.2
425.4
1,213.3 1,213.5
1,234.5
1,230.3
1,206.6
1,191.6 37.3
Short-term debt
40.0
33.0
28.7
40.8
37.3
Long-term debt
765.4
769.5
744.4
612.2
389.8
120
65.5
281.2
492.5
Refinanced long-term debt Shareholders' equity Total capital Debt-to-Total Capital (book value)
Source:
107.4
102.7
120.3
108.3
135.9
169.4
912.8
905.2
893.4
826.8
844.7
819
88.2%
88.7%
86.5%
86.9%
83.9%
79.3%
Marvel Entertainment Group, Inc., Disclosure Statement Relating to First Amended Joint Plan of Reorganization, 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.
Page 9
Exhibit 9
Asset Beta
0.65
Debt
637.9
Equity Beta
207.8 1.847213667
Rf
5.04%
Risk premium
5%
Ke
14.28%
Kd
11.25%
Page 10
Exhibit 9
NI Add D ep. Less WC change Pre tax interest Less Cap Ex. FCF Disount CF Terminal Value Enterprise value Less debt
1
2
3
4
5
(35.7) 34.5 (75.4) 71.0 (83.0) 86.2 79.37
17.5 43.4 (11.5) 68.0 (67.4) 71.8 71.80
(12.1) 44.1 44.3 64.6 (47.4) -29.5 -29.50
27.6 44.8 (42.0) 61.0 (46.7) 100.1 100.10
33.6 45.9 2.0 56.6 (45.1) 66.0 66.00 1214.08956
1501.86 637.9 863.96
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Exhibit 10
Exhibit 10
Selected Financial Market Data
January 31, 1997 Yields on U.S. Treasury Bills, Notes, and Bonds 3 month 6 month 1-year 2-year 5-year 10-year
10-year inflation indexed bonds 30 year
a
5.04% 5.10 5.62 6.03 6.36 6.62 3.33 6.89
Yields on Long-term Corporate Bonds Aaa Aa A Baa
7.48 7.69 7.75 8.12
Interest Rates Federal Funds 3-month Commercial Paper 3-month Certificate of Deposit Prime Rate
5.18 5.45 5.42 8.25
Marvel Entertainment Group Asset Beta
Source:
b
0.65
Bloomberg, Federal Reserve Bulletin, Casewriter estimates.
Notes: a
On January 29, 1997, the U.S. Treasury Department issued the first inflation-indexed Treasury Notes which provide a guaranteed rate of return above the rate of inflation.
b
The equity beta used to calculate the asset beta was es timated using daily data from 1/1/95 to 6/30/96 and the Scholes-Williams adjustment for non synchronous trading.
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