UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-9008
ANDREWS GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 95-2683875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 Windy Hill Road, Suite 1100-West, Atlanta, Georgia 30339
(Address of principal executive offices) (Zip Code)
770-955-0045
(Registrant's telephone number, including area code)
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.
Class Outstanding at November 13, 1995
Common Stock, $1.00 par 1,000
As of November 13, 1995, all of the Registrant's outstanding common
stock was indirectly held by Mafco Holdings Inc.
<PAGE>
<TABLE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except share data)
(Unaudited)
<CAPTION>
September 30, December 31,
1995 1994
<S> ----------- -----------
ASSETS <C> <C>
Cash $123.3 $175.7
Trade receivables, net 456.0 302.8
Inventories 109.7 51.0
Television program contract rights 29.3 23.9
Film costs, net 67.1 62.4
Prepaid expenses and other 95.5 62.1
----------- -----------
Total current assets 880.9 677.9
Property, plant and equipment, net 288.9 232.0
Intangible assets and excess reorganization value, net 2,442.7 1,648.4
Loans to affiliate 348.8 224.6
Other assets 233.5 446.3
--------- -----------
$4,194.8 $3,229.2
========= ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt and notes payable $55.2 $100.8
Accounts payable and accrued expenses 383.4 286.9
Television program contracts payable 32.6 26.8
Deferred income 46.4 28.2
Participations and residuals payable 32.6 23.9
--------- -----------
Total current liabilities 550.2 466.6
Long-term debt 2,862.7 2,148.9
Indebtedness to affiliates 270.6 154.2
Other liabilities 172.4 142.1
Minority interest 466.3 414.7
Redeemable preferred stock of subsidiaries 340.1 246.9
Stockholder's deficit:
Common stock, $1.00 par value; 1,000 shares
authorized, issued and outstanding
Additional paid-in-capital 39.8 32.6
Accumulated deficit (507.5) (375.6)
Cumulative translation adjustment 0.2 (1.2)
--------- -----------
Total stockholder's deficit (467.5) (344.2)
--------- -----------
$4,194.8 $3,229.2
========= ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues $1,017.8 $628.7 $407.5 $249.1
Operating expenses:
Direct costs 604.0 344.2 223.0 141.7
Selling general and administrative expenses 286.4 169.8 111.1 65.2
Amortization of goodwill and intangibles 49.0 33.4 18.0 11.6
--------- -------- -------- --------
Operating income 78.4 81.3 55.4 30.6
--------- -------- -------- --------
Other (expenses) income:
Interest expense (218.3) (140.8) (79.0) (52.1)
Interest and net investment income 31.6 9.5 12.1 5.2
Gain on sale of interest in businesses 55.2 88.7 0.5 5.5
Amortization of debt issuance costs and other (23.7) (7.2) (9.6) (3.9)
--------- -------- -------- --------
(155.2) (49.8) (76.0) (45.3)
--------- -------- -------- --------
(Loss) income before income taxes, minority interest, equity
in net income of investees and extraordinary item (76.8) 31.5 (20.6) (14.7)
Provision for income taxes (59.8) (5.0) (19.3) (3.3)
Minority interest in loss of subsidiaries 6.9 7.2 1.8 4.8
Equity in net income of investees 1.1 4.8 0.6 2.5
--------- -------- -------- --------
(Loss) income before extraordinary item (128.6) 38.5 (37.5) (10.7)
Extraordinary item (3.3)
--------- -------- -------- --------
Net (loss) income ($131.9) $38.5 ($37.5) ($10.7)
========= ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($131.9) $38.5
--------- --------
Adjustments to reconcile net (loss) income to net cash flows from
operating activities:
Depreciation and amortization 88.5 53.4
Noncash interest expense 74.2 50.8
Equity in net income of investees, net of distributions 1.9 (4.8)
Minority interest in loss of subsidiaries (6.9) (7.2)
Extraodinary item 3.3
Gain on sale of interest in businesses (55.2) (88.7)
Other 2.2
Excess of television program contract rights amortization
over payments 4.0 3.4
Film cost amortization under additions (9.0) (19.5)
Changes in assets and liabilities, net of effects
of acquisitions and dispositions of businesses:
Increase in assets (143.3) (70.4)
Increase in liabilities 93.5 7.6
--------- --------
53.2 (75.4)
--------- --------
Net cash flows from operating activities (78.7) (36.9)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Broadcast station acquisitions, net of cash acquired (360.5) (365.0)
Proceeds from sale of broadcast stations and certain fixed assets 211.9
Acquisitions of SkyBox, net of cash and cash equivalents acquired (159.5)
Acquisitions of Panini, net of cash acquired (131.4)
Other acquisitions, investments and advances (42.2) (13.8)
Loans to affiliates, net (124.2)
Capital expenditures (53.6) (26.1)
Other (2.3)
--------- --------
Net cash flows from investing activities (528.1) (538.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 744.1 511.7
Repayment and repurchases of debt (415.1) (77.0)
Issuance of preferred and common stock by subsidiaries 117.2 540.4
Loans (repayments) from affiliates, net 116.4 (248.8)
Debt issuance costs and other, net (15.7) (29.8)
--------- --------
Net cash flows from financing activities 546.9 696.5
--------- --------
Cash balance from previously unconsolidated subsidiary 7.5 --
--------- --------
Net (decrease) increase in cash (52.4) 121.0
Cash at beginning of the period 175.7 40.1
--------- --------
Cash at end of the period $123.3 $161.1
========= ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid during the period $139.5 $81.0
Taxes paid (refunded) during the period 7.3 (1.3)
Supplemental schedule of non-cash investing and financing activities:
Purchase of television program contract rights $32.9 $30.3
Additions to film costs 64.7 35.1
CitiCaster's Station Purchase:
Fair value of acquired $285.9
Common stock warrants issued (10.0)
Cash (264.8)
---------
Liabilities assumed $11.1
=========
Argyle stations purchase:
Fair value of assets acquired $777.9
Purchase option applied to purchase price (100.0)
Cash paid, net of cash received (360.5)
---------
Liabilities assumed $317.4
=========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include
the accounts of Andrews Group Incorporated ("Andrews" or the
"Company") and its majority-owned subsidiaries after elimination
of all material intercompany accounts and transactions. The
Company is a wholly owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings") which is a wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings"). The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related
notes contained in the Company's 1994 Form 10-K. In the opinion
of management, all adjustments (which include only normal
recurring accruals) necessary for a fair statement of the
financial position, results of operations and cash flows have been
made.
All terms used but not defined elsewhere herein have the
meanings ascribed to them in the Company's 1994 Form 10-K.
Certain reclassifications have been made to conform to the
current period's presentation.
2. ACQUISITIONS AND DISPOSITIONS
Genesis
On March 17, 1994, NWCG purchased the remaining 50% interest
not previously owned by NWCG of Genesis and a note issued by a
subsidiary of NWCG in exchange for 2,035,486 shares of Class B
Common Stock of NWCG and certain other consideration. The
acquisition was accounted for using the purchase method of
accounting. NWCG amortizes the excess of the purchase price over
the historical book value over a 40-year period.
Moving Target
Concurrently with hiring a chairman of NW Entertainment in
June 1994, NWCG acquired Moving Target Productions, Inc. ("Moving
Target"). The consideration for such acquisition consisted of
652,174 shares of Class A Common Stock of NWCG and a warrant to
purchase one million shares of Class A Common Stock of NWCG at a
price of $11.50 per share.
CitiCasters' Stations
On September 9, 1994, NWCG consummated the acquisition of
three broadcast television stations, KSAZ-TV (Phoenix), WDAF-TV
(Kansas City) and WGHP-TV (Greensboro-High Point), from
CitiCasters for consideration of $262.3 in cash and a warrant to
purchase 5,000,000 shares of NWCG's Class A Common Stock for an
initial exercise price of $15.00 per share. Further, on October
12, 1994, NWCG completed the acquisition of a fourth broadcast
television station, WBRC-TV (Birmingham), from CitiCasters for
cash consideration of approximately $94.1. In connection with
these acquisitions, NWCG assumed certain liabilities. On March
31, 1995, NWCG granted to Fox Television Stations, Inc. ("Fox") an
option to acquire both WGHP-TV and WBRC-TV in consideration of a
non-refundable payment by Fox of $100.0, subject to certain
adjustments. The $100.0 may be credited against the purchase
price of $135.0. NWCG contributed the stock of the subsidiaries
which own and operate WGHP-TV and WBRC-TV to a trust of which NWCG
is the beneficiary (the "Trust"). NWCG will have no role in the
management or operation of the stations contributed to the Trust.
Further, NWCG borrowed approximately $40.4 from Fox, secured by
the beneficial interest in the Trust and non-recourse to any other
assets of NWCG. Assets held for sale included in other assets at
December 31, 1994 in the accompanying balance sheet reflect the
estimated sales proceeds of WGHP-TV and WBRC-TV; therefore, NWCG's
future operations will not be affected by these stations' results
except to the extent of income remitted by the Trust to service
the Fox debt. In July 1995, Fox purchased WBRC-TV for $100.0
under the terms of the purchase option. The consideration for the
purchase consisted of $74.1 of the option payment applied to the
purchase price and a reduction of the note payable to Fox. As of
September 30, 1995, the company retains WGHP-TV in the beneficial
trust and has corresponding non-recourse debt of $16.7.
WSBK-TV
In March 1995 NWCG sold its investment in WSBK-TV (the
"Boston Station") for gross proceeds of $107.5. NWCG recorded an
estimated gain on the sale of approximately $40.5. NWCG repaid
$19.5 of the Bank Credit Agreement Loans in March 1995 and $77.3
of the Step-Up Notes in April 1995 from the estimated net proceeds
of the WSBK sale.
Argyle Stations
NWCG purchased certain debt and equity securities of Argyle
Television Holding Inc. ("Argyle") for total consideration of
approximately $750.4, including the $100.0 in cash paid for an
option in 1994 and assumption of debt of approximately $283.6.
Argyle controlled four VHF television stations, KDFW-TV (Dallas,
Texas), KTBC-TV (Austin, Texas), KTVI-TV (St. Louis, Missouri) and
WVTM-TV (Birmingham, Alabama). For financial reporting purposes,
the acquisition occurred on March 31, 1995. FCC approval for
change in control of the television stations occurred on April 14,
1995. The acquisition has been accounted for as a purchase; the
purchase price allocation is preliminary.
Cannell Entertainment
In July 1995, NWCG purchased Cannell Entertainment Inc. for
NWCG Series E Cumulative Convertible Redeemable Preferred Stock
("Series E Preferred Stock") valued at approximately $30.0 and
certain other consideration. The acquisition has been accounted
for as a purchase.
SkyBox
On April 26, 1995, pursuant to an Agreement and Plan of
Merger dated as of March 8, 1995 (the "SkyBox Merger Agreement"),
among SkyBox ("SkyBox"), Marvel and a wholly owned subsidiary of
Marvel, Marvel acquired all of the issued and outstanding shares
of SkyBox common stock for $16 per share. The purchase price,
including other estimated acquisition costs, totaled approximately
$165.5. The transaction was accomplished through a tender offer
(the "Tender Offer") and subsequent merger (the "Merger" and
collectively with the Tender Offer, the "SkyBox Acquisition"). The
purchase price includes an obligation to former SkyBox
stockholders who did not tender their shares.
The SkyBox Acquisition was accounted for using the purchase
method of accounting. The allocation of the purchase price to
assets and liabilities based on their estimated respective fair
values at April 27, 1995 is subject to finalization. The total
estimated purchase price exceeded the fair value of the net assets
of SkyBox by $162.7 and has been assigned to goodwill, which is
being amortized over forty years on the straight-line basis. In
connection with the acquisition, Marvel assumed liabilities of
$35.6.
Pro Forma Financial Information
The following condensed pro forma financial information gives
effect, as of the beginning of the respective periods, to the
acquisition of SkyBox and Panini, the purchase of the four
CitiCasters' stations, the purchase of the four Argyle stations,
the disposal of WGHP-TV and WBRC-TV, the exchange of shares of
NWCG for 100% of the stock of NW Entertainment, Four Star and
Genesis, the sale of WSBK-TV, borrowings necessary to fund the
acquisitions, repayment of a portion of NWTV's debt, issuance of
the NWCG Holdings Notes and the issuance of preferred stock. The
pro forma financial information does not necessarily reflect the
future results or the results that would have occurred had these
transactions actually occurred as of the beginning of the
respective periods.
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
Nine Months Nine Months
Ended Ended
September 30, September 30,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net revenues..........................$1,065.9 $916.8
======== ======
Net loss before extraordinary item....$ (134.6) $(51.9)
========= =======
Net loss..............................$ (137.9) $(51.9)
========= =======
</TABLE>
3. TOY BIZ IPO
On March 2, 1995, Toy Biz completed an initial public
offering (the "Toy Biz IPO") in which it issued and sold 2,750,000
shares of class A common stock at $18 per share. Avi Arad, a
principal stockholder of Toy Biz also sold in the Toy Biz IPO
700,000 shares of class A common stock owned by him. The net
proceeds to Toy Biz, after deducting commissions and estimated
offering expenses, of approximately $44.1 were used to pay
outstanding amounts due under subordinated notes held by Marvel
and the sole stockholder of the predecessor to Toy Biz and for
working capital and general corporate purposes. The Company
recorded a gain of approximately $14.3 in connection with the Toy
Biz IPO in recognition of the net increase in value of Marvel's
investment in Toy Biz. In conjunction with the Toy Biz IPO,
Marvel's equity ownership was reduced to approximately 36.6% and
its voting control increased to approximately 85.3%. The
consolidated financial statements of the Company include the
results of operations, financial position and cash flow of Toy Biz
on a consolidated basis since the Toy Biz IPO as a result of
Marvel's increased voting control. For periods prior to the Toy
Biz IPO, Toy Biz was accounted for under the equity method.
In connection with the Toy Biz IPO, Toy Biz entered into a
three year $30.0 revolving line of credit with a syndicate of
banks for which Chemical Bank serves as administrative agent.
Substantially all of the assets of Toy Biz have been pledged to
secure borrowings under the Toy Biz credit facility. Borrowings
under the credit facility bear interest at either Chemical Bank's
alternate base rate or at the Eurodollar rate plus the applicable
margin. The applicable margin is 1% unless Toy Biz meets specific
financial operating levels, in which case the applicable margin
decreases to 3/4 of 1%. The credit facility requires Toy Biz to
pay a commitment fee of 3/8 of 1% per annum on the average daily
unused portion of the credit facility.
The Toy Biz credit facility, as amended, contains various
financial covenants, as well as restrictions, on the incurrence of
new indebtedness, prepaying or amending subordinated debt,
acquisitions and similar investments, the sale or transfer of
assets, capital expenditures, limitations on restricted payments,
dividends, issuing guarantees and creating liens. The credit
facility also requires that (a) Marvel continue to control a
majority of the voting control of Toy Biz and have the power to
elect a majority of Toy Biz's Board of Directors and (b) the
exclusive royalty free perpetual worldwide license agreement
between Toy Biz and Marvel remain in effect. The Toy Biz credit
facility is not guaranteed by Marvel.
4. INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Raw materials $24.6 $17.6
Work-in-process 19.7 13.2
Finished goods 74.3 21.9
Less: reserve for obsolescence (8.9) (1.7)
------ ------
$109.7 $51.0
====== ======
</TABLE>
5. LONG-TERM DEBT
In April 1995, Marvel entered into a $350.0 term loan
agreement with a syndicate of banks, the Co-Agents and Chemical
Bank, as administrative agent (the "U.S. Term Loan Agreement").
Marvel borrowed $350.0 under the U.S. Term Loan Agreement to
finance the SkyBox Acquisition, refinance the term loan portion of
its existing Amended and Restated Credit Agreement and for general
corporate purposes. Borrowings under the U.S. Term Loan Agreement
are repayable in six semi-annual installments beginning August 31,
1999.
As a result of the refinancing of the term loan portion of
the Amended and Restated Credit Agreement, the Company recorded a
$3.3 extraordinary charge during the second quarter of 1995 which
represents the write-off of related deferred financing costs.
Loans under the U.S. Term Loan Agreement bear interest at a
rate per annum equal to the Eurodollar Rate (as defined in the
U.S. Term Loan Agreement), plus the Applicable Margin (as defined
in this paragraph), or the Alternate Base Rate (as defined in the
U.S. Term Loan Agreement). Eurodollar Rate loans will, at the
option of Fleer Corp. ("Fleer"), have interest periods of one,
two, three or six months. Applicable Margin means (a) with
respect to Eurodollar Rate loans, 2% to 2 1/2% through the first
Anniversary Date (as defined in the U.S. Term Loan Agreement) and
1 1/8% to 2 1/2% thereafter, to be determined based on Marvel's
financial performance and (b) with respect to Alternate Base Rate
loans, 1% to 1 1/2% through the first Anniversary Date and 1/8 of
1% to 1 1/2% thereafter, to be determined based on Marvel's
financial performance.
The U.S. Term Loan Agreement includes various restrictive
covenants incorporated by reference to the existing Amended and
Restated Credit Agreement prohibiting Marvel from, among other
things, incurring additional indebtedness, with certain limited
exceptions, and making dividend, redemption and certain other
payments on its capital stock. The U.S. Term Loan Agreement also
contains certain customary financial convenants and events of
default for a financing of this type.
In connection with the U.S. Term Loan Agreement, Marvel also
amended the existing Amended and Restated Credit Agreement which,
among other things, permitted Marvel to incur the indebtedness
under the U.S. Term Loan Agreement to finance the SkyBox
Acquisition. Pursuant to this amendment, the Applicable Margin
under the existing Amended and Restated Credit Agreement for
Alternate Base Rate loans will range from 0% to 1% and for
Eurodollar Rate loans will range from 0.625% to 2%, in each case
depending on Marvel's financial performance.
On June 29, 1995, Marvel IV Holdings Inc. ("Marvel IV")
entered into an amended and restated credit agreement (the
"Amended Marvel IV Credit Agreement") which provides for a $225.0
term loan facility and $125.0 revolving credit facility. The
revolving credit facility matures on September 1, 1997. The term
loan facility matures on September 1, 1997 with scheduled
quarterly payments of $10.0 from September 1, 1995 through and
including June 1, 1997 and a final payment of $145.0 on September
1, 1997. Borrowings outstanding under the Amended Marvel IV
Credit Agreement bear interest, as appropriate for the type of
advance, at either (i) the Base Rate (as defined) plus a margin
of 2.25-3.00% or (ii) the Eurodollar Rate (as defined) plus a
margin of 4.00-5.50%. The margin varies based upon the sum of the
aggregate amount of outstanding borrowings plus the aggregate
unused commitments. Marvel IV's obligations are guaranteed by
certain affiliates of the Company and the Amended Marvel IV Credit
Agreement contains customary affirmative and negative covenants
and events of default. As of September 30, 1995, Marvel IV
borrowed $305.0 under the Marvel IV Credit Agreement which was
used to repay borrowings under Marvel IV's prior credit agreement
with the balance advanced to an affiliate. Borrowings outstanding
as of September 30, 1995 bore interest at a rate of 11.4%.
In March 1995, NWCG entered into a $100.0 credit agreement
secured by the capital stock of NW Entertainment and various
subsidiaries ("Entertainment Line of Credit"). The availability
of credit is determined based on the amount of eligible accounts
receivable of NW Entertainment and various other factors. The
Entertainment Line of Credit bears interest at a Eurodollar rate
plus 1 1/2% or a prime rate plus 1/2%. On September 30, 1995, the
Entertainment Line of Credit had an outstanding balance of $63.0.
With the net proceeds from the sale of the Boston Station,
NWCG repaid $19.5 of Bank Credit Agreement and $77.3 of the Step-
Up Notes.
As discussed above, NWCG has non-recourse debt to Fox of
approximately $16.7 as of September 30, 1995; interest, which
accrues at a rate of 18% per year, will be paid with monies
remitted by the Trust.
6. PREFERRED STOCK
In July and August 1995, Fox purchased $62.8 of NWCG Series C
Preferred Stock upon the effectiveness of affiliation agreements
between three of the former Argyle television stations and Fox.
This investment represents the balance of the total investment of
$250.0 which Fox agreed to make in Series C Preferred Stock.
7. INCOME TAXES
Income tax expense in the nine months ended September 30,
1995 reflects the recognition of income taxes on the sale of the
Boston Station by NWCG due to the lower historical tax basis of
the station's net assets. The liability associated with these
taxes will be offset by utilization of pre-bankruptcy plan
effective date net operating losses of NWTV. The utilization has
been reflected as a reduction of excess reorganization value.
Income tax expense in the nine months ended September 30, 1995
also reflects an increase in foreign source pre-tax income of
Marvel compared to the 1994 period which is taxed at higher rates.
In addition, the Company has not recorded a benefit since the
second quarter of 1994 for its separate company loss since Andrews
Group's ownership of Marvel was reduced below 80% during the
second quarter of 1994 resulting in a deconsolidation for tax
purposes at Andrews Group. However, Mafco Holdings' ownership of
Marvel through its indirect subsidiaries is greater than 80%.
8. RELATED PARTY TRANSACTIONS
At September 30, 1995 and December 31, 1994, the Company and
its subsidiaries had advances from Mafco Holdings and its
affiliates of $270.6 and $154.2, respectively.
At September 30, 1995 and December 31, 1994, Holdings III had
advances of $0 and $8.2, respectively, to Mafco Holdings
represented by a non-interest bearing demand note of Mafco
Holdings. In addition, at September 30, 1995 and December 31,
1994, Marvel IV had advances of $348.8 and $216.4, respectively,
to Mafco Holdings and subsidiaries.
At November 6, 1995, an aggregate of 77.6 million shares of
common stock of Marvel owned by the Company were pledged to secure
the indebtedness and letters of credit of Marvel Holdings, Parent
Holdings, Holdings III and Four Star Holdings and 2.9 million
shares of common stock of Marvel are subject to a negative pledge
under the terms of the Marvel Holdings Notes. At November 6,
1995, an aggregate of 34.5 million shares of NWCG owned by the
Company were pledged to secure the NWCG Holdings Notes.
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in millions, except per share data)
Results of Operations
- - ---------------------
General
- - -------
The Company operates in the youth entertainment segment
through its approximately 79% ownership in Marvel. Marvel is a
leading creator, publisher and distributor of youth entertainment
products for domestic and international markets based on action
adventure characters owned by Marvel and on professional
athletes, sports teams and leagues and popular entertainment
characters and properties owned by others. Marvel also licenses
its characters and properties for consumer products, television
and film and advertising promotions. Marvel's operations include
Marvel and Malibu comics, Marvel Family Publishing children's
magazines, Fleer and SkyBox sports and entertainment picture
cards, Panini children's activity stickers and adhesives, Toy Biz
toys and Fleer confectionery products.
The Company operates in the broadcasting and production and
distribution segments through its approximately 42% ownership
interest (82% voting interest) in NWCG, assuming conversion of
NWCG Series B Preferred Stock. NWCG is a vertically integrated
entertainment company which operates, through wholly-owned
subsidiaries, twelve broadcast television stations, television
production operations, filmed entertainment libraries, and a
filmed entertainment distribution business.
Results of Marvel
- - -----------------
Over the past five years, Marvel has diversified into a
broadly based youth entertainment company. As a result, an
increasing portion of Marvel net revenues and net income has been
derived from businesses other than comic book publishing. For
example, in 1990, net revenues from comic book publishing were
approximately 87% of Marvel's total net revenues as compared to
approximately 25% in 1994. Marvel's business has been augmented
by the manufacture, marketing and distribution of sports and
entertainment trading cards and children's activity stickers and
the licensing of Marvel's characters for consumer products,
television and film, advertising promotions and toys.
Marvel believes that, in 1993, Marvel and the overall comic
book direct market (i.e., comic book specialty stores)
experienced an unusual increase in revenues due in large part to
speculative purchases of comic books. Lower speculative purchases
resulted in a decline in overall direct market comic book
publishing revenues, including those of Marvel, for 1994 as
compared to 1993, as well as for the nine months ended September
30, 1995 as compared to the nine months ended September 30, 1994,
and may result in a decline for 1995 as compared to 1994. As a
result of the changes in the direct market, Marvel has undertaken
several strategic actions which it believes will have the long-
term effect of bolstering its comic book publishing business.
The actions include the acquisition in late 1994 of Heroes World,
the third largest direct market distributor, and a reduction in
the number of comic book titles published each month.
In 1994, Marvel's sales to the direct market, which
represented approximately 63% of Marvel's net publishing revenues
and 16% of Marvel's consolidated net revenues, were derived from
sales to 10 unaffiliated distributors. On July 1, 1995, Marvel
discontinued sales through the nine unaffiliated distributors and
began to distribute, through its Heroes World subsidiary, its
publications directly to approximately 5,000 comic book specialty
stores on an exclusive basis. Although Marvel expects that
exclusive distribution of Marvel's publications through Heroes
World and the reduction in titles will ultimately have a positive
impact upon future publishing results, net revenues and net
income from publishing were adversely affected during the nine
months ended September 30, 1995 as compared to the nine months
ended September 30, 1994 due to Marvel's strategic actions and
the aforementioned general decline in direct market revenues.
Marvel continues to evaluate the size and scope of its publishing
business, as well as secondary markets in which Marvel's
publications are sold, in order to identify other potential
strategic actions, such as measures designed to bring the cost
structure of the publishing business in line with anticipated
revenues, which could ultimately lead to improved profitability
of Marvel's publishing business in the future. However, there
can be no assurance that any or all of the actions described
above will succeed in accomplishing all of the results
anticipated.
For 1994 and nine months ended September 30, 1995, Marvel
believes that there was a general contraction in the sports
trading card market. This contraction was compounded by the
baseball and hockey labor situations, which adversely affected
baseball and hockey trading card sales and returns for those
periods. Although Major League Baseball resumed in April 1995,
there still is no collective bargaining agreement in effect
between the owners and players and the level of fan interest has
not returned to the levels experienced prior to the 1994 strike.
Consistent with decreased fan interest, Marvel believes that the
labor situations in professional sports have resulted in
decreased trading card consumer interest and therefore generally
decreased consumer purchases of all trading cards. Decreased
consumer purchases have resulted in a reduction in the level of
purchases by trading card retailers, as well as a reduction in
the number of retailers who specialize in trading cards.
Accordingly, Marvel believes that the overall trading card
industry has been negatively affected, causing Marvel to expect
lower sales and higher returns in 1995 than previously
anticipated for its trading cards business.
Due to the effects of the labor situations discussed above,
the profitability of Marvel's trading card business in 1995 will
be lower than 1994. Although there can be no assurance, Marvel
believes that once labor stability is re-established in
professional sports, net revenues from trading cards will
improve. Marvel also believes that growth opportunities exist in
the entertainment trading card category. With the acquisition of
SkyBox, Marvel believes that it is well positioned to increase
net revenues and profitability from sports and entertainment
trading cards in the future.
Marvel expects that there will continue to be year to year
fluctuations in the net revenues and profitability of its
individual businesses. However, Marvel believes that its
continued diversification into a broad based youth entertainment
company will help to mitigate the effects of such fluctuations on
overall net revenues and profitability.
Three Months Ended September 30, 1995 Compared With Three Months
- - ----------------------------------------------------------------
Ended September 30, 1994
- - ------------------------
The Company's net revenues in 1995 were $407.5 compared with
$249.1 in 1994. Revenues in 1995 include $269.0 from the
Company's youth entertainment segment and $138.5 from the
Company's broadcasting and production and distribution segment.
Revenues in 1994 include $152.1 from the Company's youth
entertainment segment and $97.0 from the Company's broadcasting
and production and distribution segment.
The increase in net revenues from the youth entertainment
segment reflects a $51.0 increase in trading cards and sticker
revenues, a $1.3 increase in net publishing revenues, an $8.2
increase in other product revenues and $57.3 increase in toy
revenues, partially offset by a $.9 decrease in licensing
revenues. The increase in trading cards and sticker net revenues
was attributable to the addition of SkyBox sports and
entertainment trading cards on April 27, 1995, and the addition
of children's sports and entertainment activity sticker
collections commencing with the Panini Acquisition on September
1, 1994. The increase in toy revenues is a result of the
consolidation of Toy Biz's results since the Toy Biz IPO. The
increase in other product revenues is due to the addition of
adhesives revenues commencing with the Panini Acquisition.
Net revenues from the broadcasting and production and
distribution segment increased $41.5 in 1995 over 1994. The
increase in broadcasting revenue of $21.2 reflects an increase of
$35.4 for the two stations acquired in September of 1994 from
CitiCasters and the four stations acquired on March 31, 1995 from
Argyle offset by a decrease of $5.2 for the six original stations
owned for both periods and a decrease of $9.0 reflecting the sale
of the Boston Station in March of 1995. The Company had expected
the conversion to Fox to result in an initial decline in
revenues. The decrease in revenue for the six original stations
reflects both a temporary reduction of revenue due to the
conversion and a softening of national and local revenues late in
the third quarter, which is expected to continue in the fourth
quarter. Production and distribution revenue increased $20.3
primarily due to increases in domestic syndication and network
revenues, reflecting substantially increased production activity
and the continued exploitation of NWCG's library.
Direct costs for 1995 and 1994 relates to the youth
entertainment segment ($139.6 and $79.1, respectively) and to the
broadcasting and production and distribution segment ($83.4 and
$62.6, respectively). The youth entertainment segment's direct
costs as a percentage of sales was 52% in 1995 and 1994,
reflecting lower direct costs as a percentage of net revenue from
toys and children's activity sticker collections offset by higher
direct costs as a percentage of net revenues for publishing.
Broadcasting direct costs increased due to the acquisition
of the Argyle and CitiCasters stations, increased direct costs
for the original six stations due to higher staffing levels to
support the increase in locally produced programming and non-
recurring costs associated with the Company's conversion of
certain broadcast stations to the Fox Network partially offset by
a decrease in direct costs reflecting the sale of the Boston
Station in March 1995. Production and distribution direct costs
increased due to substantially greater production activity in the
latter half of 1994 and 1995 and higher overhead to support the
production activity.
Selling, general and administrative ("SG&A") expenses in
1995 increased by $45.9 to $111.1. The youth entertainment
segment's SG&A expenses increased from $31.2 to $64.0. The
increase of $32.8 was attributable to the addition of Panini
children's sports and entertainment activity sticker collections
and adhesives and SkyBox sports and entertainment trading cards,
the consolidation of Toy Biz's results, increased corporate
overhead to support the expansion of Marvel and the effect of the
strategic actions taken in its publishing business. As a
percentage of net revenues, the youth entertainment segment's
SG&A expenses were approximately 24% in 1995 and 21% in 1994.
The broadcasting and production and distribution segment's SG&A
expenses were $36.1 and $26.7 in 1995 and 1994, respectively.
Broadcasting SG&A expenses increased due to the acquisition of
the Argyle and CitiCasters stations, increased expenses for the
original six stations due to higher staffing levels to support
the increase in locally produced programming, increased
promotional and advertising activities and non-recurring costs
associated with the Company's conversion of certain broadcast
stations to the Fox Network partially offset by a decrease in
expenses reflecting the sale of the Boston Station in March 1995.
Production and distribution SG&A expenses increased due to
substantially greater production activity in the latter half of
1994 and 1995 and higher overhead to support the production
activity. Also included in SG&A expenses are $11.0 and $7.3 of
corporate overhead expenses in 1995 and 1994, respectively.
Amortization of goodwill and intangibles increased to $18.0
in 1995 from $11.6 in 1994 primarily due to the acquisition of
broadcast television stations, Panini and SkyBox and the
consolidation of Toy Biz.
Interest expense increased to $79.0 in 1995 from $52.1 in
1994 primarily due to the issuance in 1994 of the NWCG Holdings
Notes, borrowings under the bank credit agreement of Marvel IV
Holdings, borrowings used for the acquisitions of Panini, SkyBox,
broadcast television stations and to fund increased production
activity partially offset by a reduction in interest expense on
indebtedness to affiliates.
Interest and net investment income increased to $12.1 in
1995 from $5.2 in 1994 primarily due to an increase in interest
income on loans to affiliates.
The Company recorded a gain of $5.5 in 1994 in connection
with the sale of NWCG Series B Preferred Stock to Fox.
Amortization of debt issuance costs and other increased from
1994 to 1995 primarily due to amortization of deferred financing
costs related to increased borrowings.
Nine Months Ended September 30, 1995 Compared With Nine Months
- - --------------------------------------------------------------
Ended September 30, 1994
- - ------------------------
The Company's net revenues in 1995 were $1,017.8 compared
with $628.7 in 1994. Revenues in 1995 include $596.9 from the
Company's youth entertainment segment and $420.9 from the
Company's broadcasting and production and distribution segment.
Revenues in 1994 include $350.9 from the Company's youth
entertainment segment and $277.8 from the Company's broadcasting
and production and distribution segment.
The increase in revenues from the youth entertainment
segment reflects a $99.8 increase in trading card and sticker
revenues, a $12.6 increase in net publishing revenues, a $34.8
increase in other product revenues and a $100.6 increase in toy
revenues, partially offset by a $1.8 decrease in licensing
revenues. The increase in trading card and sticker net revenues
was attributable to the addition of children's sports and
entertainment activity sticker collections commencing with the
Panini Acquisition on September 1, 1994. Due to the addition of
SkyBox sports and entertainment trading cards on April 27, 1995,
net revenues from trading cards remained approximately the same
period to period. The increase in net publishing revenues
principally reflects the addition of Heroes World and, to a
lesser extent, the addition of Malibu Comics Entertainment, Inc.
and Marvel Family Publishing in the fourth quarter of 1994.
Prior to July 1, 1995, the date that Heroes World commenced
exclusive distribution of Marvel's comic book publications to the
direct market comic book retailers, Heroes World generated sales
from the distribution of comic books of other publishers. The
increase in toy revenues is a result of the consolidation of Toy
Biz's results since the Toy Biz IPO. The increase in other
product revenues is due to the addition of adhesives revenues
commencing with the Panini Acquisition.
Net revenues from the broadcasting and production and
distribution segment increased $143.1 or 51.5% in 1995 over 1994.
The increase in broadcasting revenue of $59.3 reflects an
increase of $96.6 for the two stations acquired in September of
1994 from CitiCasters and the four stations acquired on March 31,
1995 from Argyle, a decrease of $9.4 for the six original
stations owned for both periods and a decrease of $27.9
reflecting the sale of the Boston Station in March of 1995. The
Company had expected the conversion to Fox to result in an
initial decline in revenues. The decrease in revenue for the six
original stations reflects a temporary reduction of revenue due
to the conversion, a softening of national and local revenues
late in the third quarter which is expected to continue into the
fourth quarter and higher revenues in 1994 when the majority of
these stations broadcast the 1994 Winter Olympics. Production
and distribution revenue increased $83.8 or greater than 100%
primarily due to increases in foreign syndication, domestic
syndication and network revenues, substantially increased
production activity and the continued exploitation of NWCG's
library.
Direct costs for 1995 and 1994 relates to the youth
entertainment segment ($354.5 and $180.1, respectively) and to
the broadcasting and production and distribution segment ($249.5
and $164.1, respectively). The youth entertainment segment's
direct costs as a percentage of sales was 59% in 1995 and 51% in
1994, reflecting higher direct costs as a percentage of net
revenues for trading cards and publishing, partially offset by
lower direct costs as a percentage of net revenue from toys and
children's activity sticker collections.
Broadcasting direct costs increased due to the acquisition
of the Argyle and CitiCasters stations and increased direct costs
for the original six stations due to higher staffing levels to
support the increase in locally produced programming partially
offset by a decrease in direct costs reflecting the sale of the
Boston Station in March 1995. Production and distribution direct
costs increased due to substantially greater production activity
in the latter half of 1994 and 1995 and higher overhead to
support the production activity. Both of NWCG's business
segments incurred direct costs associated with NWCG's conversion
of certain broadcast stations to the Fox Network, which allows
the broadcast stations to provide more locally-produced
programming.
Selling, general and administrative ("SG&A") expenses in
1995 increased by $116.6 to $286.4. The youth entertainment
segment's SG&A expenses increased from $80.5 to $161.3. The
increase of $80.8 was attributable to the addition of children's
sports and entertainment activity sticker collections and
adhesives and SkyBox sports and entertainment trading cards, the
consolidation of Toy Biz's results, increased corporate overhead
to support the expansion of Marvel and the effect of the
strategic actions taken in its publishing business. As a
percentage of net revenues, the youth entertainment segment's
SG&A expenses were approximately 27% in 1995 and 23% in 1994.
The broadcasting and production and distribution segments SG&A
expenses were $103.3 and $72.8 in 1995 and 1994, respectively.
Broadcasting SG&A expenses increased due to the acquisition of
the Argyle and CitiCasters stations and increased expenses for
the original six stations due to higher staffing levels to
support the increase in locally produced programming and the
increased promotional and advertising activities partially offset
by a decrease in expenses reflecting the sale of the Boston
Station in March 1995. Production and distribution SG&A expenses
increased due to substantially greater production activity in the
latter half of 1994 and 1995, the start-up of the sales and
marketing firm in May of 1994 and higher overhead to support the
production activity. Both of NWCG's business segments incurred
SG&A expenses associated with NWCG's conversion of certain
broadcast stations to the Fox Network, which allows the broadcast
stations to provide more locally-produced programming. Also
included in SG&A expenses are $21.8 and $16.5 of corporate
overhead expenses in 1995 and 1994, respectively.
Amortization of goodwill and intangibles increased to $49.0
in 1995 from $33.4 in 1994 primarily due to the acquisition of
Panini, SkyBox and broadcast television stations and the
consolidation of Toy Biz.
The Company recorded a gain of $55.2 in 1995 in connection
with the sale of the Boston Station, the Toy Biz IPO and the sale
of NWCG Series B Preferred Stock to Fox. The Company recorded a
gain of $88.7 in 1994 in connection with the sale by NWCG of
16,318,811 shares of common stock in a rights offering and the
sale of the NWCG Series B Preferred Stock to Fox.
Interest expense increased to $218.3 in 1995 from $140.8 in
1994 primarily due to the issuance in 1994 of the Holdings III
Notes and NWCG Holdings Notes, borrowings under the bank credit
agreement of Marvel IV Holdings, borrowings used for the
acquisitions of Panini, SkyBox, broadcast television stations and
to fund increased production activity partially offset by a
reduction in interest expense on indebtedness to affiliates.
Interest and net investment income increased to $31.6 in
1995 from $9.5 in 1994 primarily due to an increase in interest
income on loans to affiliates.
Amortization of debt issuance costs and other increased from
1994 to 1995 primarily due to amortization of financing costs
related to increased borrowings.
The provision for income taxes was $59.8 and $5.0 in 1995
and 1994, respectively. The increase in income tax expense
results primarily from the recognition of income taxes on the
sale of WSBK by NWCG and an increase in foreign source pre-tax
income of Marvel which is taxed at higher rates. The tax
liability associated with the sale of WSBK will be offset by the
utilization of NWCG pre-bankruptcy plan effective date net
operating losses. The utilization has been reflected as a
reduction of excess reorganization value. In addition, the
Company has not recorded a benefit in 1995 for its separate
company loss since Andrews Group's ownership of Marvel was
reduced below 80% during the second quarter of 1994 resulting in
a deconsolidation for tax purposes.
Equity in net income of investees represents Marvel's equity
interest in Toy Biz prior to the Toy Biz IPO, NWCG's 37.5%
interest in Guthy-Renker and NWCG's portion of Genesis' net loss
prior to the acquisition of the remaining 50% of Genesis.
The Company recorded an extraordinary loss of $3.3, which
represents a write-off of the related deferred financing costs
associated with the term loan portion of Marvel amended and
restated credit agreement.
Inflation
- - ---------
In general, costs to operate in the Company's business
segments are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management
believes, however, that such effect has not been material to the
Company in 1995 or 1994.
Financial Condition, Liquidity and Capital Resources
- - ----------------------------------------------------
(a) Marvel
------
Capital expenditures were $26.1 and $2.1 for the nine months
ended September 30, 1995 and 1994, respectively. The significant
increase in the 1995 period as compared to the 1994 period is
primarily attributable to the expansion of Panini's adhesives
paper facility and, the consolidation of Toy Biz.
In April 1995, Marvel entered into a $350.0 term loan
agreement with a syndicate of banks, the Co-Agents and Chemical
Bank, as administrative agent (the "U.S. Term Loan Agreement").
Marvel borrowed $350.0 under the U.S. Term Loan Agreement to
finance the SkyBox Acquisition, refinance the term loan portion
of the existing Amended and Restated Credit Agreement and for
general corporate purposes. Borrowings under the U.S. Term Loan
Agreement are repayable in six semi-annual installments beginning
August 31, 1999.
Loans under the U.S. Term Loan Agreement bear interest at a
rate per annum equal to the Eurodollar Rate (as defined in the
U.S. Term Loan Agreement) plus the Applicable Margin (as defined
in this paragraph), or the Alternate Base Rate (as defined in the
U.S. Term Loan Agreement). Eurodollar Rate Loans will, at the
option of Fleer, have interest periods of one, two, three or six
months. Applicable Margin means (a) with respect to Eurodollar
Rate Loans, 2% to 2 1/2% through the first Anniversary Date (as
defined in the U.S. Term Loan Agreement) and 1 1/8% to 2 1/2%
thereafter, to be determined based on Marvel's financial
performance and (b) with respect to Alternate Base Rate Loans, 1%
to 1 1/2% through the first Anniversary Date and 1/8 of 1% to 1
1/2% thereafter, to be determined based on Marvel's financial
performance. The interest rate on Eurodollar Rate Loans at
November 6, 1995, was approximately 7 5/8% to 8 3/16%, depending
upon the length of the relevant interest period, and the interest
rate on Alternate Base Rate Loans, at November 6, 1995, was
approximately 8 3/4% per annum. Interest on Alternate Base Rate
Loans is payable quarterly in arrears, and interest on Eurodollar
Rate Loans is payable at the end of the applicable interest
period, except that if the interest period is six months,
interest is payable ninety days after the commencement of the
interest period and at the end of the interest period.
The obligations of Fleer under the U.S. Term Loan Agreement
are not secured, but Marvel has guaranteed Fleer's obligations
thereunder.
The U.S. Term Loan Agreement includes various restrictive
covenants incorporated by reference to the existing Amended and
Restated Credit Agreement prohibiting Marvel from, among other
things, incurring additional indebtedness, with certain limited
exceptions, and making dividend, redemption and certain other
payments on its capital stock. The U.S. Term Loan Agreement also
contains certain customary financial covenants and events of
default for a financing of this type.
In connection with the U.S. Term Loan Agreement, Marvel also
entered into an amendment to the existing Amended and Restated
Credit Agreement which, among other things, permitted Marvel to
incur indebtedness under the U.S. Term Loan Agreement. Pursuant
to this amendment, the Applicable Margin under the existing
Amended and Restated Credit Agreement for Alternate Base Rate
loans will range from 0% to 1% and for Eurodollar Rate loans will
range from 0.625% to 2%, in each case depending on Marvel's
financial performance.
At November 6, 1995, 78.1 million shares (including .5
million held by an affiliate of the Company), or 76.8% of
Marvel's outstanding shares of common stock were pledged to
secure indebtedness of subsidiaries of Mafco. The indentures
governing this indebtedness contain various covenants relating to
Marvel, including certain limitations on Marvel's indebtedness.
At November 6, 1995, Marvel's outstanding bank indebtedness
was $575.9, and Marvel had $32.5 available under its revolving
credit facility.
On March 2, 1995, Toy Biz completed an initial public
offering (the "Toy Biz IPO") in which it issued and sold
2,750,000 shares of its class A common stock at $18.00 per share.
Avi Arad, a principal shareholder of Toy Biz, also sold 700,000
shares of class A common stock owned by him in the Toy Biz IPO.
The net proceeds of approximately $44.1 to Toy Biz, after
deducting commissions and estimated offering expenses, were used
to pay outstanding amounts due under subordinated notes held by
Marvel and the sole stockholder of the predecessor to Toy Biz
and for working capital and general corporate purposes. Marvel
recorded other income of approximately $14.3 on the Toy Biz IPO
in recognition of the net increase in value of Marvel's
investment in Toy Biz. In conjunction with the Toy Biz IPO,
Marvel's equity ownership was reduced to 36.6%, and its voting
control increased to approximately 85.3%.
In conjunction with the Toy Biz IPO, Toy Biz entered into a
three year $30 revolving line of credit with a syndicate of banks
for which Chemical Bank serves as administrative agent.
Substantially all of the assets of Toy Biz have been pledged to
secure borrowings under the Toy Biz credit facility. Borrowings
under the credit facility bear interest at either Chemical Bank's
alternate base rate or at the Eurodollar rate plus the applicable
margin. The applicable margin is 1% unless Toy Biz meets
specific financial operating levels, in which case the applicable
margin decreases to 3/4 of 1%. The credit facility requires Toy
Biz to pay a commitment fee of 3/8 of 1% per annum on the average
daily unused portion of the credit facility.
The Toy Biz credit facility, as amended, contains various
financial covenants, as well as restrictions, on the incurrence
of new indebtedness, prepaying or amending subordinated debt,
acquisitions and similar investments, the sale or transfer of
assets, capital expenditures, limitations on restricted payments,
dividends, issuing guarantees and creating liens. The credit
facility also requires that (a) Marvel continue to control a
majority of the voting control of Toy Biz and have the power to
elect a majority of Toy Biz's Board of Directors and (b) the
exclusive, royalty free perpetual worldwide license agreement
between Toy Biz and Marvel remain in effect. The Toy Biz credit
facility is not guaranteed by Marvel.
There was no outstanding indebtedness under the Toy Biz line
of credit at November 6, 1995.
Marvel anticipates that borrowings under its various credit
agreements will be paid from internally generated funds of Marvel
or from other sources, which may include the sale of debt
securities of Marvel. Marvel also anticipates that internally
generated funds, as well as proceeds from borrowings under the
revolving credit portion of the existing Amended and Restated
Credit Agreement or any amendment thereto, will be sufficient to
meet working capital, capital expenditure and investment
requirements.
(b) NWCG
----
At September 30, 1995, NWCG has total outstanding debt of
$996.7. The increase in debt from December 31, 1994 includes the
drawdown of the Acquisition Credit Agreement of $375.0, the
incurrence of approximately $16.7 of non-recourse debt to Fox and
a drawdown of the Entertainment Line of Credit of $63.0.
Further, NWCG repaid $19.5 of the Bank Credit Agreement Loans and
$77.3 of the Step-up Notes with the net proceeds from the sale of
the Boston Station and paid $8.0 of the Step-up Notes as a
scheduled payment. In July and August, NWCG received an
additional $62.8 when three of the Argyle stations affiliated
with the Fox Network. In connection with NWCG's agreement with
Fox, NWCG has agreed to pay Fox a portion of the deficiency,
measured against a target amount, in sales proceeds received by
Fox upon completion of its sale of its stations in Atlanta and
Dallas. NWCG's share of the currently expected deficiency is
approximately $20.0. NWCG will record the deficiency, when paid,
as an adjustment to the Series B Preferred Stock.
In order to service the currently outstanding broadcast
debt, the primary source of funds will be broadcasting operating
cash flow. Broadcasting operating cash flow from stations
recently acquired will provide NWCG with the ability to service
additional debt incurred in connection with broadcast station
acquisitions. NWCG believes that broadcasting operating cash
flow and financing activities permitted under existing debt
agreements will be sufficient to enable NWCG to satisfy current
requirements for operating, investing and financing activities of
NWCG and its subsidiaries, including debt service prior to final
maturity.
NW Entertainment obtained a $100.0 credit facility
collateralized by certain assets of the production and
distribution segment. At September 30, 1995, $63.0 is
outstanding under this facility. NWCG believes production and
distribution segment cash flow will be sufficient to service this
debt.
In order to meet principal payments upon the final maturity
of its various debt facilities outstanding, the earliest of which
occurs in 1998, NWCG will be required to adopt one or more
alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking
additional capital contributions. There can be no assurance that
any of such actions could be effected on satisfactory terms, that
they would enable NWCG to continue to satisfy NWCG's capital
requirements or that they would be permitted by the terms of
existing or future debt agreements.
NWCG's capital budget for 1995 is approximately $25.0,
primarily for the broadcasting segment. In connection with the
broadcast stations' change in affiliation to the Fox Network, the
broadcasting segment provides more locally-produced programming
which requires additional capital expenditures and operating
expenses.
In July 1995, NWCG acquired Cannell Entertainment Inc., for
Series E Preferred Stock valued at $30.0 and certain other
consideration.
(c) Corporate and other subsidiaries
--------------------------------
The Company's corporate cash requirements consist primarily
of debt service and administrative expenses. The Company's
principal source of liquidity at the corporate level is expected
to consist of advances from Mafco Holdings and affiliates. At
November 6, 1995, an aggregate of 77.6 million shares of common
stock of Marvel owned by the Company were pledged to secure the
indebtedness and letters of credit of Marvel Holdings, Parent
Holdings, Holdings III and Four Star Holdings and 2.9 million
shares of common stock of Marvel are subject to a negative pledge
under the terms of the Marvel Holdings Notes. At November 6,
1995, an aggregate of 34.5 million shares of NWCG owned by the
Company were pledged to secure the NWCG Holdings Notes.
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
- - --------------------------
ITEM 1. LEGAL PROCEEDINGS
On March 26, 1993, Parent Holdings commenced a tender offer
for up to 22,000,000 shares of Marvel common stock at $12.50 per
share. On or about April 19, 1993 and April 23, 1993, three
lawsuits, Joseph H. Weiss v. Ronald O. Perelman, et al. (C.A. No.
12945), John Mortensen v. Ronald O. Perelman, et al. (C.A. No.
12952), and Nicholas D. Gravina v. Ronald O. Perelman, et al.
(C.A. No. 12954), were filed in the Court of Chancery of the
State of Delaware in and for New Castle County against Parent
Holdings, Marvel and certain of Marvel's directors. These
lawsuits were consolidated under the caption Joseph H. Weiss v.
Ronald O. Perelman, et al. (C.A. No. 12945), and on June 23,
1993, the plaintiffs filed a consolidated amended complaint. The
consolidated action purported to be a class action on behalf of
all of Marvel's public stockholders, and, in the consolidated
amended complaint, alleged that the original $12.50 per share
offer was grossly inadequate and coercive; the offering
statement, the amended offering statement and Marvel's 14d-9
filings were false and misleading; and Marvel's Board of
Directors and its special committee failed adequately to protect
the interest of Marvel's stockholders. The consolidated amended
complaint sought damages, an accounting and fees for the
plaintiffs' attorneys for purportedly causing an increase in the
tender offer price from $12.50 to $15 per share. On February 20,
1994, the plaintiffs voluntarily dismissed each of these actions
and filed a single new action in the United States District Court
for the Southern District of New York. The new action named as
defendants the same defendants as the prior actions, as well as
MacAndrews Holdings and Mafco Holdings; made essentially the same
allegations and further alleged that the revised tender offer
price was also grossly inadequate; purported to state claims
under Sections 10(b), 14(e) and 20(a) of the Securities Exchange
Act of 1934, as amended; and sought supplemental disclosure,
rescission of the tender and/or rescissory damages, commencement
of a new and "improved" tender offer and other, related equitable
and legal relief. On May 2, 1994, the Company moved to dismiss
the complaint because, among other reasons, it failed to state a
claim. On September 6, 1995, the United States District Court
for the Southern District of New York dismissed the lawsuit and
the plaintiffs did not appeal the dismissal, thereby concluding
this litigation.
On March 9, 1995, a complaint, purporting to be a class
action, was filed against SkyBox, certain of SkyBox's officers
and directors and Marvel in the Court of Chancery in the State of
Delaware in and for New Castle County, entitled Strougo v.
Lorber, et al., C.A. No. 14107 ("Strougo"). The complaint
generally alleges that SkyBox and certain of its officers and
directors breached their fiduciary duties by accepting the cash
tender offer and the merger at an unfair and inadequate price by
failing to consider other potential purchasers in a manner
designed to obtain the highest possible price for SkyBox's
stockholders and by not acting in the best interest of
stockholders. The complaint also alleges that Marvel aided and
abetted the breaches of fiduciary duty committed by the other
defendants named in the complaint. The complaint seeks
preliminary and permanent injunctions against consummation of the
merger, damages, costs and experts' fees and expenses.
On March 16, 1995, a complaint, purporting to be a class
action, was filed against SkyBox and certain of SkyBox's officers
and directors in the Court of Chancery in the State of Delaware
in and for New Castle County, entitled Krim and Gerber v. SkyBox
International Inc., et al., C.A. No. 14127. The complaint
generally makes allegations similar to those contained in the
Strougo complaint and seeks similar injunctive and other relief.
In connection with the appeal to the United States Court of
Appeals for the Seventh Circuit by the plaintiff in the Eckstein
and Majeski Actions (see Andrews Group 1994 10-K), oral argument
was held on April 17, 1995. On June 26, 1995, the Court of
Appeals affirmed the judgments of the District Court in favor of
the defendants. On July 10, 1995, the Eckstein plaintiffs filed
a petition for rehearing and suggestion of rehearing en banc.
The petition was denied by the Court of Appeals on July 21, 1995.
On or about July 6, 1995, the Majeski plaintiffs filed a
purported class action lawsuit in the Circuit Court for Milwaukee
County, Wisconsin, entitled Ralph Majeski, et al. v. Balcor
Entertainment Company Ltd., et al., Case No. 95CV006579 (the
"Majeski State Court Action"). The Majeski State Court Action is
based on allegations similar to those in the Federal Court
Majeski Action, and seeks similar relief. The complaint alleges
claims based on state law asserting, among other things, breach
of fiduciary duties, negligent and intentional misrepresentation
and deceit, breach of contract, and a derivative claim on behalf
of another defendant, Balcor Film Investors, and its successor.
On October 23, 1995, plaintiffs filed an amended complaint, which
made only minor, technical changes. On November 2, 1995, the
court entered its order, without objection from the defendants,
certifying the plaintiff-class and directing that notice be sent
to all class members. NW Entertainment has filed a motion to
dismiss the complaint, which has not yet been scheduled for
hearing.
On March 10, 1994, Steven Cooperman commenced an action, on
behalf of himself and purportedly derivatively on behalf of SCI
Television, Inc. (or its purported successor corporation, NWCG)
and as a class action, against certain of the officers and
directors of NWCG, certain of their respective affiliates and
certain of their advisors, asserting, among other things,
breaches of fiduciary duty, unjust enrichment, constructive fraud
and abuse of control in connection with the transactions
contemplated by the Agreement (the "Action"). The Action is
entitled Steven Cooperman, On Behalf of Himself and Derivatively
on Behalf of SCI Television, Inc., a Delaware corporation (or its
successor corporation, SCI Parent Corporation to be re-named New
World Communications Group, Inc.) v. Ronald O. Perelman, et al.,
and SCI Television, Inc., a Delaware corporation (or its
successor corporation, SCI Parent Corporation to be re-named New
World Communications Group, Inc.), Case No. BC100359 (Superior
Court of the State of California, County of Los Angeles). The
Action seeks equitable relief and damages. An agreement has been
reached on a settlement of this litigation and the settlement has
been approved by the Superior Court. Under the terms of the
settlement, NWCG will issue 2 million warrants for the purchase
of NWCG stock at the market price on the day of issue. The
warrants will be exercisable over a 90-day period, 5 years from
the date of issue. A payment of cash consideration was made in
October 1995. In addition, as part of the settlement, Andrews
Group will contribute the stock of L.C. Holdings, a company with
an educational film library, to NWCG. When the securities are
issued, the fair value of the securities will be reflected in
NWCG's common stockholders' equity with a corresponding reduction
to additional paid-in-capital.
The Company and its subsidiaries are also parties to various
other litigation, which have arisen in the ordinary course of
business. The Company believes that it is unlikely that the
outcome of all pending litigation in the aggregate will have a
material adverse effect on the consolidated financial condition
of the Company and its subsidiaries taken as a whole.
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Report on Form 8-K
None
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
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.
ANDREWS GROUP INCORPORATED
--------------------------
(Registrant)
By: /s/ Joseph P. Page
------------------
November 14, 1995 Joseph P. Page
Executive Vice President and
Chief Financial Officer
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
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.
ANDREWS GROUP INCORPORATED
--------------------------
(Registrant)
By: /s/ Laurence Winoker
--------------------
November 14, 1995 Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Andrews
Group and Subsidiaries Consolidated Condensed Balance Sheets and Statements of
of Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000277025
<NAME> ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 123
<SECURITIES> 0
<RECEIVABLES> 509
<ALLOWANCES> 53
<INVENTORY> 110
<CURRENT-ASSETS> 881
<PP&E> 353
<DEPRECIATION> 64
<TOTAL-ASSETS> 4195
<CURRENT-LIABILITIES> 550
<BONDS> 2863
<COMMON> 0
340
0
<OTHER-SE> (467)
<TOTAL-LIABILITY-AND-EQUITY> 4195
<SALES> 1018
<TOTAL-REVENUES> 1018
<CGS> 604
<TOTAL-COSTS> 604
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> (77)
<INCOME-TAX> 60
<INCOME-CONTINUING> (129)
<DISCONTINUED> 0
<EXTRAORDINARY> 3
<CHANGES> 0
<NET-INCOME> (132)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
