New World Has $18.5-Million Loss; Cash Reserves Dive

New World Entertainment, until recently one of the most ambitious and cash-rich independents in Hollywood, on Wednesday reported a 1987 loss of nearly $18.5 million and disclosed that its cash and marketable securities have plummeted to $33 million as of March 28, down from $84 million at the end of last year.

Although the company said it believes that it will have sufficient cash for operations in 1988, it disclosed in its annual report to the Securities and Exchange Commission that it will consider other options--including the sale of assets and a cutback in its movie and television production--if it does not improve its cash flow or get additional borrowing capacity.

For the fourth quarter ended Dec. 31, New World reported a loss of nearly $21 million, which included television and movie writedowns of $6 million and stock market losses of $8.7 million.

The full-year loss--on revenue of $384 million--exceeded the company’s total earnings of $16.2 million in the three preceding years.

New World, headquartered in Los Angeles, had bold plans to become a $1-billion entertainment company before the stock market crash in October. With money raised from Wall Street, the company had succeeded in buying comics publisher Marvel Entertainment but failed to acquire any other major business that could have generated cash to help meet New World’s hefty interest payments on $285 million in high-risk, high-yield bonds.

Earlier this month, the bonds were trading in the range of 30 cents to 40 cents on the dollar, and New World retained a financial adviser to explore its options, which it said might include an exchange offer.

Cash Declined Quickly

In its SEC filing, New World disclosed that it has received a commitment letter concerning a possible loan for the purchase of a limited amount of New World’s bonds from the lender at a price significantly below their face value.

Mitchell L. Koch, New World’s vice president of finance and accounting, declined to elaborate on the possible loan or identify the prospective lender, but he said it is not New World’s financial adviser. (Although New World has never identified the adviser, a Drexel Burnham Lambert spokesman confirmed that his firm had been retained.)

At the end of 1986, New World held about $220 million in cash and marketable securities. But that sum declined by $136.2 million in 1987, the company said. Since the beginning of 1988, New World has suffered a $51-million decrease in cash and marketable securities. This year’s drop in cash was due in part, the company said, to repayment of $11.5 million in bank debt and interest payments totaling $13.2 million, as well as funding of production and other operations.

The company noted that its corporate overhead more than trebled in 1987 to $8 million, up from $2.5 million in 1986. The company’s net interest expense increased to $37.1 million in 1987, more than twice its net interest expense of $15.8 million in 1986.

Disappointing Year

The company said it wrote down a total of $9 million for television series production and television pilots in 1987, while its writedown of movies totaled $3.7 million. A disappointing year at the box office contributed to the filmed entertainment segment’s operating loss of $4.1 million in 1987, compared to operating income of $18.9 million in 1986.

The Marvel publishing segment contributed $2.3 million in operating income in 1987, New World said.

Although operating income from New World’s home-video business was not disclosed, the unit’s revenue increased to $55.2 million, or less than 3% over the previous year, indicating a significant leveling off of the company’s ability to sell its “B movies” on videocassettes. In the previous year, New World had reported a whopping 32% increase in its home-video sales as it benefited with other movie companies from the home-video boom.