Marvel Enterprises, Inc
MVL
Investment Notes
October 20, 2003
1. Marvel raised guidance on October 9, 2003 . Marvel cited strength of licensing division (high margin).
June 16, 2003
From 2002 10K
1. Cash flow statement shows option exercise
cash benefit (that is $$$$ that employees pay for shares that were
optioned). Total was $1.198 Mil. Need to find out how many shares that was,
then compute market cap of it and dilution stuff.
2. Stock Based compensation for F2002 was
around .02. Need to see more for F2003,
and find out if larger projected number is expected.
3.
Perlmutter owns the company which places advertising for Marvel. Called
Tangible Media Inc. See if any info on
this company, such as profitability, diversity of customers (or is it just
Marvel), any sec filings etc. I think the fees in 2002 were only 102k
(previously higher)
4. Need to review status of all lawsuits.
a.
Marvel
vs. Simon (10k says non-jury to start 7/16/03. suit claims that Capt. America
was created as work for hire.
b. Stan lee and Marvel.... I really need to read up
on this. What is exposure? It seems that if Stan Lee were to prevail he would
get a 10 % profit participation in Spider Man movie and other film and
productions that use Marvel Characters.
I need to research the analysis here, if Lee prevails what would
ultimate payment and accrual be. How much revenue was previously recognized
that would need to be offset with costs.
Mr. lee does have an employment agreement that is paying lee a salary of
1 mill per year.
5.
Page 9 of the F2002 10k has Equity Compensation plan. 4,542,916 mil of
securities remain available for future issuance at 5 $ per share. Market cap at today’s price ($22) on those
shares would be near $100 million
7. Definitely need to scour Sony SEC documents
and see all mentioned about Equity Joint Venture.
8. Has Perlmutter exercised his warrants? As of
10k F2002, he was entitled to 3,867,708 shares at a price of 3.11 for 5 years,
effective 11/30/01.
Perlmutter personally guaranteed 4.4 million
for lease of office facility. Looks like he was given warrants to exercise
735,601 shares at a price of 3.11 for 5 years, effective 11/30/01. In total he is entitled to 4,603,309 shares.
Have these been exercised, has the diluted shares been accounted for in eps.
9. Does company do business with Object Trading
Corp, a wholly owned company by Perlmutter?
Company was discussed in 3/31/03 10Q.
10.
As of 12/31/02 there were 10,843,502 of exercisable options.
11.
3 largest customers at 12/31/02 accounted for 15 %, 9 % and 4 % of total net
sales. Who were these customers?
12. Will SARS affect Marvel because of TBW? How
will weak dollar affect MVL?
13. Related party transactions exist with Avi
Arad (BOD and stockholder) for royalties for 685k in 2002. He has an affiliate
production company, which was paid $300k in 2002. Company shares office space and G&A with affiliates, cost was
about $83K in 2002. Company paid
producer fees to a company wholly owned by an officer of 202 in F2002. Who is the officer, what is the company?
14.
Company has a defined benefit pension plan.
FYI this is a plan generally very beneficial for older employers. I need
to ask actuary if this is very beneficial to Marvel because of officers who are
older. Company is using actuarial
assumptions of 6 % (previously 7 %) discount rate, expected rate of return 8 %
(previously 9%), get copy of 5500's and greater than 5% net assets for Plan
benefits. Look for related party
investments. Watch the unfunded portion. What is expected to be paid over time?
Has this been discussed in CC's.
Review of 8k from
May 6, 2003
1. If I am reading correctly I see that
Marvel is unofficially guiding that revenue breakdown in future to be
10 % or less from Films
57 % Licensing
I
didn’t get more of a breakdown and need to review the above for completeness
and accuracy.
2. Insider Ownership (this is from proxy
statement filed in April, not the 8 k)
Beneficial
Owner.... Beneficially Owned.... Percentage Owned
Morgan Stanley & Co. Incorporated (1) ....................... 6,314,238 9.70%
1585
Broadway
New
York, New York 10036
Avi
Arad (2)..................................................................
5,250,000 7.93%
F.
Peter Cuneo (3) .........................................................
1,120,000 1.69%
Alan
Fine (4) .................................................................
515,000 *
Sid
Ganis (5) ................................................................
85,000 *
James
F. Halpin (6) ....................................................... 135,000 *
Morton
E. Handel (7) .................................................... 166,000 *
William
Jemas, Jr. (8) ................................................... 336,667 *
Allen
S. Lipson (9) ....................................................... 372,667 *
Lawrence
Mittman (10) ................................................ 105,000 *
Isaac
Perlmutter (11)..................................................... 26,692,941
36.22%
Richard
L. Solar (12) .................................................... 24,500 *
Richard
E. Ungar (13)................................................... 190,000 *
All
current executive officers and directors as a group
(13
persons) (14)..................................................... 35,042,775
45.05%
_________
*
Less than 1%.
According to the 8k, officers will be selling approx 3 mil
shares. During CC it was mentioned that
Ike is not intending to currently sell shares (they did say, " to the best
of their knowledge"). I forget
where I read, but those insiders will still hold 67 % of their position and
getting rid of 1/3. Need to find out if either Ike or Morgan Stanley have
restrictions on sales.
3.
Avi stated that gross participation deals generally range from 2% to 7%; not
talking about box office, because gross participation is based on Revenues
studio receives (this was mentioned on the last question of the CC)
Some notes from other readings
1.
My understanding is that MVL guided before 1/14/03 that F2003 projected shares
outstanding would be 73.7m, now they project 75.8 mil.
2.
F2003 projected revenues were originally guided at $205 - $ 215 mil before
1/14/03, now they project $ 225 - $ 230 mil.
3.
F2003 projected Free Cash Flow per Share was originally guided at $69 74 mil
before 1/14/03, now they project $ 80 - 90 mil.
4.
F2003 EPS was originally guided at $42 - 45 mil before 1/14/03, now they
project $ 74 - 82 mil..
5. Company guidance on dilution will be
interesting. Need to determine if
increase in stock price has caused more options to be in the money, which could
increase share count.
6.
Early retirement on debt is interesting. Again, I need to look closer. Buying
the debt at distressed levels looks like a great move.
7.
Need to research (if possible) the financial Strength of Toy Biz Worldwide;
LTD. (TBW) The company generates 77 % of sales from US retailers (Toy Biz is an
unaffiliated Hong Kong entity). Retail Distributors are WMT, TOY, Kay bee and
Target.
8.
Routh estimated 1/14/03 that MVL received a royalty of 20 % on wholesale sales
of TBW.
9.
Routh in 1/14/03 report projected gross box revenues for future films as
follows.
Prime***
254m
Nick
Fury***175m
The
Punisher***175m
Iron
Fist***225
Total
gross of past films per same report were
MIB***577
Blade***131
X-men***315
Blade
II *** 150
Spider
man***825
MIB
II*** 426
10.
Need to review SNE for any upward or downward guidance. Need to read their take
on Spiderman Joint Venture. Accounted for under equity method. I need to learn more about the SNE lawsuit. According to something I read ( I forget
where) looks like MVL on upside could benefit by 50 m, or 0.63 per share, plus
better potential deals. If they lose, just lose costs. Again, real weak here,
have to read up.
11.
I would like to find out if employees
and lesser level employees receive options. If so, are they selling as well?
Sometimes companies discourage employees from selling, yet high levels sell
anyway. Examples that I know of in this are STAD, LU and Enron. I have no
reason or even suspicion that Marvel is doing anything as such.
12.
Tangible book value when removing goodwill is near 0. In a webcast on June 16, 2003,
Avi explained that tangible book value is meaningless to Marvel.
13.
Price to sales ratio, using F2003 revenues of $230 million and a price of $ 21,
would be 6.93X.
Price
to Sales is just one of many tools. You also need to project out to normalized
long term revenues, so you could see what price to sales or any other metric
might be when revenue streams are at their expected level. For example, Amazon
and Home Depot in its infant stage. When one looked at Amazon in the early
days, price to sales was huge, but that was on 1 mil or so of revenues, one
could have projected out and questioned, " what would price to sales be on
1 billion of revenues". There is a company I am investing in now, with
next to no revenues, the hopes are that the company will have 200 mil plus,
hence if that happens, current price levels would be absurdly low.
14.
Some projected items I found in Routh Report from 5/29/03
Year***Revenues****Gross
Profit***eps
2002A***299.08***156.93***(1.18)
2003E***238.66***164.84***1.11
2004E***317.16***198.34***1.13
2005E***234.94***188.40***1.25