100%(1)1 out of 1 people found this document helpful
This preview shows page 37 - 40 out of 45 pages.
• Expanded distribution of comics in mass market bookstores such as Borders and Barnes and Noble. Finally, in 2001, it reduced its operating costs even more by reducing its in-house employment to approximately 500 persons (including operations in Hong Kong and Mexico) and in 2002, reduced it down to 200 persons. The Company also contracted for creative work on an as-needed basis with approximately 500 active freelance writers and artists.
Marvel Comics Turnaround Team 2 38Marvel Status - Stable But Uncertain Period20012002Cash21.653.7Cash Ratio30.7%59.6%Quick Ratio112.9%118.4%Current Ratio142.7%136.2%Net Income5.322.6Revenues181.2299.0Expenses209.3275.7A/R35.643.4Recievables turnover5.16.9Days' sales in receivables71.853.0Inventory20.916.0Inventory turnover8.718.6Days' sales in inventory42.119.6A/P13.111.6Payable turnover4.28.9Days' COGS in payables86.141.2Working Capital43.547.8Debt188.0151.0Equity42.0242.9Interest/Net IncomeDebt/Equity4.480.62Debt/Total Capital82%38%Z Score(0.1)0.8Share Percentage ($)3.80$ 8.98$ Shares Outstandings34.861.1Market Capital132.1549.0Stable but UncertainThe 2001 to 2002 period brought some true improvements to Marvel’s financial statements. Cash more than doubled, reaching levels not seen in close to a decade. Net income grew 300% in year 2002, inventories fell considerably, and accounts payable continued to decline. Debt also continued to drop; and while the Z-score remained on precarious footing, it clearly continued its streak of improvement from the trough of -2.4 in 1997. Clearly, Marvel’s finances were improving; but it was not yet in a comfortable position.
Marvel Comics Turnaround Team 2 39How Successful was This Turnaround21? From a purely financial standpoint, the turnaround was a runaway success. Here is some evidence. 1. Minimal capital spending – just $4M Capex with no real fixed assets. 2. Low debt - Only $151M in 12% senior notes that will be called June 2004, and will most likely be paid off. 3. No more preferred stock – a combination of a tender offer and a forced conversion of preferred into common shares at $1.39/share have eliminated all preferred stock interest obligations. 4. Estimated free cash flow yield of 7.2%. 5. Predicted share price increase in 26% to $25 over the next 1-3 years. 6. High return on invested capital – 28% 7. Market valuation of equity – $1.377B From an operational standpoint, the turnaround was also strong. Here is the current evidence. 1. Licensing: The licensing model, upon which the new and improved company was based, has generated extremely high margins (gross profit margins of 70-80%) with little to no capital investment. Marvel succeeded not only in picking the right strategy (the strategy that leverages Marvel’s biggest strategic assets – its characters) but also executing on it. The licensing group signed more licenses with improved licensing terms than had been previously signed. For instance, they signed equity participation deals with the smaller movie studios and profit participation deals with the larger studios (e.g. X-Men 2). Next, they used their momentum from their films to diversify their licensing revenues from DVD, video game, television, theme parks like Universal Studios, apparel, and other consumer 21From Bear Stearns and Nateris Analyst reports, 2001-2002.