CONFIDENTIAL
PRESENTATION TO HOLDERS OF
- MARVEL HOLDINGS, INC.
11 1/4% SERIES B SENIOR SECURED
DISCOUNT NOTES DUE 1998
- MARVEL (PARENT) HOLDINGS, INC.
11 7/8% SENIOR SECURED DISCOUNT
NOTES DUE 1998
- MARVEL III HOLDINGS, INC.
9 1/8% SENIOR SECURED NOTES DUE 1998
NOVEMBER 20, 1996
FORWARD-LOOKING STATEMENTS
Statements in this report on Form 8-K such as "intend",
"estimated", "believe", "expect", "anticipate" and similar expressions
which are not historical are forward-looking statements that involve risks
and uncertainties. Such statements include, without limitation, the
expectation of Marvel Entertainment Group, Inc. (the "Company") as to
financial performance for the remainder of 1996 and for 1997. In addition
to factors that may be described in the Company's Securities and Exchange
Commission filings, including this filing, the following factors, among
others, could cause the Company's financial performance to differ
materially from that expressed in any forward-looking statements made by,
or on behalf of, the Company: (i) continued weakness in the comic book
market which cannot be overcome by the Company's new editorial and
production initiatives in comic publishing; (ii) continued general weakness
in the trading card market; (iii) the failure of fan interest in baseball
to return to traditional levels that existed prior to the 1994 baseball
strike and the potential for decreased fan interest due to a possible
disruption of play in 1997 as a result of the failure of the owners and
players to agree on a collective bargaining agreement, thereby negatively
impacting the Company's baseball card business; (iv) the effectiveness of
the Company's changes to its trading card and publishing distribution; (v) a
decrease in the level of media exposure or popularity of the Company's
characters resulting in declining revenues based on such characters; (vi) the
lack of continued commercial success of properties owned by major licensors
which have granted the Company licenses for its sports and entertainment
trading card and sticker businesses; (vii) unanticipated costs or delays in
completing projects associated with the Company's new ventures including
media, interactive software and on-line services and theme restaurants;
(viii) consumer acceptance of new product introductions, including those for
toys; (ix) imposition of tariffs or import quotas on toys manufactured in
China as a result of a deterioration in trade relations between the U.S. and
China; and (x) the outcome of the Company's discussions for the restructuring
of the Company's credit agreements and related anticipated transactions.
OBJECTIVES OF THIS MEETING
o Operational review of Marvel Entertainment.
o Overview of Andrews Group proposal to restructure
Marvel Entertainment.
o Bondholder proposal.
o Next steps.
OPERATIONAL REVIEW: MARVEL COMICS
o Overall market continues to contract:
- Decline of 25-30% in 1996.
- 10-15% decline expectation in 1997.
- Significant overhead reduction in line with revenue
decreases.
o Heroes World distribution:
- Losses in 1996 ($6 million).
- Evaluating alternatives for improvement.
o Licensing business:
- Had anticipated more TV exposure in 1996.
- New animation agreement with FOX should lead to improved
licensing revenue.
o Longer term initiatives:
- Create a mass market strategy.
- Introduce new characters.
FINANCIAL SUMMARY: MARVEL COMICS
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
Revenue................... $191 $107 $111
Gross profit.............. 73 41 55
% of Revenue........ 38% 39% 49%
SG&A(a)................... 47 48 40
% of Revenue........ 25% 45% 37%
EBITDA(b)................. 26 (7) 14
% of Revenue........ 14% (7)% 13%
______________________
(a) Includes $4 million for Marvel Studios in 1997.
(b) Excludes restructuring charges.
OPERATIONAL REVIEW: FLEER / SKYBOX
o Trading card market has been contracting since 1992:
- Lower speculative purchases.
- Sports labor unrest.
o Company has shrunk its distribution to better control
production and returns.
o High fixed cost deals with sports leagues and other licensors
($69 million in royalties and ad commitments in 1996) will
continue to inhibit 1997 performance and beyond.
o Cost structure will be better aligned to serve a
contracted market.
o Initiatives in process to better merchandise product.
FINANCIAL SUMMARY: FLEER / SKYBOX
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
------ ------------ ------
Revenue.................. $250 $203 $207
Gross profit............. 30 42 56
% of Revenue....... 12% 21% 27%
SG&A..................... 74 53 52
% of Revenue....... 30% 26% 25%
EBITDA(a)................ (44) (11) 3
% of Revenue....... (18)% (6)% 2%
__________________
(a) Excludes restructuring charges.
OPERATIONAL REVIEW: PANINI
o 1996 forecasted sticker volumes didn't materialize:
- Lower Disney success.
- Forecast based on historical trends.
- Resulted in higher product costs, including obsolescence
and higher returns.
o Tighter distribution to reduce return exposure and improve
product costs in 1997.
o Adespan:
- Recovering from fire.
- Expansion.
o Projecting 5% decline in unit volume.
FINANCIAL SUMMARY: PANINI
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
------ ------------ ------
Revenue.................... $239 $267 $306
Gross profit............... 91 77 102
% of Revenue......... 38% 29% 33%
SG&A....................... 48 53 63
% of Revenue......... 20% 20% 21%
EBITDA..................... 43 24 39
% of Revenue......... 18% 9% 13%
OPERATIONAL REVIEW: TOY BIZ
1996 EVENTS
- -----------
o Continued diversification:
- Expansion of promotional doll category.
- Expansion into new categories (FOB).
o Doubling of international sales.
o Lower domestic sales than planned due to market conditions.
1997 INITIATIVES AND IMPROVEMENTS
- ---------------------------------
o Increased action figure sales.
o Additional product diversification:
- Activity toys, including ride-ons.
- NASCAR product line.
o Establish "FOB" business.
FINANCIAL SUMMARY: TOY BIZ
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
------ ------------ ------
Revenue....................... $196 $257 $330
Gross profit.................. 108 131 164
% of Revenue............ 55% 51% 50%
SG&A.......................... 48 70 90
% of Revenue............ 25% 27% 27%
EBITDA........................ 60 61 74
% of Revenue............ 31% 24% 23%
REVENUE BY COMPANY
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
------ ------------ ------
Marvel Comics Group............. $191 $107 $111
Fleer / SkyBox.................. 250 203 207
Panini.......................... 239 267 306
Marvel Interactive.............. - - 6
Corporate/Eliminations.......... (33) (30) (30)
---- ---- ----
Total........................... $647 $547 $600
=== === ===
Toy Biz......................... 196(1) 257 330
Total........................... $843(1) $804 $930
=== === ===
__________________
(1) Marvel Entertainment Group's reported revenue in 1995 was $829
million and included $182 million of revenue from Toy Biz. Toy
Biz results were only consolidated after March 1, 1995.
EBITDA BY COMPANY
(Dollars in millions)
1995 1996 CURRENT 1997
ACTUAL FORECAST BUDGET
------ ------------ ------
Marvel Comics Group............... $ 26 $ (7) $14
Fleer / SkyBox.................... (44) (11) 3
Panini............................ 43 24 39
Marvel Interactive................ - (2) (2)
Corporate/Eliminations............ (13) (13) (11)
---- ---- ----
Total............................. $ 12 $ (9) $ 43
=== == ===
Toy Biz........................... 60(1) 61 74
Total............................. $ 72(1) $ 52 $117
=== === ===
________________________
(1) Marvel Entertainment Group's reported EBITDA in 1995 was $69 million
and included $57 million of EBITDA contribution from Toy Biz. Toy Biz
results were only consolidated after March 1, 1995.
MARVEL STRATEGIC INVESTMENTS
(Dollars in millions)
PROJECTED 1997 DISBURSEMENTS
Marvel Studios................................ $ 15
Marvel Interactive............................ 14
Marvel Mania.................................. 31
FSB Mass Merchandising........................ 6
-----
Total Strategic Investments.......... $ 66
====
1997 SUMMARY OF CASH FLOWS
(Dollars in millions)
1997
---------
EBITDA.................................... $117
Capital Expenditures...................... (35)
Restructuring Liabilities................. (20)
Working Capital & Other, Net.............. (22)
---
Total Operating.................. $40
Interest Expense.......................... $(66)
Change in Existing Debt................... (43)
----
Total Financing.................. $(109)
Total Strategic Investing........ $(66)
-----
Cash Flow................................. $(135)
Beginning Cash............................ 17
--
Financing Need............................ $(118)
====
MARVEL ENTERTAINMENT GROUP SUMMARY BALANCE SHEET ITEMS AND CAPITALIZATION
(Dollars in millions)
SEPT. 30, 1996
Cash......................................... $ 35.9
======
Goodwill and Other Intangibles............... $595.7
=====
U.S. Term Loan Agreement..................... $350.0
Term Loan Agreement.......................... 139.9
Revolving Credit Facility.................... 104.5
Panini Bank Debt............................. 28.7
Capital Leases and Other..................... 31.4
------
Total Debt.............................. $654.5
Stockholders' Equity......................... 180.5
-----
Total Capitalization.................... $835.0
=====
PROPOSED RESTRUCTURING OF MARVEL ENTERTAINMENT
n Andrews Group has proposed to invest $350 million to acquire
409.8 million newly issued shares of Marvel Entertainment Group,
representing 80.1% of the outstanding common shares after the
investment.
n The proceeds of the Andrews investment will be to facilitate
the merger of Marvel Entertainment Group and Toy Biz.
n Andrews may (i) purchase Marvel Entertainment Group shares and
Marvel Entertainment Group will purchase the Toy Biz stock that
it does not already own, (ii) purchase the Toy Biz shares not
already owned by Marvel Entertainment Group and contribute
those Toy Biz shares to Marvel Entertainment Group, or (iii)
invest $350 million in a combination of (i) and (ii).
n The investment by Andrews will be conditional upon, among
other things, an amendment to the Marvel Entertainment Group
bank credit agreement whereby the combined entity will be able
to borrow additional funds to meet its cash needs in 1997.
RATIONALE FOR THE TRANSACTION
n Currently, Marvel Entertainment Group's ability to continue as
a going concern is questionable.
n Excluding its 26.7% equity ownership of Toy Biz, MEG is
projecting a significant turnaround in operations to generate
$43 million of EBITDA in 1997, up from $(9) million in 1996.
n These cash flows are insufficient to support MEG's $688(1)
million in bank debt.
n Without significant development expenditures, the growth
prospects of MEG's current portfolio of businesses are modest.
n Using the $350 million equity infusion by Andrews to pay down
MEG bank debt would still leave MEG very levered and with
limited growth prospects.
n Because of the benefit to Toy Biz of promotional spending by
Marvel on its characters, it makes economic sense to merge the
two entities as part of the recapitalization.
n Pro forma for the merger with Toy Biz, MEG will still be very
leveraged but will be adequately capitalized to pursue its
development plans.
n The EBITDA multiples implied by the Andrews offer are
reasonable on either a (i) Marvel standalone basis or (ii) Pro
Forma Toy Biz basis.
_______________________
(1) Projected balance at 12/31/96.
IMPLIED MULTIPLE ANALYSIS
(Dollars in millions, except share price)
Marvel (Without Toy Biz)
Shares Outstanding................... 102
Offer Price.......................... $0.85
Implied Equity....................... $ 87
Total Net Debt(1).................... 763
---
Total Enterprise Capital............. $850
Less Toy Biz(2) ..................... (129)
Adjusted Enterprise Capital.......... $721
1996E EBITDA (Excl. Toy Biz)......... $(9)
Multiple of 1996 EBITDA.............. NM
1997E EBITDA (Excl. Toy Biz)......... $43
Multiple of 1997E EBITDA............. 16.8x
Marvel (With Toy Biz)
Shares Outstanding................... 512
Offer Price.......................... $0.85
Implied Equity....................... $ 435
Total Net Debt(1).................... 763
---
Total Enterprise Capital............. $1,198
1996E EBITDA (Incl. Toy Biz)......... $52
Multiple of 1996 EBITDA.............. 23.0x
1997E EBITDA (Incl. Toy Biz)......... $117
Multiple of 1997E EBITDA............. 10.2x
- ----------------------
(1) Includes estimated $688 million of debt as of 12/31/96 plus additional
net debt of $75 million.
(2) Based upon $17.38 Toy Biz closing price as of 11/19/96.
BONDHOLDER PROPOSAL
n The announced equity transaction results in Andrews owning
80.1% of Marvel Entertainment Group.
NEW CURRENT TOTAL SHARES
EQUITY SHARES SHARES OUTSTANDING
INVESTED ISSUED OUTSTANDING POST-TRANSACTION
$350 409.8 101.8 511.6
n It has been suggested that Bondholders may be willing to
exchange their bonds for their collateral.
n The Company may be prepared to facilitate or implement such a
recapitalization through an appropriate proceeding.
BONDHOLDER PROPOSAL
n Bondholders exchange bonds for Marvel common shares currently
collateralizing bonds.
% OF OUTSTANDING SHARES
FACE COLLATERAL OTHER TOTAL SHARES PER
ISSUE AMOUNT SHARES SHARES(1) SHARES POST-INVESTMENT BOND
Marvel Holdings 11.25% due 4/15/98 $517,447,000 48,000,000 2,932,167 50,932,167 10.0% 98.43
Marvel Parent Holdings 11.875% due 4/15/98 $251,678,000 20,000,000 - 20,000,000 3.9% 79.47
Marvel III Holdings 9.125% due 2/15/98 $125,000,000 9,302,326 - 9,302,326 1.8% 74.42
---------- ---------- -----
77,302,326 80,234,493 15.7%
========== ==========
n Resulting Share Ownership
POST TRANSACTION
SHARES %
Andrews Group........... 409.8 80.1%
Bondholders............. 80.2 15.7
Public and Other........ 21.6 4.2
------ -------
Total............... 511.6 100.0%
===== =====
- -----------------------
(1) Approximately 2.9 million unpledged common shares of Marvel Entertainment
Group are held by Marvel Holdings, Inc. This analysis assumes these
shares are given to the holders of the Marvel Holdings 11.25% '98 issue.
ALTERNATIVE BONDHOLDER PROPOSAL
n Exchange of new bonds for existing bonds.
n Rationale: As an accommodation to the current holders who
would rather own a bond than common stock in their portfolios,
the Company may be willing to exchange new bonds for existing
bonds.
n The allocation of the new bonds to each of the three classes
would be pro rata based upon collateral and without regard to
face amount of claim.
n The new bonds would be collateralized by their pro rata
portion of the remaining equity, would not pay cash interest,
and would be mandatorily convertible into equity at maturity.
n Other terms: To be determined.
CONDITIONS OF THE TRANSACTION
n Approval of Toy Biz Independent Committee
n New Marvel Bank Credit Agreement
n Approval of Marvel Independent Committee
n Toy Biz Shareholder Vote
n Bondholder Consent