Analysts Mixed on Animation Firm’s Public Offering

Can Bart Simpson skateboard his way around Wall Street?

Film Roman, the North Hollywood firm that produces the popular animated TV series “The Simpsons,” is about to find out.

The 12-year-old company, one of the leading independent animation firms with three Emmys under its belt, is planning to go public in a stock offering in July that would raise between about $38 million and $45 million. About 5% of that would go to existing stockholders, including the company founder and chief executive, Phil Roman, 65, an industry veteran who began his career almost 40 years ago as an assistant animator on Walt Disney Co.’s “Sleeping Beauty.”

The rest of the proceeds would be used to redeem and pay dividends on preferred stock; repay debt, and fund production, the company said in a recent Securities and Exchange Commission filing.

Film Roman, which has also produced “Garfield and Friends,” “Bobby’s World,” “Felix the Cat,” “Mighty Max,” “The Critic” and “The Mask,” has earned a measure of respect in the animation industry--not an easy feat for an independent operator with limited resources. The company is going public amid what has been a red-hot streak of initial stock offerings in the past several months.

But the company also faces plenty of risk.

Even with the extra cash from the IPO, there’s no guarantee that Film Roman can continue to compete against the major studios, which are increasingly dominating the animation business and own many of the networks that buy animated programming.

Company executives declined to comment on the offering, citing the SEC-imposed “quiet period” before new stock is issued.

But in an interview earlier this year, Phil Roman acknowledged that the push by the major studios “makes it more difficult for us to compete. We don’t have the deep pockets that a Disney or Warner Bros. or Universal have. We can’t go and buy a network.”

In 1995, Film Roman lost $1.7 million, compared to a 1994 profit of $1.15 million, while its revenue slipped 5% to $34.3 million.

In its first quarter ended March 31, the company lost $471,000 on an 18% decline in revenue, to $7.46 million.

The company said in the SEC filing that its revenue fell in 1995 and first-quarter 1996 in part because it produced fewer episodes. Meanwhile, its production costs rose and extra money was spent expanding its licensing and merchandising, interactive and international divisions.

As an independent firm, “we have only so much money to spend on projects,” said Roman, who will own 35.7% of the company’s stock after the offering is completed. “That means we have to find more creative ways of making projects work, to finance them.”

It also means that “the properties that we try to sell have to be strong properties. In the end, that’s what’s going to attract the audiences.”

It’s unclear, though, whether Film Roman will be able to repeat its success with “The Simpsons,” by far its most important production. Last year, the show accounted for 35% of its total revenue.

David Menlow, president of IPO Financial Network, a Springfield, N.J., firm that tracks new stock offerings, expects Film Roman to begin trading between 75 cents and $1 higher than the $10- to $12-a-share offering price. That qualifies as “a good, solid, hot-list ranking,” he said.

“But it’s going to be a difficult sale to the marketplace, when you have stocks that are opening five to 10 points higher. With so many deals in the offing, people cannot be involved in all these deals.” In the long-run, though, Film Roman’s stock might be less volatile than other, high-flying IPOs, Menlow said.

Indeed, a growing number of recent IPOs are selling for less than their original offering price.

One notable example is Pixar Inc., the computer animation firm behind the hit film “Toy Story.” Pixar’s stock opened at $47 a share in its first day of trading last November, more than double the offering price of $22. It closed Monday at $21.25.

Bohbot Entertainment & Media Inc., an animated television programming producer, didn’t even make it off the block. It yanked its planned initial public offering in April, citing weak demand.

Unlike many recent IPOs, however, Film Roman has a long, relatively stable track record. It has had at least three network series every year for the past six years. For the upcoming television season, it is producing eight animated series and two specials for networks or syndication markets.

The company is also shifting to owning the rights to more of the shows it produces. In the past, it has exclusively produced for others in exchange for fees. The new strategy will allow Film Roman to exploit the shows it produces in a variety of markets and to build a “library” of programs that will appreciate in value.

The downside of owning the shows it produces is that the upfront payments from networks cover only part of the cost of producing a show. A production company must try to cover the deficit through co-productions, pre-selling in foreign markets, or licensing deals.