Panavision Focuses on First Public Offering

Panavision Inc. never met a camera problem it didn’t try to solve.

Take the upcoming motion picture “Titanic.” Panavision engineers got together with the movie makers and designed a deep-sea camera especially for the film.

But now, the motion picture camera company, a Hollywood staple for four decades, is navigating into unfamiliar and possibly treacherous waters as it prepares to sell its shares to the public for the first time.

It hopes to raise about $69 million to repay debt, for working capital and general corporate purposes.

The initial public offering provides an insight into a company that is the leading supplier of camera systems to the U.S. film industry yet is not without its financial troubles.

Panavision’s equipment was used on nearly half of all motion pictures and more than three-quarters of episodic television shows filmed in North America in 1995.

“Panavision is kind of like Ferrari,” said cinematographer Robert Primes, who won an Emmy in 1995 for the TV movie “My Antonia.”

“It’s a brand name that’s so sterling, there’s prestige associated with it.”

Founded in 1954 by Robert Gottschalk, a camera store owner with a penchant for film gadgets and dreams of making movies, Panavision made a big splash with its first products, projection lens attachments and camera lenses that eliminated distortion in wide-screen motion picture images. In 1959, “Ben-Hur” was the first movie filmed using a Panavision lens that won an Academy Award for cinematography.

In the late 1950s, the company expanded into cameras. The first Panaflex camera was introduced in the 1960s, again revolutionizing the film business because its light weight, silent operation and flexibility gave cinematographers greater shot-making capabilities.

Over the years, Panavision’s reputation grew because of an almost slavish devotion to technology and Gottschalk’s shrewd business sense. “A superb marketer, that’s what Bob Gottschalk was,” recalled Skip Nicholson, who was Panavision’s first employee and whose father was one of Gottschalk’s original partners.

Gottschalk was as adroit at hobnobbing with studio mogul Louis B. Mayer as he was at talking shop with camera technicians, Nicholson said. In fact, early backing by MGM, founded by Mayer, helped Panavision surpass developers of competing technologies.

Observers also point to Panavision’s adherence to its guiding principle--that it only rents and never sells its equipment--as another key to its success. Filmmakers can spend several thousand dollars a week renting the camera gear. Panavision quickly recovers its costs, while continually building and updating its inventory.

Gottschalk continued to run Panavision until his death in 1982, but in 1965 he sold it to producer Sy Weintraub. Three years later, Weintraub sold out to Kinney National Service Inc., a company controlled by the late Steven J. Ross that owned everything from funeral homes to magazine distributors and was the predecessor to Warner Communications.

Other Panavision owners came and went, including department store heir turned movie mogul Frederick W. “Ted” Field, who made $100 million by buying and quickly selling the company in 1987. The new owner, Westward Communications of London, overpaid in what turned out to be a disastrous leveraged buyout.

Two years later, the company was acquired by a group led by the investment banking firm Warburg, Pincus, which still owns 90% of the stock. Onetime Warner executive John S. Farrand has been Panavision’s president for the last 11 years.

It isn’t clear how much stock Warburg, Pincus would own after the IPO because an expected price range and the number of shares to be sold hasn’t been made public yet. The delay rankles Bob Mescal, a research analyst who tracks IPOs for the Institute for Econometric Research. “I have no way of determining whether or not the offering is too pricey,” he complained.

Goldman, Sachs & Co., the lead underwriter for the offering, said the price information would be available within two weeks, and the stock is expected to begin trading in mid-November.

Farrand and other Panavision executives declined to be interviewed, citing the regulatory “quiet period” before a stock sale.

But a look at documents filed with Securities and Exchange Commission reveals that the company isn’t without troubles. Even after a recapitalization last spring, Panavision still had a crushing long-term debt load of $111.1 million as of June 30.

Panavision acknowledges in the filing that constraints imposed by its credit facilities have hindered its pursuit of more market share.

In 1995, Panavision’s earnings fell 21% to $5.56 million from $7.08 million the previous year, while revenue rose 24% to $95.3 million.

The company also faces stiff competition from camera manufacturers Arriflex of Germany and Moviecam of Austria, which are popular with European filmmakers. That could be problematic for Panavision as it attempts to fuel its growth through foreign expansion.

Local rental houses that supply Arriflex and other rival equipment continue to nip at Panavision’s heels on its home turf in Hollywood.

Still, observers say Panavision’s market dominance isn’t really in danger.

Panavision’s sheer size is a clear advantage. It claims the world’s largest inventory of motion picture camera systems, with more than 800 cameras and 5,000 lenses. It’s the only supplier that manufactures a complete camera system with proprietary lenses, which it rents out as an entire, interworking package. In July, it boosted its lighting equipment business with the acquisition of a British firm, Lee Lighting Ltd.

Retired cinematographer Richard Moore, one of Gottschalk’s original partners in the company, recalled being “stunned” by Panavision’s state-of-the-art facilities during a visit about six months ago. “This company is right on the cutting edge of what’s happening in the business,” he said.

A pedestal camera system invented by Panavision, for instance, allows one camera operator to shoot a multiple-camera television show. For the movie “JFK,” it developed a system for mounting cameras on hoods and fenders of cars and trucks. A digital encoder used to control “pan and tilt” motion for filming special effects resulted from a collaboration with the makers of “Batman Forever.”

The company also cultivates new business by offering training programs for fledgling filmmakers, and by pursuing the television commercial market, where many directors and camera operators begin their careers. The payoff is that many leading directors and cinematographers today not only prefer Panavision gear, they consider it essential.

“As long as film’s around,” cinematographer Primes said, “Panavision will be around.”

Panavision Inc.

The company, founded in 1954, is the dominant supplier of motion picture cameras. It survived a disastrous leveraged buyout in the late 1980s but continues to carry a heavy debt load. Now it plans to go public, using part of the proceeds to repay debt. On June 30, it reported a long-term debt of $111.1 million and a net worth of $9.42 million.

Figures in millions:

Net Income

1992: -$6.47

1993: $3.31

1994: $7.08

1995: $5.56

*

Revenue

1992: $62.6

1993: $66.7

1994: $77.1

1995: $95.3

Source: Panavision Inc.