Licensing Growth Fuels Marvel's Record Operating Income in Fiscal 2003
Tuesday March 2, 6:30 am ET
Raises 2004 Net Sales and Operating Income Guidance
Announces 3-for-2 Stock Split
NEW YORK--(BUSINESS WIRE)--March 2, 2004--Marvel Enterprises, Inc. (NYSE: MVL - News), a global provider of entertainment content, today reported financial results for its fourth quarter and year ended December 31, 2003, and initiated financial guidance for Q1 2004. Marvel's condensed consolidated results appear in the table below. The Company also announced a three-for-two stock split in the form of a stock dividend of one additional share of the Company's common stock for every two shares held. The additional shares will be distributed on March 26, 2004 to stockholders of record on March 12, 2004.
CONDENSED CONSOLIDATED FINANCIAL RESULTS
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Three Months Ended Twelve Months
Ended
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(In thousands, except per
share data) 12/31/03 12/31/02 12/31/03 12/31/02
----------------------------------------------------------------------
(Unaudited)(Unaudited)
----------------------------------------------------------------------
Net sales $85.8 $86.5 $347.6 $299.0
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Operating income $26.6 $23.1 $167.2 $80.5
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Net income (1) $13.5 $7.2 $151.6 $22.6
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Net income (loss) attributable
to common stock per share (2) $0.18 ($1.03) $2.01 ($1.18)
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(1) Net income and net income attributable to common stock for the full year ended December 31, 2003 include the one-time, non-cash tax gain of $31.5 million, or $0.43 per diluted share, as a result of Marvel's recording an asset on its balance sheet for net operating loss carry-forwards in the third quarter of 2003.
(2) Net loss attributable to common stock for the fourth quarter of 2002 and the full year ended December 31, 2002 include a one-time, non-cash preferred stock dividend of $55.3 million related to Marvel's exchange offer for its 8% convertible preferred stock. EPS and data have not been adjusted for the 3-for-2 stock split. Pro forma EPS data adjusted to reflect the effects of a declared 3-for-2 stock split with a record date of March 12, 2004 are as follows: 4Q 2003 results - $0.12; 4Q 2002 results - ($0.69); 2003 results - $1.34; and 2002 results - ($0.79).
Marvel's President and CEO, Allen Lipson, commented, "The dramatic increase in full year operating margins, rising from 27% in 2002 to 48% in 2003, highlights the powerful leverage in our business model. Our full year 2003 results are a direct reflection of our continued success in building the brand awareness of, and consumer demand for, entertainment projects and consumer products based on our vast library of characters. These strong results are proof that high quality and relevant content can translate directly into success in the entertainment and consumer products industries. The decision to split the stock reflects our interest in creating a more affordable share price, which will enable a broader base of investors and Marvel fans to purchase Marvel stock, while also enhancing long-term liquidity in our shares.
"As our corporate and character brands have grown in value for our licensing and media partners around the globe, we continue to prudently exploit them via an extremely efficient business model focused on generating cash with relatively minimal capital risk or investment. As each Marvel brand is introduced into mainstream popular culture via a variety of media including film, TV, comics, video games and DVD, we are creating a growing portfolio of attractive licensing franchises. This has a long-term layering effect which builds the value of the Marvel brand and provides the 'content clout' necessary to continue increasing shareholder value."
Divisional Net Sales/Operating income
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Three Months Ended Twelve Months Ended
(in millions) 12/31/03 12/31/02 12/31/03 12/31/02
----------------------------------------------------------------------
(Unaudited)(Unaudited)
----------------------------------------------------------------------
Licensing: Net Sales $40.9 $28.2 $189.2 $79.6
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Operating
Income $19.2 $26.1 $139.4 $69.3
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Publishing: Net Sales $19.0 $16.7 $73.2 $64.5
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Operating
Income $7.2 $5.2 $25.4 $19.5
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Toys: Net Sales $25.9 $41.6 $85.2 $155.0
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Operating
Income $5.3 ($ 0.1) $21.7 $8.9
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Corporate Overhead: ($ 5.1) ($ 8.1) ($ 19.4) ($ 17.3)
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TOTAL NET SALES $85.8 $86.5 $347.6 $299.0
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TOTAL OPERATING INCOME $26.6 $23.1 $167.2 $80.5
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Divisional Review:
Marvel's Q4 and 2003 results reflect the Company's dynamic entertainment licensing model. Q4 Licensing Division results benefited from the higher level of licensing agreements completed earlier in the year, which contributed royalties above minimum guarantees, and an increased number of license agreements in new categories of business. License revenues in excess of minimum guarantees (or "overages") were approximately $45 million for the full year. Sales of consumer products, including action figures and accessories, based on classic Spider-Man and the feature film The Hulk, which were designed by Marvel's Toy Biz division, continued to perform ahead of internal estimates. Licensing division in 2003 results also include approximately $10.9 million in operating income, compared to $13.8 million in 2002, from Marvel's equity interest in net income from the joint venture with Sony for Spider-Man movie and television licensing. Licensing division operating margins decreased from 87% in 2002 to 74% in 2003 due to a higher percentage of revenues that required sharing with studios, which is recorded as an expense in the selling, general and administrative line. It is anticipated that licensing operating margins will increase slightly in 2004 from 2003 levels.
Marvel's Publishing Division net sales increased due to strength in the direct market driven by an overall improvement in comic sales. Roughly 65 comic titles per month were printed in Q4 2003 with an average circulation of over 55,000 units versus a similar number of monthly titles at an average circulation of 45,000 units in the year-ago period. Full year 2003 sales and operating income growth was also positively impacted by an increase in advertising income as circulation increased.
Marvel's Toy Division sales decreased from the prior year period as anticipated, and as previously announced, due to a decline in sales of action figures and accessories based on Spider-Man: The Movie. Sales for this product line were $11.3 million in Q4 2003 compared with sales of $27.5 million in Q4 2002. The decline was partially offset by a higher sales level of action figures and accessories for the Lord of the Rings toy line, which contributed sales of $12.8 million in Q4 2003 compared to sales of $9.6 million in the year-ago period. Toy division operating margins for the full year 2003 improved to approximately 26% versus 6% in 2002 primarily due to a more favorable sales mix, lower royalty expense and the phase out of the low-margin discontinued Spectra Star product line of kites.
Corporate Overhead increased $2.1 million in 2003 over 2002, reflecting increased costs related to new hires and legal costs.
Increasing Net Cash Position:
Marvel had $247.0 million in cash, certificates of deposit and commercial paper and $151.0 million owed to holders of 12% Senior Notes as of December 31, 2003, or net cash of $96.0 million. This compares to net cash of $60.2 million at September 30, 2003. Marvel's Senior Notes are callable beginning June 15, 2004 for a total consideration of approximately $160 million. It is the Company's intention to call the notes in mid-June, eliminating this relatively high-cost capital while still maintaining a healthy balance of cash. Net cash provided from operating activities increased from $75 million in 2002 to $171 million in 2003. Marvel's cash, certificates of deposit and commercial paper grew further to roughly $270 million as of March 1, 2004.
Marvel Character Feature Film Line-Up For 2004 and 2005
(Release dates are controlled by Studio partners)
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Film/Character Studio/Distributor Targeted Release Date
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The Punisher Lions Gate April 16, 2004
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Spider-Man 2 Sony/Columbia July 2, 2004
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Blade 3 New Line Cinema August 12, 2004
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Man-Thing Fierce/Artisan October 2004 (1)
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Fantastic Four Fox Summer 2005 (1)
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Elektra New Regency / Fox 2005 (1)
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Iron Man New Line Cinema 2005
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Ghost Rider Sony 2005 (1)
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Luke Cage Sony 2005 (2)
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Marvel Character Entertainment Projects in Development
(Development timing is controlled by Studio partners)
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Film/Character Studio/Distributor Format
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X-Men 3 Fox Film
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The Hulk 2 Universal Pictures Film
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Namor Universal Pictures Film
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The Punisher 2 Lions Gate Film (2)
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Iron Fist Lions Gate Film (2)
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Black Widow Lions Gate Film (2)
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DeathLok Crystal Sky/Paramount Film
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(1) Represents a change from the previously supplied schedule
(2) New film added to pipeline.
Financial Guidance:
Marvel Enterprises, Inc.
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Initial Q1 1Q 2003 Updated Previous 2004
(in millions 2004 Results 2004 Guidance (3) 2003
- except Guidance (Unaudited) Guidance Results
per share
amounts)
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Net sales $110 - $115 $87.4 $420 - $440 $415 - $435 $348
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Operating
Income $44 - $47 $54.7 $185 - $195 $173 - $193 $167
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Net
income (1) $22 - $25 $42.2 $95 - $105 $98 - $111 $152
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EPS
attributable
to common
stock (1)
(2) (4) $0.29 - $0.33 $0.57 $1.23 - 1.37 $1.31 - 1.48 $2.01
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Weighted
average
diluted
common
shares (4) 76.8 74.3 76.8 75.0 75.6
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Effective Tax
Rate 41% 16% 41% 36% -1%
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(1) 2003 Net income and EPS attributable to common stock includes a $31.5 million ($0.43 per diluted share) one-time, non-cash benefit from the valuation of deferred tax assets (principally net operating loss (NOL) carry-forwards).
(2) 2003 EPS attributable to common stock is net of approximately $1.2 million in preferred stock dividends.
(3) Previous 2004 guidance ranges were provided in the Company's November 4, 2003 release.
(4) EPS and shares outstanding data have not been adjusted for the 3-for-2 stock split. Pro forma EPS and share count data adjusted to reflect the effects of a declared 3-for-2 stock split with a record date of March 12, 2004 are as follows: 1Q 2004 guidance - $0.19 to $0.22, 115.2 million weighted average shares; 1Q 2003 results - $0.38 and 111.5 million weighted average shares; updated 2004 guidance - $0.82 to $0.91 and 115.2 million; and 2003 results - $1.34 and 111.2 million weighted average shares.
Updated FY 2004 financial guidance: The adjustment from guidance provided at Marvel's Analyst Day in November 2003 is due to an increase in the anticipated sales of Spider-Man 2: movie action figures and role playing toys, which will be recorded in the Toy Biz division. While Marvel is projecting an increase in 2004 net sales and operating income, the Company expects that 2004 EPS will be less than 2003 EPS due to, the effects of a full tax rate of roughly 41%. Marvel continues to expect that primary drivers for 2004 will include Spider-Man consumer product merchandise and increased penetration in international licensing.
Q1 2004 financial guidance: Marvel's initial Q1 2004 operating income guidance in the table above reflects an anticipated decrease when compared to Q1 2003 due to a significant video game license agreement extension in Q1 2003 that skews the comparison between those quarters. However, for the balance of 2004, we expect that year-over-year operating income comparisons will be favorable. Q1 2004 sales in Marvel's toy division are anticipated to increase from both Q1 2003 and Q4 2003 levels due to increasing shipments of Spider-Man 2 movie toys. Q1 2004 guidance also includes a meaningful (and earlier than previously expected) contribution from the licensing joint venture with Sony for Spider-Man 2 licensees that are shipping seasonal merchandise in March.
Marvel cautions investors that inherent variability in the timing of license opportunities and entertainment events, the timing of their revenue recognition, and their relative success contributes to sequential and year-over-year variability in its interim financial results and could have a material impact on quarterly results as well as Marvel's ability to achieve the financial performance included in its financial guidance.
About Marvel Enterprises
With a library of over 4,700 proprietary characters, Marvel Enterprises, Inc. is one of the world's most prominent character-based entertainment companies. Marvel's operations are focused in three areas: entertainment (Marvel Studios) and licensing, comic book publishing and toys (Toy Biz). Marvel facilitates the creation of entertainment projects, including feature films, DVD/home video, video games and television based on its characters and also licenses its characters for use in a wide range of consumer products and services including apparel, collectibles, snack foods and promotions. Marvel's characters and plot lines are created by its comic book division which continues to expand its leadership position in the U.S. and worldwide while also serving as an invaluable source of intellectual property.
Except for any historical information that they contain, the statements in this news release regarding Marvel's plans are forward-looking statements that are subject to certain risks and uncertainties, including a decrease in the level of media exposure or popularity of Marvel's characters, financial difficulties of Marvel's licensees, changing consumer preferences, movie- and television-production delays and cancellations, toy-production delays or shortfalls, continued concentration of toy retailers, toy inventory risk, the imposition of quotas or tariffs on products manufactured in China and a decrease in cash flow even as Marvel remains indebted to its noteholders. These and other risks and uncertainties are described in Marvel's filings with the Securities and Exchange Commission, including Marvel's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Marvel assumes no obligation to publicly update or revise any forward-looking statements.
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Marvel Enterprises, Inc.
Condensed Consolidated Statements Of Income
(in thousands, except per share data)
----------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
----------------------------------------------------------------------
(Unaudited)
----------------------------------------------------------------------
Net sales $85,748 $86,507 $347,626 $299,046
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Cost of sales 21,832 37,940 79,466 142,103
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Gross profit 63,916 48,567 268,160 156,943
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Selling, general and
administrative expenses 38,719 30,612 108,882 85,800
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Depreciation and amortization 1,530 1,875 4,338 5,772
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Total Operating Expenses 40,249 32,487 113,220 91,572
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Other income 535 271 1,413 1,351
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Equity in net income of joint
venture 2,383 6,676 10,869 13,802
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Operating income 26,585 23,027 167,222 80,524
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Interest expense (4,772) (14,163) (18,718) (41,997)
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Interest income and other
expenses, net 459 80 1,868 149
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Income before income taxes 22,272 8,944 150,372 38,676
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Income tax provision (benefit) 8,777 1,947 (1,276) 11,902
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Income before cumulative effect
of change in accounting
principle 13,495 6,997 151,648 26,774
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Cumulative effect of change in
accounting principle, net of
taxes -- (222) -- 4,164
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Net income $13,495 $7,219 $151,648 $22,610
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Preferred dividend requirement -- 55,916 1,163 68,132
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Net income attributable to
common shares $13,495 $(48,697) $150,485 $(45,522)
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Diluted net income per common
share $0.18 $(1.03) $2.01 $(1.18)
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Weighted average number of
diluted common shares 76,813 47,278 75,626 38,514
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Marvel Enterprises, Inc. Condensed Consolidated Balance Sheets (in thousands)
December 31, December 31,
2003 2002
----------------------------
ASSETS
Current assets:
Cash $32,562 $53,690
Certificates of deposits and commercial
paper 214,457 ---
Accounts receivable, net 51,820 43,420
Inventories, net 12,975 16,036
Distribution receivable from joint
venture, net 2,056 3,884
Deferred income taxes 18,197 ---
Deferred financing costs 667 667
Prepaid expenses and other current assets 2,273 6,700
----------------------------
Total current assets 335,007 124,397
Goodwill, net 341,708 365,604
Other intangibles, net 335 649
Molds, tools and equipment, net 5,811 6,997
Product and package design costs, net 1,433 859
Accounts receivable, non-current portion 26,437 17,284
Deferred charges and other assets 101 65
Deferred income taxes 28,246 ---
Deferred financing costs 2,779 3,446
----------------------------
Total assets $741,857 $519,301
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 18,455 $11,607
Accrued expenses and other current
liabilities 72,046 52,708
Deferred revenue and distributions in
excess of equity in joint venture 30,308 27,478
----------------------------
Total current liabilities 120,809 91,793
----------------------------
Senior notes 150,962 150,962
Other 636 897
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Total liabilities 272,407 243,652
----------------------------
Cumulative convertible exchangeable
redeemable preferred stock --- 32,780
----------------------------
Stockholders' equity
Common stock 798 685
Additional paid-in capital 567,308 486,106
Deferred stock compensation (4,857) ---
Accumulated deficit (57,934) (208,419)
Accumulated other comprehensive loss (2,910) (2,548)
----------------------------
Total stockholders' equity before
treasury stock 502,405 275,824
Treasury stock (32,955) (32,955)
----------------------------
Total stockholders' equity 469,450 242,869
----------------------------
Total liabilities and stockholders'
equity $741,857 $519,301 |
