Marvel's Q1 2004 Results Surpass Expectations Again
Tuesday May 4, 7:00 am ET ..........SM, Reuters is a bitch, just like CNBC! Both are worthless crap. Nice Q1 I must say. This year is looking good.
NEW YORK--(BUSINESS WIRE)--May 4, 2004--Marvel Enterprises, Inc. (NYSE:MVL - News):
Raises 2004 Split-Adjusted EPS Guidance Range to $0.89 - $0.94
Cash Position Increases from $247 million to $292 million
Marvel will host a webcast today for all investors at 9:00 a.m. EDT available at: www.marvel.com or www.fulldisclosure.com
Marvel Enterprises, Inc. (NYSE: MVL - News), a global provider and licensor of entertainment content, today reported financial results for its first quarter ended March 31, 2004, initiated financial guidance for the second quarter of 2004, and raised financial guidance for the full year 2004. Marvel's condensed consolidated results appear in the table below.
Marvel Enterprises, Inc.
Condensed Consolidated Financial Results
----------------------------------------------------------------------
Three Months Ended
---------------------------------------------- -----------------------
(In millions, except per share data) 3/31/04 3/31/03
---------------------------------------------- ----------- -----------
(Unaudited) (Unaudited)
---------------------------------------------- ----------- -----------
Net sales $122.3 $87.4
---------------------------------------------- ----------- -----------
Operating income $57.3 $54.7
---------------------------------------------- ----------- -----------
Income tax expense (1) $22.1 $8.2
---------------------------------------------- ----------- -----------
Net income attributable to common stock $31.2 $41.0
---------------------------------------------- ----------- -----------
Net income attributable to common stock per
share (2) $0.27 $0.38
---------------------------------------------- ----------- -----------
(1) As anticipated, Marvel's effective tax rate increased to 41% in Q1
2004 from 16% in Q1 2003.
(2) Reflects the effects of the Company's March 2004 3-for-2 stock
split.
Marvel's Q1 2004 results continue to reflect the strength of the Company's entertainment licensing model and growing demand for Marvel-branded products and entertainment across all of its divisions. Net sales increased 40% over last year to $122.3 million, fueled predominantly by increases in the toy and publishing divisions. Consolidated SG&A increased to $32.1 million compared to the prior-year period, predominantly due to higher sharing of license revenues with motion picture studios. Operating income increased roughly 5% to $57.3 million compared to the prior-year period with expanding margins in the publishing and toy divisions off-setting a year-over-year decline in the licensing division due to a substantial video game license renewal in the first quarter of 2003. Operating margins improved from 31% in Q4 2003 to 47% in the current quarter, which is in-line with the 48% level obtained for the full year 2003 and above the guidance of 40%, which was provided in the Q4 2003 earnings release. This sequential improvement is primarily due to the increase in operating margins for the licensing division to 77% in the Q1 2004 period from 47% in the Q4 2003 period. As noted in previous public disclosures, the Company's effective tax rate has risen from 16% in Q1 2003 to a normalized rate of 41% in Q1 2004. Despite an increase in pre-tax income in Q1 2004 versus the prior-year period, due to the higher effective tax rate, net income was roughly 24% lower in Q1 2004 compared to the prior-year period.
Marvel's President and CEO, Allen Lipson, commented, "The continued success of feature films based on our portfolio of characters has generated strong demand for properties from prospective studio and other partners. At the same time, we are experiencing demand from potential licensees at levels that continue to exceed prior-year periods. International licensing activities continue to gain momentum, fueled by the global brand awareness of the Marvel Universe and our new organization that is exploiting this opportunity. Given the new business opportunities we are currently reviewing in a variety of entertainment media and in consumer product licensing worldwide, we remain confident that we can generate operating income increases of 10-20% on an annualized basis."
Marvel Enterprises, Inc.
Divisional Net Sales/Operating income
----------------------------------------------------------------------
Three Months Ended
(in millions) 3/31/04 3/31/03
(Unaudited) (Unaudited)
----------------------------------------- ----------------------------
Licensing: Net Sales $50.1 $49.9
----------------------------------------- --------- ----- ------- ---
Operating Income $38.5 77% $48.7 98%
----------------------------------------- --------- ----- ------- ---
Publishing: Net Sales $19.6 $15.2
----------------------------------------- --------- ----- ------- ---
Operating Income $7.3 37% $5.1 33%
----------------------------------------- --------- ----- ------- ---
Toys: Net Sales $52.6 $22.3
----------------------------------------- --------- ----- ------- ---
Operating Income $15.6 30% $5.9 27%
----------------------------------------- --------- ----- ------- ---
Corporate Overhead: ($ 4.1) ($ 5.0)
----------------------------------------- --------- ----- ------- ---
TOTAL NET SALES $122.3 $87.4
----------------------------------------- --------- ----- ------- ---
TOTAL OPERATING INCOME $57.3 47% $54.7 63%
----------------------------------------- --------- ----- ------- ---
Divisional Review:
-- Licensing Division net sales in the first quarter of 2004
increased slightly to $50.1 million from $49.9 million in Q1 2003.
Marvel's brand consolidation strategy generated significant annual
sales growth in the Apparel, Domestics and Food categories during
the quarter. In addition, toy licenses in new categories generated
annual growth in the toy royalty category versus the prior year
period. Toy royalty and service fees from Toy Biz Worldwide, Ltd.
declined to approximately $3 million in Q1 2004 from approximately
$12 million in Q1 2003. Net sales in the first quarter of 2003
included roughly $18 million from the renewal and extension of a
major video game license. The table below reflects these trends.
Licensing Division Categories
--------------------------------------------------------------
(in millions) Three Months Ended
3/31/04 3/31/03
--------------------------------------------------------------
Apparel and accessories $19.7 $4.9
--------------------------------------------------------------
Entertainment (including studios, themed
attractions and electronic games) 5.4 27.9
--------------------------------------------------------------
Toy Biz Worldwide Ltd.:
--------------------------------------------------------------
- Toy Royalties 2.1 5.7
--------------------------------------------------------------
- Toy Service Fees 1.2 6.7
--------------------------------------------------------------
Other Toy Royalties 6.3 3.2
--------------------------------------------------------------
Other (Domestics, food and other) 15.4 1.5
--------------------------------------------------------------
Total $50.1 $49.9
--------------------------------------------------------------
Overages (license revenues in excess of minimum guarantees) were approximately $7.9 million in the current quarter, compared to $7.5 million in the prior-year period. International licensing generated net sales of $3.8 million in Q1 2004 compared with net sales of $1.9 million in the prior-year period. International sales are expected to double in Q2 2004 when key contracts are anticipated to close. Q1 2004 licensing division results include approximately $8.1 million in operating income, compared to $4.8 million in Q1 2003, from Marvel's equity interest in net income from the joint venture with Sony for Spider-Man movie merchandise licensing. As previously noted, licensing division operating margins returned to a more normalized level of 77% in Q1 2004 versus 47% in Q4 2003 and 98% in the prior-year period. The decrease in the Q1 2004 operating margin versus the year-ago period is due to higher revenue sharing payments to Marvel's studio partners, resulting from a higher percentage of net sales that required a share the studio partners. The studio revenue share was roughly $15 million in Q1 2004 versus $3 million in the year-ago period.
Marvel's Publishing Division net sales rose due to increased strength in the direct and mass markets primarily driven by a higher title count and greater demand for Marvel brands, coupled with a higher level of advertising sales. Roughly 61 comic titles per month were printed in Q1 2004 with an average circulation of over 56,500 units versus 51 titles per month at an average circulation of 55,750 units in the year-ago period. Operating margins in the division increased to 37% in Q1 2004 compared to operating margins of 33% in the prior-year period. The year-over-year margin increase reflects a higher portion of advertising income in the revenue mix in the current quarter, coupled with a lower cost structure due to improvements in distribution costs.
Marvel's Toy Division sales increased from the prior-year period due to strong shipments of action figures and accessories based on the Spider-Man 2 movie as retailers began to put products on shelves ahead of the film's June 30 release. Sales for this product line were $44.7 million in Q1 2004 compared with sales of $8.4 million in Q1 2003. Toy division results also benefited from stronger than anticipated sales of action figures and accessories based on the Lord of the Rings film franchise, which amounted to $6.5 million in Q1 2004 compared with sales of $5.2 million in the year-ago period. Toy division operating margins for Q1 2004 improved to approximately 30% versus 27% in Q1 2003, fueled by strong sales of all product lines and limited advertising spending. The company expects operating margins to decline slightly in Q2 2004 due to a ramp up of planned advertising ahead of the release of the Spider-Man 2 movie.
Corporate Overhead decreased to $4.1 million in Q1 2004 versus $5.0 million in the prior-year period. The company expects corporate overhead to remain consistent with the Q1 level for the remainder of 2004.
Increasing Net Cash Position:
Marvel had $292 million in cash, certificates of deposit and commercial paper at March 31, 2004, compared to $247 million at December 31, 2003. Net cash was $141 million at March 31, 2004, based on the current cash position less the $151.0 million owed to holders of 12% Senior Notes as of March 31, 2004. This compares to net cash of $96.0 million at December 31, 2003. The Company plans to call its Senior Notes in mid-June for a total consideration of approximately $160 million, eliminating this high-cost debt. Following the retirement of its Senior Notes, Marvel expects cash levels at December 31, 2004 will approximate $200 million. The Company expects to begin paying cash taxes in Q2 2004 as has been previously noted.
Marvel Character Feature Film Line-Up For 2004
(Release dates are controlled by Studio partners)
----------------------------------------------------------------------
Film/Character Studio/Distributor Targeted Release Date
---------------- ---------------------- ------------------------------
The Punisher Lions Gate Released April 16, 2004
---------------- ---------------------- ------------------------------
Spider-Man 2 Sony/Columbia June 30, 2004
---------------- ---------------------- ------------------------------
Man-Thing Fierce/Lions Gate October 2004
---------------- ---------------------- ------------------------------
Blade: Trinity New Line Cinema December 10, 2004 (1)
---------------- ---------------------- ------------------------------
Marvel Character Feature Film Line-Up For 2005
(Release timing is controlled by Studio partners)
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
---------------- ---------------------- ------------------------------
Elektra New Regency / Fox Script, Director, Filming
starts May '04, Feb. 18, 2005
release
---------------- ---------------------- ------------------------------
Fantastic Four Fox Script, Director, Filming
starts August '04, July 2,
2005 release
---------------- ---------------------- ------------------------------
Iron Man New Line Cinema Script, Slated for November
2005 release
---------------- ---------------------- ------------------------------
Luke Cage Sony/Columbia Script
---------------- ---------------------- ------------------------------
The Punisher 2 Lions Gate Writer, Director (1)
---------------- ---------------------- ------------------------------
Marvel Character Entertainment Projects in Development For 2006 &
Beyond
(Development and release timing is controlled by Studio partners)
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
---------------- ---------------------- ------------------------------
X-Men 3 Fox Director, May 3, 2006 release
---------------- ---------------------- ------------------------------
Namor Universal Pictures Script, Slated for Summer '06
---------------- ---------------------- ------------------------------
Ghost Rider Sony Script, Director, Pre-
production, Summer '06 (1)
---------------- ---------------------- ------------------------------
Black Widow Lions Gate Writer, Director, Slated for
2006 release
---------------- ---------------------- ------------------------------
The Hulk 2 Universal Pictures Contract
---------------- ---------------------- ------------------------------
Deathlok Crystal Sky/Paramount Script
---------------- ---------------------- ------------------------------
Spider-Man 3 Sony/Columbia Director, May 4, 2007 release
---------------- ---------------------- ------------------------------
Black Panther TBD
---------------- ---------------------- ------------------------------
Captain America TBD
---------------- ---------------------- ------------------------------
Dr. Strange Dimension Contract
---------------- ---------------------- ------------------------------
Iron Fist Lions Gate Contract
---------------- ---------------------- ------------------------------
Nick Fury TBD
---------------- ---------------------- ------------------------------
Thor TBD
---------------- ---------------------- ------------------------------
(1) Represents a change from the previously supplied schedule
Financial Guidance:
----------------------------------------------------------------------
Marvel Enterprises, Inc.
----------------------------------------------------------------------
Initial Q2 2Q Updated 2004 Previous 2004 2003
(in 2004 Guidance 2003 Guidance Guidance (3) Results
millions Results
- except (Un-
per share audited)
amounts)
---------- -----------------------------------------------------------
Net sales $143 - $148 $89.9 $448 - $468 $420 - $440 $348
---------- -----------------------------------------------------------
Operating
income $50 - $55 $42.8 $195 - $205 $185 - $195 $167
---------- -----------------------------------------------------------
Net income
(1) (5) $19 - $22 $32.7 $102 - $108 $95 - $105 $152
---------- -----------------------------------------------------------
EPS attri-
butable
to common
stock (1)
(2) (4) $0.16 - $0.19 $0.28 $0.89 - $0.94 $0.83 - $0.91 $1.34
---------- -----------------------------------------------------------
Weighted
average
diluted
common
shares
(4) 115.1 115.7 115.1 115.1 113.4
---------- -----------------------------------------------------------
Effective
tax rate 41% 16% 41% 41% -1%
---------- -----------------------------------------------------------
(1) 2003 Net income and EPS attributable to common stock includes a
$31.5 million ($0.29 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 March
2, 2004 release.
(4) 2003 EPS and shares outstanding data have been adjusted for the
March 2004 3-for-2 stock split.
(5) 2004 Guidance reflects an early redemption premium of
approximately $9 million and write-off of previously unamortized
deferred debt costs of approximately $3 million associated with
the planned early retirement of the senior notes in June 2004.
Updated FY 2004 financial guidance: Marvel continues to expect that primary drivers for 2004 will include Spider-Man consumer product merchandise, increased penetration in international licensing and the on-going renewal or replacement, on improved terms, of existing licensing contracts. Year-to-date shipments of Spider-Man 2 movie toys occurred earlier and were stronger than expected. The Company believes it is premature to assume a continuance of that trend in the second half until it can assess the performance of sell-thru at retail. Second-half results should benefit from the receipt of Marvel's share of royalties derived from Spider-Man 2 box office receipts. For the year, operating margins are expected to fall in a range of 40% - 45% with margins skewing toward the higher end of this range in the second half of 2004. Net sales derived from the licensing division for the full year are expected to approximate 35% - 40% of total net sales with operating margins ranging from 70% to 80%.
Q2 2004 financial guidance: Marvel anticipates that the majority of the increase in total revenues versus the first quarter of 2004 will occur in the toy division as retailers have recently increased near-term orders of Spider-Man 2 movie toys. Operating margins for the company should decrease slightly versus the first quarter of 2004 due to higher SG&A levels in the toy and licensing divisions and then operating margins should increase in subsequent quarters towards the 40% - 45% normalized range. Marvel's initial Q2 2004 operating income guidance also includes approximately $4 million from the licensing joint venture with Sony for Spider-Man 2 movie-related consumer product merchandise.
Second quarter guidance includes roughly $16 million in net interest expense, which includes $4 million in interest expense, an early redemption premium of roughly $9 million, and $3 million of previously unamortized deferred debt costs.
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 major licensees, delays and cancellations of movies and television productions based on Marvel characters, poor performance of major movies based on Marvel characters, toy-production delays or shortfalls, continued concentration of toy retailers, toy inventory risk, significant appreciation of Chinese currency against other currencies and the imposition of quotas or tariffs on products manufactured in China. 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.
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)
Three Months
Ended
March 31,
2004 2003
--------- --------
Net sales $122,326 $87,377
Cost of sales 40,523 20,284
--------- --------
Gross profit 81,803 67,093
Operating expenses:
Selling, general and administrative 32,145 16,359
Depreciation and amortization 745 843
--------- --------
Total operating expenses 32,891 17,202
Equity in net income of joint venture 8,117 4,824
Other Income, net 272 -
--------- --------
Operating income 57,301 54,715
Interest expense, net 3,920 4,258
--------- --------
Income before income taxes 53,3381 50,457
Income tax expense 22,111 8,236
--------- --------
--------- --------
Net income 31,270 42,221
Less: preferred dividend requirement --- 1,163
--------- --------
Net income attributable to common stock 31,270 41,058
========= ========
--------- --------
Basic earnings per share attributable to common
stock $0.29 $0.45
========= ========
Weighted average number of basic shares outstanding 108,392 92,206
========= ========
--------- --------
Diluted earnings per share attributable to common
stock. $0.27 $0.38
========= ========
Weighted average number of diluted shares
outstanding 115,075 111,390
========= ========
Marvel Enterprises, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
March December
31, 31,
2004 2003
--------- ---------
(in thousands,
except share data)
ASSETS
Current assets:
Cash and cash equivalents. $61,403 $32,562
Certificates of deposit and commercial paper. 230,155 214,457
Accounts receivable, net. 60,295 51,820
Inventories, net. 15,954 12,975
Distribution receivable from joint venture,
net 1,447 2,056
Deferred income taxes, net 18,197 18,197
Deferred financing costs. 667 667
Prepaid expenses and other current assets. 1,249 2,273
--------- ---------
Total current assets 389,367 335,007
Molds, tools and equipment, net. 5,513 5,811
Product and package design costs, net. 1,488 1,433
Goodwill, net 341,708 341,708
Intangibles, net. 283 335
Accounts receivable, non-current portion 38,438 26,437
Deferred income taxes, net 20,387 28,246
Deferred financing costs 2,613 2,779
Other assets 87 101
--------- ---------
Total assets. $799,884 $741,857
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. $21,779 18,455
Accrued royalties. 42,170 32,936
Accrued expenses and other current liabilities 42,790 30,654
Administration expense claims payable 619 788
Unsecured creditors payable 2,968 2,963
Income taxes payable 16,758 4,705
Deferred revenue 18,705 30,308
--------- ---------
Total current liabilities. 145,789 120,809
Senior notes 150,962 150,962
Accrued rent 564 636
--------- ---------
Total liabilities. 297,315 272,407
--------- ---------
8% cumulative convertible exchangeable redeemable
preferred stock, $.01 par value, 75,000,000
shares authorized, none outstanding. --
---------
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares
authorized, none issued --
Common stock, $.01 par value, 250,000,000 shares
authorized, 119,706,206 issued and 108,615,206
outstanding in 2003, and 120,050,890 issued and
108,959,890 outstanding in 2004 (1) 1,200 1,197
Deferred stock compensation. (7,515) (4,857)
Additional paid-in capital. 571,370 566,909
Accumulated deficit. (26,664) (57,934)
Accumulated other comprehensive loss. (2,867) (2,910)
--------- ---------
Total stockholders' equity before treasury
stock. 535,524 502,405
Treasury stock, 11,091,000 shares. (32,955) (32,955)
--------- ---------
Total stockholders' equity. 502,569 469,450
--------- ---------
Total liabilities and stockholders' equity. $799,884 $741,857
--------- ---------
(1) Share amounts have been adjusted for the March 2004 three-for-two
split of the Company's common stock |
