Marvel Achieves Record Q1 Net Income and Raises Full Year EPS Guidance to $0.96 - $1.07 Per Share and EBITDA to $110 - $120 Million
Tuesday May 6, 6:31 am ET
NEW YORK--(BUSINESS WIRE)--May 6, 2003--Marvel Enterprises, Inc. (NYSE:MVL - News)
Marvel will host a webcast today for all investors at 10:00 a.m. ET,
via: www.Marvel.com or directly at: www.companyboardroom.com
Marvel Enterprises, Inc. (NYSE:MVL - News), a global provider of entertainment content, today reported financial results for its first quarter ended March 31, 2003 and raised its financial guidance for the year ending December 31, 2003.
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SUMMARY FINANCIAL RESULTS
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(in millions - except per share amounts) Q1 '03 Q1 '02
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Net sales $ 87.4 $ 57.2
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Net income (1) $ 42.2 $ (3.8)
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Net income (loss) attributable
to common stock (1) $ 41.1 $ (7.9)
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Net income (loss) attributable to
common stock per diluted share $ 0.57 $ (0.23)
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Weighted average shares 74.3 34.4
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EBITDA (2) $ 55.6 $ 10.3
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Free cash flow (3) $ 36.5 $ (0.8)
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Net debt $ 66.3 $ 163.3
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(1) Q1 2002 includes the impact of the non-cash SFAS 142 impairment
charge of $4.6 million.
(2) EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and cumulative effect of change in accounting
principle. A reconciliation of EBITDA to net income, the most
comparable GAAP financial measure, can be found at the end of this
news release.
(3) Free cash flow is defined as operating income plus depreciation
and amortization less increases (plus decreases) in working
capital, capital expenditures, cash interest and cash income
taxes. A reconciliation of free cash flow to operating income, the
most comparable GAAP financial measure, can be found at the end of
this news release.
Marvel's Q1 '03 results benefited from continued strong sales of licensed products based on the Company's library of characters and substantial guaranteed royalty payments associated with an expanded video game license agreement. The license agreement, which includes the X-Men, Spider-Man, Fantastic Four and Iron Man character families, was augmented and extended effective January 2003. Net sales gains in the licensing and publishing divisions were partially offset by an expected decline in sales from Marvel's toy division.
Marvel President and CEO, Allen Lipson, commented, "As anticipated, growing momentum in our licensing and comic book publishing initiatives led to strong financial and operational performance during the first quarter. The quarter also benefited from significantly improved contractual terms associated with new and renewed licensing agreements. A principal factor in these licensing improvements is the growing awareness and popularity of Marvel characters being generated by recent and expected Marvel character-based feature film releases.
"The strong box-office debut of the 'Daredevil' feature film in February further evidences the broad attraction of our characters within the consumer market both in the U.S. and abroad. We believe this film has forged a new entertainment franchise around both the Daredevil and Elektra characters, and Fox is now hard at work on the first sequel film to spotlight Elektra with another sequel spotlighting Daredevil to follow. Last weekend's powerful worldwide opening box office gross of $155.2 million for 'X2: X-Men United' demonstrates the significant consumer demand for this broad and multi-faceted character franchise."
Marvel's divisional and EBITDA results for Q1 2003 and Q1 2002 follow:
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Marvel Enterprises, Inc.
Divisional Revenue/EBITDA
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Three Months Ended
($ in thousands) March 31,
2003 2002 % Change
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Licensing: Net Sales $ 49,902 $ 9,172 + 444%
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EBITDA $ 48,756 $ 4,252 + 1,047%
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Publishing: Net Sales $ 15,212 $ 14,559 + 4%
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EBITDA $ 5,047 $ 3,775 + 34%
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Toys: Net Sales $ 22,263 $ 33,491 (34%)
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EBITDA $ 6,743 $ 4,757 + 42%
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Corporate: $ (4,988) $ (2,477) (101%)
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TOTAL NET SALES $ 87,377 $ 57,222 + 53%
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TOTAL EBITDA $ 55,558 $ 10,307 + 439%
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Divisional Review
Net sales in the Licensing Division, Marvel's principal source of profit and cash flow, increased approximately 444% in Q1. In addition to revenue associated with video game licensing as noted above, the division benefited from strong sales of Marvel licensed toys, particularly those based on The Hulk. The Hulk and all other Marvel character action figures and accessory toy lines (except for "Spider-Man: The Movie" toys) are produced and sold by Marvel's licensee, Toy Biz Worldwide, with Marvel recording related royalty income within its licensing segment. The creative and marketing talents of Marvel's in-house Toy Biz division are responsible for the design, marketing and sales of all Marvel-character toys manufactured and sold by Toy Biz Worldwide. This arrangement provides Marvel with creative control for this important licensed product category.
Marvel's Publishing Division net sales increased only 4% in the first quarter, reflecting the impact of the termination of several lesser-known comic book series that were not sufficiently profitable. Marvel plans to replace the canceled series but its financial results will be affected by both the time lag prior to the new launches as well as the time required to grow audiences for the new offerings. Importantly, the revenue impact of this pruning effort was more than offset by Marvel's graphic novel (trade paperback) business which continues to grow through expanded distribution, readership and new titles. Graphic novels amounted to $4.1 million in sales in Q1 2003 compared with $1.7 million in Q1 2002. Overall, Marvel's publishing division continues to benefit from the resurgence in the comic book market, spearheaded by creative advances made by Marvel and exposure from high-profile entertainment projects as well as growing distribution outside traditional comic book and newsstand venues.
As previously anticipated, Marvel's Toy Division sales decreased 34% in Q1 2003 as sales of action figures and accessories based on "Spider-Man: The Movie" declined to $8.4 million in Q1 2003 from $18.1 million in Q1 2002. In fiscal 2003, the bulk of Marvel character-based toys are being produced and sold under a license agreement.
Balance Sheet Improvements:
In March, Marvel converted all remaining 3.3 million shares of its 8% Cumulative Convertible Exchangeable Preferred Stock into approximately 3.5 million common shares. This forced conversion eliminated both the mandatory $10 per share cash redemption requirement as well as future pay-in-kind dividends. Marvel had approximately $84.7 million in cash and $151.0 million in 12% Senior Notes as of March 31, 2003, or net debt of $66.3 million. This compares to cash of $24.7 million and debt of $188.0 million at March 31, 2002, or net debt of $163.3 million. Marvel's cash balance as of April 30, 2003 had grown to approximately $100 million.
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Marvel Character Feature Film Line-Up For 2003 & 2004
(Release dates and development timing are not within Marvel's control)
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Film/ Studio/ Targeted Release
Character Distributor Date
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The Hulk Universal June 20, 2003
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The Punisher Artisan Summer 2004 (1)
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Spider-Man II Sony/Columbia July 2, 2004 (1)
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Iron Fist Artisan 2004
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Fantastic Four Fox 2004 (1)
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Blade 3 New Line 2004 (1)
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(1) Denotes new or adjusted release timing
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Marvel Character Video Game Line-Up For 2003 & 2004
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Character/Property Publisher Release Date
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X-Men Activision 2003
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Marvel vs Capcom Capcom 2003
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Daredevil Encore 2003
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The Hulk Universal
Interactive 2003
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Wolverine Activision 2003
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Spider-Man II Movie Activision 2004
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Elektra Encore 2004
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Updated Financial Guidance:
Based on its performance to date as well as its current view of business trends, Marvel is initiating Q2 2003 guidance and updating full-year 2003 guidance as reflected in the table below. Marvel's guidance reflects the variable nature of its results on a quarterly basis and is based on management's current view of business trends and expectations for all operating divisions. Marvel cautions investors that variability, as well as changes in the timing of entertainment projects and licensing opportunities and their relative success as well as timing of revenue recognition for entertainment and licensing revenue streams, could have a material impact on quarterly results.
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Marvel Enterprises, Inc.
Q2 and Updated Full-Year 2003 Guidance
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(in millions -
except per Initial New Previous
share Q2 2003 Actual FY 2003 FY 2003 Actual
amounts) Guidance Q2 2002 Guidance Guidance FY 2002
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Total
revenues $62 - $67 $70.9 $225 - $230 $215 - $220 $299.1
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EBITDA $28 - $33 $21.7 $110 - $120 $92 - $97 $86.1
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Net income (1) $19 - $23 $8.4 $74 - $82 $50 - $54 $22.6
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EPS
attributable
to common
stock $0.25 - $0.96 - $0.64 -
(1)(2)(3)(4) $0.30 $0.10 $1.07 $0.69 ($1.18)
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Weighted
average
diluted
common
shares 76.6 41.5 75.8 73.7 38.5
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Free cash
flow (5) $17 - $22 $17.8 $80 - $90 $69 - $74 $82.8
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(see accompanying footnotes)
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(1) FY 2002 net income includes the impact of the non-cash SFAS 142
impairment charge of $4.2 million.
(2) FY 2002 net income per share attributable to common stock includes
a $55.3 million one-time non-cash charge related to the completion
of Marvel's Preferred Share exchange offer.
(3) FY 2002 net income per share attributable to common stock includes
a $9.4 million non cash charge related to the amortization of HSBC
credit facility costs, warrants issued to Isaac Perlmutter and
senior note offering costs. The amounts also include, $11.8
million in non-cash loan cost amortization that was accelerated
into FY 2002 as a result of Marvel's prepayments of its bank debt
in 2002.
(4) FY 2003 net income attributable to common stock includes
approximately $1.2 million in preferred stock dividends. Q2 2002
and FY 2002 net income attributable to common stock includes
approximately $4.0 million and $68.1 million (including the above
one-time, non-cash charge of $55.3 million for FY 2002) in
preferred stock dividends, respectively.
(5) 2003 free cash flow guidance and 2002 actual free cash flow are
based on the definition of free cash flow provided at the
beginning of this news release. The current definition of free
cash flow differs from one previously used.
Reflecting the Company's strong Q1 performance as well as continued momentum in Q2, Marvel has raised its revenue, EBITDA and EPS guidance for the full year 2003 as noted above. The Company has also initiated guidance for the second quarter of 2003. Reflecting the variable nature of the timing of its quarterly revenues, Marvel's updated fiscal 2003 guidance is largely weighted to the first two quarters of the year. The front-end loaded nature of Marvel's 2003 results reflects the benefits of the expanded video game license agreement recorded in Q1 as well as contributions from new license activity and license revenue associated with Hulk toy sales, prior to the scheduled release of The Hulk feature film in June. Given the extent to which royalty overages may contribute to 2003 second half results, and the difficulty of accurately predicting retail sell-through of a large variety of licensed products, Marvel has elected to take a conservative view toward second half results in preparing its full-year guidance.
Q2 and updated full-year guidance indicates expected contributions from existing consumer product and toy licenses; continued moderate growth in the Company's comic book and trade paperback business; and a lineup of Marvel character video game releases across all major game platforms.
Planned Insider Sales
Marvel also announced today that certain officers and directors (excluding Isaac Perlmutter, Marvel's Vice Chairman and largest shareholder) are planning to sell an aggregate of approximately 3 million shares of common stock of the total of approximately 8.5 million shares and options controlled by these individuals. These planned sales include 2 million shares which will be privately sold in a block transaction and are owned by Avi Arad, Marvel's Chief Creative Officer and a member of the Board. A majority of the share sales will be made during Marvel's quarterly transaction "window" which follows each quarterly financial report, as well as through plans to be established and filed with the SEC pursuant to SEC Rule 10b5-1. The 10b5-1 Plan share sales are permitted outside of Marvel's normal quarterly window and may extend through the end of 2003.
As Marvel offers neither pension nor profit sharing plans, nor does it make matching 401(k) contributions, its officers and directors view their option holdings as an integral component of their retirement savings, and accordingly, they are moving to diversify their holdings.
About Marvel Enterprises
Marvel Enterprises, Inc. is leading global character-based entertainment licensing company that has developed and owns a library of over 4,700 characters which have entertained generations around the world for over 60 years. Marvel's operations are focused in entertainment and consumer product licensing and comic book publishing. Marvel's creative teams at its Marvel Studios, Marvel Comics and Toy Biz divisions support the development of feature films (and DVD/video), video games, TV series and toy lines based on its characters. Marvel also licenses its characters for use in a broad and growing range of consumer products and services including apparel, collectibles, food and promotions. Marvel Comics is a leading global comics publisher and an invaluable source of intellectual property; Marvel Studios works with studios to develop feature film and entertainment projects; and Toy Biz is a recognized leader in toy design, sales and marketing that develops and oversees both licensee and in-house toy lines. For additional information visit marvel.com.
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.
Summary Consolidated Statements Of Operations
(in thousands, except per share data)
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Three Months Ended
March 31,
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2003 2002
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Net sales $ 87,377 $ 57,222
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Cost of sales 20,284 28,804
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Gross profit 67,093 28,418
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Selling, general and administrative expenses 16,359 18,111
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Equity in net income of joint venture 4,824 --
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EBITDA 55,558 10,307
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Depreciation and amortization 843 1,031
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Operating income 54,715 9,276
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Interest expense, including amortization of debt
discount 4,258 7,893
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Income before income taxes 50,457 1,383
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Income tax provision 8,236 623
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Income before cumulative effect of change in
accounting principle 42,221 760
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Cumulative effect of change in accounting
principle, net of tax benefit of $2,605 -- 4,561
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Net income (loss) $ 42,221 $ (3,801)
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Preferred dividend requirement 1,163 4,131
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Net income (loss) attributable to common stock $ 41,058 $ (7,932)
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Diluted income (loss) per common share after
cumulative effect of change in accounting
principle $ 0.57 $ (0.23)
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Weighted average number of diluted common shares 74,260 34,406
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MARVEL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, Dec. 31,
2003 2002
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ASSETS
Current assets:
Cash and cash equivalents $ 84,734 $ 53,690
Accounts receivable, net 42,500 43,420
Inventories, net 11,283 16,036
Distribution receivable from joint venture,
net 1,679 2,102
Deferred financing costs 667 667
Prepaid expenses and other current assets 5,813 6,700
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Total current assets 146,676 122,615
Molds, tools and equipment, net 6,474 6,997
Product and package design costs, net 1,112 859
Accounts receivable, non-current portion 19,294 17,284
Goodwill, net 359,070 365,604
Intangibles, net 570 649
Other assets 64 65
Deferred financing costs 3,279 3,446
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Total assets $ 536,539 $ 517,519
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LIABILITIES, CUMULATIVE CONVERTIBLE EXCHANGEABLE
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,010 $ 11,607
Accrued expenses and other current
liabilities 46,723 48,371
Administration expense claims payable 1,273 1,303
Unsecured creditors payable 3,042 3,034
Deferred revenue 9,670 25,696
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Total current liabilities 64,718 90,011
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Senior notes 150,962 150,962
Accrued rent 851 897
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Total liabilities 216,531 241,870
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Cumulative convertible exchangeable
redeemable preferred stock -- 32,780
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Stockholders' equity
Common stock 725 685
Additional paid-in capital 522,112 486,106
Accumulated deficit (167,361) (208,419)
Accumulated other comprehensive loss (2,513) (2,548)
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Total stockholders' equity before
treasury stock 352,963 275,824
Treasury stock (32,955) (32,955)
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Total stockholders' equity 320,008 242,869
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Total liabilities, cumulative
convertible exchangeable redeemable
preferred stock and stockholders'
equity $ 536,539 $ 517,519
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Reconciliation of U.S. GAAP Net Income to EBITDA:
EBITDA is defined as earnings before interest, taxes, depreciation and amortization and cumulative effect of changes in accounting principle. Although EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (GAAP), the Company believes the use of the non-GAAP financial measure EBITDA enhances an overall understanding of the Company's past financial performance as well as providing useful information to the investor because of its historical use by the Company as both a performance measure and measure of liquidity, and the use of EBITDA by virtually all companies in the entertainment sector as a measure of both performance and liquidity. However, investors should not consider this measure in isolation or as a substitute for net income, operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with GAAP. In addition, because EBITDA is not calculated in accordance with GAAP, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of EBITDA to the most comparable GAAP financial measure, net income, follows:
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Reconciliation of U.S. GAAP Net Income to EBITDA
(in thousands) For the Three Months
Ended March 31,
2003 2002
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Net income $ 42,221 $ (3,801)
Add back:
Depreciation and amortization 843 1,031
Interest expense net 4,258 7,893
Income taxes 8,236 623
Cumulative effect of change in accounting
principle, net of tax benefit of $2,605 -- 4,561
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EBITDA $ 55,558 $ 10,307
Reconciliation of U.S. GAAP Operating Income to Free Cash Flow:
Free cash flow is defined as operating income plus depreciation and amortization less increases (plus decreases) in working capital, capital expenditures, cash interest and cash income taxes. Although free cash flow is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (GAAP), the Company believes that this measure is useful to an investor in evaluating its performance. Free cash flow is widely used in the entertainment industry to evaluate a company's operating performance. However, investors should not consider this measure in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. In addition, because free cash flow is not calculated in accordance with GAAP, it is not necessarily comparable to similarly titled measures employed by other companies. A reconciliation of free cash flow to operating income, the most comparable GAAP financial measure, follows:
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Reconciliation of U.S. GAAP Operating Income to Free Cash Flow
(in thousands) For the Three Months
Ended March 31,
2003 2002
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Operating income $ 54,715 $ 9,276
Add:
Depreciation and amortization 843 1,031
Less:
Capital expenditures (493) (610)
Change in working capital (18,310) (1,034)
Cash interest -- (9,149)
Cash taxes (240) (319)
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Free cash flow $ 36,515 $ (805)
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