Marvel Enterprises Q2 2001 Report

Tue, August 14th, 2001 at 12:00am PDT

Comic Books
Jonah Weiland, Executive Producer/Publisher

Official Press Release

NEW YORK (BUSINESS WIRE) - Marvel Enterprises, Inc. ("Marvel") (NYSE:MVL) today reported financial results for the fiscal 2001 second quarter and six months ended June 30, 2001 and outlined a worldwide licensing agreement for Marvel character action figures and accessories.

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MARVEL ENTERPRISES, INC.

SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

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Three Months Ended Six Months Ended

June 30, June 30,

2001 2000 2001 2000

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Net sales $45,932 $51,041 $88,604 $94,229

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Cost of sales 22,403 24,328 46,726 46,677

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Gross Profit 23,529 26,713 41,878 47,552

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Selling, general and

administrative expenses 13,518 19,329 25,715 40,135

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Pre-acquisition litigation

charge 3,000 - 3,000 -

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EBITDA (1) 7,011 7,384 13,163 7,417

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Depreciation and amortization 1,000 3,778 1,802 7,097

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Amortization of goodwill and

other intangibles 5,921 5,990 11,842 11,982

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Operating income (loss) 90 (2,384) (481) (11,662)

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Interest expense, net 7,760 7,216 15,627 14,416

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Loss before income taxes (7,670) (9,600) (16,108) (26,078)

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Income tax provision (benefit) (349) 724 (195) 893

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Loss before equity in joint

venture (7,321) (10,324) (15,913) (26,971)

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Equity in net (loss) of joint

venture (82) (263) (178) (263)

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Net loss (7,403) (10,587) (16,091) (27,234)

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Less: preferred dividend

requirement 3,983 3,810 7,951 7,545

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Net loss attributable to

common stock (11,386) (14,397) (24,042) (34,779)

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Basic and diluted loss per

share ($0.33) ($0.43) ($0.71) ($1.03)

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Common shares outstanding 34,163 33,651 33,992 33,644

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(1) "EBITDA" is defined as earnings before extraordinary items,

interest expense, taxes, depreciation and amortization. EBITDA

does not represent net income or cash flow from operations as

those terms are defined by generally accepted accounting

principles and does not necessarily indicate whether cash flow

will be sufficient to fund cash needs.

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MARVEL ENTERPRISES, INC.

DIVISIONAL REVENUE/EBITDA

(Dollars in thousands, except per share data)

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Three Months Ended Six Months Ended

June 30, June 30,

2001 2000 2001 2000

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Licensing(a): Net Sales $ 11,237 $ 7,043 $ 16,667 $ 9,370

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EBITDA $ 9,032 $ 4,095 $ 11,884 $ 3,266

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Publishing: Net Sales $ 11,157 $ 11,411 $ 21,374 $ 21,352

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EBITDA $ 2,775 $ 2,792 $ 5,514 $ 5,329

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Toy Biz: Net Sales $ 23,538 $ 32,587 $ 50,563 $ 63,507

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EBITDA $ 548 $ 2,428 $ 2,762 $ 2,622

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Pre-acquisition litigation

charge $ (3,000) -- $ (3,000) --

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Corporate: Net Sales -- -- -- --

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EBITDA $ (2,344) $ (1,931) $(3,997) $ (3,800)

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TOTAL

NET

SALES $ 45,932 $ 51,041 $88,604 $ 94,229

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TOTAL

EBITDA $ 7,011 $ 7,384 $13,163 $ 7,417

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(a) Including Marvel Studios and Internet activities..

Toy Business Repositioning:

As previously indicated, Marvel has been exploring for some time a

variety of strategic options to reduce the financial risk and

unpredictability associated with its toy business. In conjunction with

this review, the Company has made several operating changes including

the elimination of low margin, advertising-intensive toy categories

such as dolls and games; the planned increase in the proportion of

sales which are distributed F.O.B. Hong Kong or China (wherein Toy

Biz' financial exposures are reduced); as well as certain personnel

and overhead reductions.

As part of this strategic repositioning, the Company announced

today that it has entered into a worldwide licensing agreement with a

new Hong Kong-based company, Toy Biz Worldwide Ltd. This is for the

sale and manufacture of toy action figures and accessories that

feature Marvel characters other than those based upon the upcoming

Spider-Man movie. Marvel will earn licensing and other fees under the

agreement and will continue to work as a sales agent for Marvel

character toy lines but will have no equity interest in the new

company. In addition to overseeing this relationship, Marvel's Toy Biz

division will continue to manage its other lines of business,

including the Lord of the Rings master toy license and the Spectra(R)

line of flying toys.

Second Quarter and First Half Results:

Marvel's 2001 second quarter net sales decreased approximately

10.0 % to $45.9 million versus $51.0 million in the second quarter of

2000. The decrease was due primarily to a 27.8% decline in net sales

from the Toy Biz division which is principally due to last year's

restructuring of the division, including the elimination of certain

product categories.

Marvel's licensing division achieved a 59.5% increase in net sales

to $11.2 million in the second quarter, primarily due to an increase

in the number of high value agreements in the areas of interactive

media, collectibles and video games. Year-to-date sales in the

Publishing division were equal to last year. The Publishing division

continues to gain market share as illustrated by Marvel's North

American unit market share in June 2001 of 38%, as compared with 33%

in June 2000, as reported by Comics Retailer magazine.

On July 25,2001 a jury verdict was entered in Kansas District

Court in the amount of $3 million, on a breach of contract action

based on a 1994 toy license between Toy Biz and The Coleman Company

that was signed prior to the acquisition of Marvel Entertainment Group

by Toy Biz. The complaint alleged that Toy Biz did not fulfill its

obligation to spend certain monies on the advertising and promotion of

Coleman's products. The Company intends to file and vigorously

prosecute an appeal.

Excluding the litigation charge, Marvel's EBITDA for the second

quarter of 2001 rose 35%, or $2.6 million, to $10.0 million, compared

to EBITDA of $7.4 million in the year ago quarter. The improvement was

principally the result of an increase of approximately $4.9 million,

or 121%, in EBITDA from the Licensing division as Marvel exploits the

growing visibility and commercial interest for its portfolio of

high-profile characters. Year-to-date EBITDA, excluding the litigation

charge, was $16.2 million, versus $7.4 million a year ago, an increase

of 118%.

Marvel also announced that it will terminate its revolving credit

facility with Citibank, N.A. Outstanding Letters of Credit under the

facility, totaling $17.5 million, will be replaced by Letters of

Credit issued by Tot Funding, a corporation wholly-owned by Isaac

Perlmutter, a director and major shareholder of the Company. There

were no other outstanding borrowings under the Citibank facility. The

Company is granting Tot Funding a security interest in the same assets

that were secured in the Citibank agreement.

Marvel President and CEO, Peter Cuneo, commented, "Our second

quarter and first half results reflect the renewed emphasis we have

placed on improving cash flows from all our business units. As

previously indicated, we have also shifted the focus of Toy Biz toward

lower-risk, more predictable products based on our library of

characters as well as certain licensed properties. Our license

agreement with Toy Biz Worldwide Ltd. represents an important step

forward in this effort, further reducing our financial exposure from

Marvel character toy sales, while still positioning Marvel to benefit

significantly from sales of these lines. The impact of this agreement

will be to reduce net sales in the Toy Biz division, while increasing

the potential for improvements in overall gross profit margin and

EBITDA contribution.

"Overall, the performance of our business in the recent quarters

has been much improved, yet we remind our investors that our

sequential and year-over-year quarterly results may prove to be

uneven, based on the variable timing of a variety of entertainment

projects, licensing agreements, seasonality and other factors."

Bill Jemas is New Chief Operating Officer

Mr. Cuneo added, "I am personally very pleased to note that our

President of Publishing, Licensing and New Media, Bill Jemas, has

done an extraordinary job in leading these divisions during the past

18 months. Accordingly, in recognition of his efforts, Bill has been

named to the added position of Chief Operating Officer of Marvel

Enterprises, Inc. Bill has been the driving force in the formulation

and execution of new strategies and tactics that have pushed these

businesses to new heights. This promotion recognizes his outstanding

performance."

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 five

divisions: entertainment (Marvel Studios), licensing, toys (Toy Biz),

comic book publishing and Internet/New Media. Marvel facilitates the

creation of entertainment projects, including feature films,

television, home video and the Internet, based on its characters and

also licenses its characters for use in a wide range of consumer

products and services including video and computer games, apparel,

collectibles, snack foods and promotions. Marvel's characters and plot

lines are created by its comic book division which continues to

maintain a leadership position in the U.S. and worldwide while also

serving as an invaluable source of intellectual property. For

additional information visit the Marvel Web site at

http://www.marvel.com.

Except for historical information contained herein, the statements

in this news release regarding the Company's plans are forward-looking

statements that are dependent upon certain risks and uncertainties,

including the Company's potential inability to successfully implement

its business strategy, a decrease in the level of media exposure or

popularity of the Company's characters resulting in declining revenues

from products based on those characters, the lack of commercial

success of properties owned by major entertainment companies that have

granted the Company toy licenses, the lack of consumer acceptance of

new product introductions, the imposition of quotas or tariffs on toys

manufactured in China as a result of a deterioration in trade

relations between the U.S. and China, changing consumer preferences,

production delays or shortfalls, continued pressure by certain of the

Company's major retail customers to significantly reduce their toy

inventory levels, the impact of competition and changes to the

competitive environment on the Company's products and services,

changes in technology and changes in governmental regulation. Those

and other risks and uncertainties are described in the Company's

filings with the Securities and Exchange Commission, including the

Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q

and Current Reports on Form 8-K.

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