NEW YORK -- April 28, 2005 -- Marvel Enterprises, Inc., a global entertainment and licensing company, today reported operating results for the first quarter ended March 31, 2005. Marvel's fiscal 2005 first quarter results include a $10 million one-time charge ($0.06 per share after-tax) for the successful resolution of all past and future payments claimed by Mr. Lee to be due under an agreement with Marvel. This charge is in addition to previously recorded accruals for this litigation.
Q1 2005 Highlights:
- Excluding the one-time charge, Q1 2005 operating results would have exceeded the Company's guidance ranges and operating margins would have been 56% compared to 47% in the prior year period. Reported operating margins were 46% in Q1 2005.
- Reflecting the $0.06 per share after-tax charge, Q1 2005 reported EPS was $0.25 as compared to $0.27 in the prior year period.
Marvel Enterprises, Inc.
Segment Net Sales/Operating income
(in thousands)
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Three Months Ended
March 31,
2005 2004
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Licensing: Net Sales $71,226 $46,860
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Operating Income (1) 39,696 35,941
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Publishing: Net Sales 22,418 19,644
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Operating Income 8,885 7,310
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Toys: Net Sales 10,500 55,822
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Operating Income 4,377 18,166
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Corporate Overhead: (5,002) (4,116)
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TOTAL NET SALES $104,144 $122,326
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TOTAL OPERATING INCOME 47,956 57,301
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(1) Includes the impact of a $10 million, one-time charge related to
the settlement of litigation with Stan Lee.
Marvel's Chairman, Morton Handel, commented, "Marvel's character and corporate brands are firmly established with consumers on a worldwide basis. Our strong Q1 operating results reflect the continued high level of demand for consumer and media products based on our characters. In order to further leverage this high level of awareness and interest in our characters, this morning we announced plans to produce our own slate of feature films. We expect that the global promotional value of these projects will complement the extensive pipeline of film projects we already have in development with studio partners and further our transformation into a leading global entertainment company. We plan to fund these film projects through the utilization of a non-recourse revolving credit facility, thereby maintaining strict adherence to our business model which limits capital investment.
"Our consumer products group continues to make tremendous strides in leveraging the global awareness of our media projects. In publishing, Marvel's direct segment market share in March 2005 exceeded 55%, which reflects the high quality of our product and increased retail support. Finally, we are pleased with the initial demand for the Fantastic Four toy line and are optimistic regarding the performance of this brand at retail."
Segment Review:
Licensing Segment net sales increased 52% to $71.2 million in Q1 2005 primarily due to significantly improved contributions from, and the consolidation of, the joint venture with Sony for Spider-Man movie merchandising, as well as contributions from international licensing and studio operations. Q1 2005 net licensing sales include approximately $11.0 million in gross sales recognized as a result of the consolidation of the JV, compared to the year ago period in which Marvel's portion of the JV's results were recorded as equity in net income of the joint venture of $8.1 million. International licensing net sales, excluding JV activity, increased more than 96% year-over-year to $9.4 million as Marvel's new international offices continued to leverage global marketing momentum.
Marvel Enterprises, Inc.
Licensing Sales by Category
(in thousands)
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Three Months Ended
3/31/05 3/31/04
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Apparel and accessories $24,855 $19,697
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Entertainment (including studios, themed
attractions and electronic games) 24,927 5,444
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Toy Royalties 5,083 6,348
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Other (Domestics, food and other) 16,361 15,371
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Total 71,226 46,860
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Reflecting the charge related to the settlement of the Stan Lee litigation, total licensing operating expenses increased 66% to $31.5 million in Q1 2005 compared to $19.0 million in the prior-year period. Operating margins were 56% in Q1 2005 compared to 77% in the prior-year period. Excluding the charge, operating margins would have been 70% in Q1 2005.
Marvel's Publishing Segment net sales rose 14% to $22.4 million due to strength in core comic and trade paperback sales. Marvel achieved increases of approximately 14% in both the number of comic book titles shipped and in the average circulation per title in Q1 2005 compared to the prior year period. Operating income in Q1 2005 was $8.9 million, an operating margin of 40%, compared to an operating margin of 37% in the prior-year period.
As expected, Marvel's Toy Segment net sales decreased 81% to $10.5 million from the prior-year period primarily due to a transition from Marvel-produced action figures and accessories based on the Lord of The Rings franchise and Spider-Man 2 movie in 2004, to lines produced by our master toy licensee in 2005. Spider-Man 2 movie toy sales were $1.9 million in Q1 2005 compared with sales of $44.8 million in Q1 2004. Operating margins for the toy division increased from 33% in Q1 2004 to 42% in Q1 2005 due to increased toy royalty and service fees.
Marvel Enterprises, Inc.
Toy Sales Summary
(in thousands)
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Three Months Ended
3/31/05 3/31/04
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Marvel Toy Net Sales $4,107 $52,579
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Master Toy License:
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- Toy Royalties 3,419 2,070
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- Fees for services rendered 2,974 1,173
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Total Toy Segment $10,500 $55,822
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Corporate Overhead was $5.0 million in Q1 2005 compared to $4.1 million in the prior year period, resulting from increased legal fees related to active litigation.
Balance Sheet Update:
Marvel had cash and short-term investments of $243 million as of March 31, 2005. As of March 31, 2005, Marvel continues to have $42.0 million available under its initial stock repurchase authorization. No shares were repurchased during Q1 2005 as Marvel was precluded from any such activity due to active discussions related to developing the feature film fund.
Marvel Studios
(Development and release dates are controlled by Movie Studios)
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Marvel Character Feature Film Line-Up For 2005
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Film/Character Studio/Distributor Status
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Elektra New Regency/ Fox Released Jan. 14, 2005
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Fantastic Four Fox July 8, 2005 release
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Marvel Character Feature Film Development Pipeline (Partial List)
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Character/Property Studio/Distributor Status
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X-Men 3 Fox Summer, 2006 release
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Ghost Rider Sony Script, Director, Filming
started, Slated for 2006
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The Punisher 2 Lions Gate Writer, Director, Targeted
for 2006
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Spider-Man 3 Sony/Columbia Director, May 4, 2007
release
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Namor Universal Pictures Script, Targeted for 2007
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Iron Man New Line Cinema TBD (1)
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Luke Cage Sony/Columbia TBD (1)
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Deathlok Paramount TBD (1)
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The Hulk 2 Universal Pictures TBD (1)
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Wolverine Fox TBD (1)
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Marvel Character Feature Film Projects in Development
Ant-Man, Black Panther, Captain America, Killraven (1), Nick Fury,
Silver Surfer and Thor
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Marvel Character Animated Direct-to-Video Projects in Development
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Partnership with Lions Gate to develop, produce and distribute
original animated DVD features. Four projects in 2D/3D format are in
development with the first release slated for 2006. Titles include:
The Avengers 1, The Avengers 2, Iron Man and Dr. Strange. (1)
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Marvel Character Animated TV Projects in Development
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Partnership with Antefilms Distribution to produce an original
animated television series based on the Fantastic Four. 26,
thirty-minute 2D/3D animated episodes are planned with initial TV
airings in 2006.
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Marvel Character Live Action TV Projects in Development
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Brother Voodoo. (1)
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(1) Represents a change from the previously supplied schedule
TBD = To Be Determined
2005 Video Game Release Schedule
(Release dates are controlled by Publishing partners)
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Publisher Character Release
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Activision Spider-Man & Friends Released Q1 2005
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Fantastic Four Q2 2005
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Ultimate Spider-Man Q3 2005
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X-Men Legends II Q4 2005
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Electronic Arts Marvel versus EA Q4 2005
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THQ Inc Punisher Released Q1 2005
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Vivendi Universal Hulk: Ultimate Destruction Q3 2005
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2005 Guidance and Drivers: Marvel is maintaining its previously provided financial guidance ranges for 2005. Included in this updated guidance is the $10 million charge taken in Q1 2005 related to the settlement of outstanding litigation with Stan Lee for all past and future payments claimed by Mr. Lee to be due to Mr. Lee under his agreement with Marvel. In addition, the previously anticipated $4.2 million expense for stock options under FASB Statement Number 123R has been eliminated, reflecting a recent pronouncement delaying implementation until 2006.
The licensing division is expected to generate approximately 50% of total sales for the year with operating margins ranging between 60% - 65%. Some planned advertising for the Fantastic Four brand is included in the licensing and toy divisions. The following are expected to be some of the key factors in Marvel's 2005 financial performance and are reflected in the Company's financial guidance range.
- Ongoing contributions from the Spider-Man 2 feature film.
- Contributions from the syndication of the first Spider-Man feature film as well as a non-refundable option payment for the Spider-Man 3 movie expected to be released in 2007.
- Approximately $20 million in license revenue to be derived from the Spider-Man joint venture, $11 million of which was recorded in Q1 2005.
- The Fantastic Four movie release and related licensing, as well as licensing associated with other entertainment projects slated for 2005 or thereafter, noted in the table above.
- Income related to an estimated $80 million of wholesale sales of Fantastic Four toys by our master toy licensee.
- Domestic license renewals, including category consolidation efforts, which should exceed $60 million.
- Domestic licensing overages and cash-basis revenues of $35 million (compared to $37 million in 2004), including $8.4 million recorded in Q1 2005.
- International licensing revenues in excess of $30 million, including $9.4 million recorded in Q1 2005.
- Modest top line and bottom line growth from the publishing division.
- The benefit of interest income versus interest expense incurred in 2004, coupled with a lower average fully diluted share count, reflecting stock repurchases in 2004.
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 may contribute 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 5,000 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. 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 publishing segment that continues to expand its leadership position in the U.S. and worldwide while also serving as an invaluable source of intellectual property.
