NEW YORK -- July 28, 2005 -- Marvel Enterprises, Inc., a global entertainment and licensing company, today reported operating results for the second quarter and six months ended June 30, 2005.
Q2 2005 Highlights:
- Q2 2005 operating margins were 49% compared to 41% in the prior year period.
- Reported EPS was $0.24 as compared to $0.25 in the prior year period.
- Marvel resumed share repurchases, acquiring 7.7 million shares, or approximately 7% of the fully diluted share count, in Q2 2005. Subsequent to June 30, the company purchased 1.6 million additional shares that exhausted the remainder of the $250 million authorized under the repurchase program.
Marvel Enterprises, Inc.
Segment Net Sales/Operating income
(in thousands)
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Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
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Licensing: Net Sales $43,874 $46,994 $115,100 $93,854
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Operating Income (1) 28,219 33,510 67,915 69,451
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Publishing: Net Sales 20,864 21,609 43,282 41,253
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Operating Income 7,898 8,969 16,783 16,279
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Toys: Net Sales 23,402 86,864 33,902 142,686
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Operating Income 13,224 25,285 17,601 43,451
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Corporate Overhead: (6,259) (4,152) (11,261) (8,268)
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TOTAL NET SALES $88,140 $155,467 $192,284 $277,793
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TOTAL OPERATING INCOME $43,082 $63,612 $91,038 $120,913
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(1) 6-month period in 2005 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 2005 second quarter and first half operating performance is consistent with our previously announced outlook for the full year and reflects the continued high level of demand for consumer and media products based on our characters. Furthermore, we are very pleased with the success of the global consumer launch of our Fantastic Four character franchise, driven by the successful feature film and the related promotional and licensed product programs. Given the overall performance of the business, our strong cash flow generation and the Board's confidence in the Company's long-term outlook, Marvel has been active in its share repurchase activity over the past few months. We view such repurchases as the most attractive use of surplus cash within our business model."
Segment Review:
Licensing Segment net sales declined 7% from the year-ago period to $43.9 million in Q2 2005 primarily due to lower contributions from the joint venture (JV) with Sony for Spider-Man 2 movie merchandising, which continues to generate revenues a full year after the movie's release. Q2 2005 net licensing sales include approximately $7.1 million in gross sales recognized as a result of the consolidation of the JV, compared to $11.2 million in the year ago period. International licensing net sales, excluding JV activity, increased more than 53% year-over-year to $11.6 million in Q2 2005 as Marvel's international offices continued to leverage global marketing momentum.
Marvel Enterprises, Inc.
Licensing Sales by Category
(in thousands)
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Three Months Ended Six Months Ended
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6/30/05 6/30/04 6/30/05 6/30/04
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Apparel and accessories $ 7,941 $ 20,470 $ 32,796 $ 40,166
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Entertainment (including
studios, themed attractions and
electronic games) 16,598 10,786 41,525 16,230
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Toy Royalties 8,085 8,996 13,169 15,344
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Other (Domestics, food and
other) 11,250 6,742 27,610 22,114
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Total $ 43,874 $ 46,994 $115,100 $ 93,854
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Operating margins were 64% in Q2 2005 compared to 71% in the prior-year period due to a higher concentration of studio and JV revenues in the year-ago period, which do not incur an off-setting studio share expense.
Marvel's Publishing Segment net sales declined 4% from the year-ago period to $20.8 million. This year-over-year decrease in comic sales is mainly attributed to a timing difference in marketing events. Marvels' main marketing event for 2004 launched in May, while the main marketing event for 2005 will take place in the second half of 2005. Divisional operating income in Q2 2005 was $7.9 million, an operating margin of 38%, compared to an operating margin of 42% in the prior-year period. Excluding a $1.0 million one-time gain from the settlement of bankruptcy claims in Q2 2004, Marvel's publishing operating margin would have been 37%.
The transition in Marvel's Toy Segment net sales from Marvel-produced action figures and accessories based on the Lord of The Rings franchise and Spider-Man 2 movie toys in 2004 to lines produced by our master toy licensee in 2005, led to an expected decline in segment revenue of 73% to $23.4 million. Fantastic Four toy sales by Marvel's master toy licensee performed well in the period with year-to-date sales of approximately $41 million, in line with Marvel's projection of full-year Fantastic Four sales of $80 million. Spider-Man 2 movie toy sales were $1.3 million in Q2 2005 compared with $79.8 million in Q2 2004. Operating margins in the toy division increased to 56% in Q2 2005 from 29% in Q2 2004 due to the shift in product mix toward higher margin toy royalty and service fees.
(in thousands) Three Months Six Months
Ended Ended
6/30/05 6/30/04 6/30/05 6/30/04
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Marvel Toy Net Sales $3,726 $84,321 $7,833 $136,895
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Master Toy License:
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- Toy Royalties 9,309 1,837 12,728 3,908
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- Fees for Services Rendered 10,367 706 13,341 1,883
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Total Toy Segment $23,402 $86,864 $33,902 $142,686
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Corporate Overhead was $6.2 million in Q2 2005 compared to $4.2 million in the prior-year period, principally due to increased legal fees related to active litigation.
Balance Sheet Update:
Through July 28, 2005, Marvel has repurchased 13.5 million shares for a total consideration of $250 million (approximately $18.49 per share on average), thereby completing its previously announced $100 million and $150 million repurchase authorization. During the three-month period ended June 30, 2005, the Company purchased 7.7 million shares of its common stock at an aggregate cost of $159.3 million. There were no repurchases during the quarter ended March 31, 2005. Giving effect to repurchases made through June 30, 2005, Marvel had cash and short-term investments of $105.8 million as of June 30, 2005. Subsequent to the close of Q2 2005, Marvel repurchased 1.6 million additional shares for an aggregate cost of $33 million, thereby completing its repurchase authorization.
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 Released July 8, 2005
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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 Script, Director, May 26, 2006
release (1)
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Ghost Rider Sony Filming completed, Slated for
Summer 2006 (1)
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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
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Luke Cage Sony/Columbia TBD
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Deathlok Paramount TBD
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The Hulk 2 Universal Pictures TBD
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Wolverine Fox TBD
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Marvel Character Feature Film Projects in Development
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Ant-Man, Black Panther, Captain America, Killraven, 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.
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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. Twenty-six,
30-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.
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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 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 Q1 2005
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Vivendi Universal Hulk: Ultimate Destruction Q3 2005
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2005 Guidance and Drivers: The Company is maintaining the existing guidance ranges for net sales and EPS. Marvel is revising its 2005 net income guidance range last provided on April 28, 2005 to account for higher legal expenses and lower interest income resulting from the use of cash in the share repurchase program. Reflecting the accretive benefits of the share repurchase program, Marvel's EPS guidance has remained unchanged. The Company expects results for 2005 to be more heavily weighted towards the second-half than has been the case in prior years, where a larger portion of toy income was recorded in the first half. Second half 2005 results should benefit from continued growth in domestic and international licensing revenues plus growth in new toy brands.
Marvel Enterprises, Inc.
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(in millions, except Updated 2005 Previous 2005 2004
per-share amounts) Guidance Guidance (1) Actual
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Net sales $370 - $390 $370 - $390 $513
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Net income $117 - $126 $120 - $126 $125 (2)
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Diluted EPS attributable to
common stock $1.07 - $1.12 $1.07 - $1.12 $1.10 (2)
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(1) Previous 2005 guidance ranges were initially provided in the
Company's October 28, 2004 release and reiterated in the Company's
April 28, 2005 release.
(2) Includes a one-time charge of approximately $12 million associated
with the early redemption in June 2004 of the Company's 12% Senior
Notes due 2009.
The licensing division is expected to generate approximately 50% of the Company's total sales for the year with operating margins ranging between 60% and 65%. Some planned advertising for the Fantastic Four brand is included in both the licensing and toy divisions. The following are expected to be some of the key factors in Marvel's full-year 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 Spider-Man: The Movie feature film as well as a non-refundable option payment for the Spider-Man 3 movie expected to be released in 2007.
- Over $20 million in license revenue to be derived from the Spider-Man joint venture, $18 million of which was recorded in the first half of 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; approximately $41 million of wholesale sales were recorded in the first half of 2005.
- Contributions from new toy product launches related to TNA Wrestling, the Curious George film franchise, and Marvel character-based toy lines such as Legends.
- 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 $14 million recorded in the first half of 2005.
- International licensing revenues in excess of $30 million, including $20 million recorded in the first half of 2005.
- Modest top-line and bottom-line growth from the publishing division.
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.
