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Marvel Enterprises Q2 2001 Report

by  in Comic News Comment
Marvel Enterprises Q2 2001 Report

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.

(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Net sales $45,932 $51,041 $88,604 $94,229
Cost of sales 22,403 24,328 46,726 46,677
Gross Profit 23,529 26,713 41,878 47,552
Selling, general and
administrative expenses 13,518 19,329 25,715 40,135
Pre-acquisition litigation
charge 3,000 – 3,000 –
EBITDA (1) 7,011 7,384 13,163 7,417
Depreciation and amortization 1,000 3,778 1,802 7,097
Amortization of goodwill and
other intangibles 5,921 5,990 11,842 11,982
Operating income (loss) 90 (2,384) (481) (11,662)
Interest expense, net 7,760 7,216 15,627 14,416
Loss before income taxes (7,670) (9,600) (16,108) (26,078)
Income tax provision (benefit) (349) 724 (195) 893
Loss before equity in joint
venture (7,321) (10,324) (15,913) (26,971)
Equity in net (loss) of joint
venture (82) (263) (178) (263)
Net loss (7,403) (10,587) (16,091) (27,234)
Less: preferred dividend
requirement 3,983 3,810 7,951 7,545
Net loss attributable to
common stock (11,386) (14,397) (24,042) (34,779)
Basic and diluted loss per
share ($0.33) ($0.43) ($0.71) ($1.03)
Common shares outstanding 34,163 33,651 33,992 33,644
(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.
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Licensing(a): Net Sales $ 11,237 $ 7,043 $ 16,667 $ 9,370
EBITDA $ 9,032 $ 4,095 $ 11,884 $ 3,266
Publishing: Net Sales $ 11,157 $ 11,411 $ 21,374 $ 21,352
EBITDA $ 2,775 $ 2,792 $ 5,514 $ 5,329
Toy Biz: Net Sales $ 23,538 $ 32,587 $ 50,563 $ 63,507
EBITDA $ 548 $ 2,428 $ 2,762 $ 2,622
Pre-acquisition litigation
charge $ (3,000) — $ (3,000) —
Corporate: Net Sales — — — —
EBITDA $ (2,344) $ (1,931) $(3,997) $ (3,800)
SALES $ 45,932 $ 51,041 $88,604 $ 94,229
EBITDA $ 7,011 $ 7,384 $13,163 $ 7,417
(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

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

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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