MARVEL 3Q 2002 REPORT

[MichaelDoran]

Edited Press Release

Growing Exposure of Marvel Characters Drives Year-To-Date Increases: Net Sales +61%, EBITDA +205%, And EPS Rises to $0.08 From Loss of $0.85

Increases Full-Year 2002 EBITDA Guidance to $72 - $77 Million

<blockquote>Marvel Enterprises, Inc. (NYSE:MVL) today reported financial results for its third quarter and nine months ended September 30, 2002 and provided financial guidance for the fourth quarter and full year 2002.

Q3 Overview:

Marvel extended its recent trend of year-over-year gains in net sales, EBITDA and net income, and its three principal business segments continued to benefit from a growing list of entertainment, publishing, toy and consumer product exposures including Spider-Man: The Movie and upcoming films for 2003. Q3 net sales rose 96% to $84.4 million, EBITDA increased 313% to $29.3 million and net income attributable to common stock increased to $6.7 million, or $0.17 per share, versus a loss of $5.1 million, or $0.15 per share, in the prior year period. Q3 results reflect approximately $4 million in revenue and EBITDA related to Spider-Man: The Movie which had been anticipated to be received in Q4 2002. This consisted of approximately $2 million from Marvel's participation in the movie's worldwide box office receipts and approximately $2 million representing Marvel's equity interest in net income from Marvel's Spider-Man: the Movie licensing joint venture with Sony.

Marvel's Publishing Division continued to deliver strong growth with comic book, trade paperback and advertising revenues growing 40.0% year-over-year, well in excess of industry rates and underscoring Marvel's three-year trend of market share gains. Importantly, the comic industry in the U.S. and Canada also demonstrated total dollar growth of 11.2% for the 12 months ended September 30, 2002, the first annual growth since 1993. Marvel currently publishes approximately 60 titles per month, and typically 18 or 19 are in the top 25.</blockquote>

<a href=http://www.businesswire.com/cgi-bin/f_headline.cgi?day0/223032565&ticker=mvl>[b]Full Press Release/Report[b]</a> can be found by clicking on the link...

I'm curious.

Don't the other publishers post their Quarter earnings like Marvel does? Or does Marvel release theirs... for some reason known only to them?

[Danny Donovan]

Marvel is the only publicly trade comic book company. DC Comics is owned by AOL/Time Warner. So it's financial quarter results are listed amidst every other AOL/TW holding.

Marvel releases the information to intice stockhold buyers and to insure confidence of current stockholders and perhaps get them to buy more stock. :-D

Most other companies are privately owned so they're not required to share their information if they don't choose too. :-D

[gwangung]

Actually....

It's an evil plot by Jemas and Quesada to promote Marvel books and screw poor, hard working fans out of their hard earned cash....

[Slangword]

Good news for the industry. We need more healthy comic companies.

That said, a part of me is dismayed that marvel Management may take this as a sign that the childishness of certain individuals is paying off. Just in case any are reading this Board:

The increases are in spite of the name-calling and dumb stunts, NOT because of them.

The increases are due to writers and artists working hard to produce quality stories.

--Scott

[comicsareliterature]

Hello.

I am really waiting to hear QCCBOB's explanation before I really comment... :D

However, things do look like they are moving in a positive direction. Good work, Marvel, keep it up!

[QCCBob]

[quote]Originally posted by comicsareliterature:
<strong>However, things do look like they are moving in a positive direction. Good work, Marvel, keep it up!</strong><hr></blockquote>

Appearances can be deceiving...remember a lot of the above data is estimated and, if I recall correctly, a decent sized negative adjustment was levied on the first quarter, but oddly enough, I don't recall a press release showing the adjusted numbers...61 percent increase in sales and they temper their attitude, start doing crossovers, make attempts at continuity, concentrate on reprints, and generally seem to be doing the things that (desperate) comic companies do to increase sales the old fashioned way, with the notable exception of overprinting. If the picture is so rosy, why change what in theory is so successful?

[danzo]

wow, Marvel only netted 2 mill off of the Spiderman movie? talk about screwing yourself! the movie is heading towards a billion in over-all revenues, what, they never heard of the percentage? even top-name screen-writers are getting a percentage these days- and many of the top-name writers are as well, the Crichton's, the King's, what's-her-name with Harry Potter.... gee, i guess the ol' comic-industry inferiority complex is as healthy as ever....

[Academic]

[quote]Originally posted by danzo:
<strong>wow, Marvel only netted 2 mill off of the Spiderman movie? talk about screwing yourself! the movie is heading towards a billion in over-all revenues, what, they never heard of the percentage? </strong><hr></blockquote>

This is 3rd quarter results, meaning it's only the last three months -- August, September, October. Given that Spider-Man was leaving theatres by August to make way for the rest of the summer blockbusters (it opened in May), $4 million (which is what's listed in the press release) isn't all that bad.

As for percentages, Hollywood accounting is completely different than regular accounting. Theatres get a cost coverage amount for each screening, then a percentage on top, from the gate; if the gate doesn't reach the cost coverage, it's often taken off other showings of films by that distributor. So when Lord of the Rings shows $300 million at the box office, only $200 million is really going past the box office, and then it has to go to the gross cuts (who base their percentages off the box office), distributor, producer, etc.

Marvel got 1.75% of either the gross or the net, plus 50% of the marketing deals not directly out of Sony or Marvel -- which was quite a haul, considering that X-Men went to Fox for $500k flat.

[John Osen]

[QUOTE]Originally posted by QCCBob:
[QB]

Appearances can be deceiving...remember a lot of the above data is estimated

Third quarter reports are not estimated. Duh! :p

[John Osen]

In the last three weeks Marvel stock has gone up 68.18%. They're doing fine. :p

[IanZL]

there is a big differance between better and fine.

[comicsareliterature]

Hello.

To QCCBOB: Bob, I am curious as to how you respond to the following:

October 30, 2002
Marvel released its Q3 results today and the numbers blew away expectations, including its own guidance from only a month ago. Marvel made $6.7 million in the quarter on $84.4 million in sales, compared to a loss of $5.1 million on sales of $43 million in the year ago period. Just a few weeks ago, on September 24, Marvel raised its guidance for third quarter to $3-$5 million in profits on $63-$68 million in sales from $3-$4 million in profits on $45-$50 million in sales. Marvel now expects $21-$24 million in profits on $275 to $280 million in sales for the full year. In the conference call with analysts, outgoing Marvel CEO Peter Cuneo called it a "Golden Age" for Marvel.



As has been the case throughout Marvel's recent rejuvenation, licensing led the way, with a 317% increase in revenues for Q3 vs. Q3 2001. Part of that increase actually reflects a move in toy revenues from the Toy Biz division to licensing as the toy business transitions from Spider-Man movie toys, which were accounted for through Marvel's joint venture with Sony into the toy division to non-movie toys which are now accounted for as licensing revenue because of Marvel's new toy structure with separate company Toy Biz Worldwide (see "Marvel Cash Flow Positive in Q2" from last year for the description of this new arrangement). Regardless, that accounted for only a small portion of the increase in licensing. Marvel signed 61 new licensing deals during the quarter, including this management team's biggest deal ever, the full universe MMORPG deal with Vivendi Universal (see "Marvel Licenses MMORPG").



The toy business was also up substantially despite the move of some revenues to licensing -- an 82% increase in sales vs. the same period in 2001. Toys based on Spider-Man and The Two Towers were the prime drivers of revenues. Marvel said that it had taken the impact of west coast port problems on its toy business into account in its Q4 guidance, but that it had less visibility to the effects on the first quarter of next year, a period for which retailers may not have planned as extensively.



Publishing was the slowest-growing division; sales were up about 20% vs. the same period last year. Referring to the growth in the market and in Marvel's sales, President Bill Jemas said that they "don't really see any end in sight." Marvel is expecting its three major movie releases to drive publishing revenues next year; Jemas said that Marvel had "shattered the myth" that movies don't drive comic sales. Graphic novel sales through bookstores and ad revenues were also contributors to growth. While still robust, this growth rate was down from a 60% growth rate in the second quarter (see "Blockbuster Bucks Buoy Bottom Line").



Marvel ended the quarter with $58 million in cash. The company is continuing to improve its balance sheet. It prepaid part of its term loan during the quarter; its redemption of preferred shares is going well; and it plans to redeem some or all of its 12% debt in July of 2004, using its cash and/or new financing at better interest rates for that purpose.



All in all, it was another great quarter for this key company in the pop culture products biz.

Please give me your spin on this.

[QCCBob]

[quote]Originally posted by comicsareliterature:
<strong>Please give me your spin on this.</strong><hr></blockquote>

"Statements issued with the press release show Marvel to have total current assets of $126.8 million, with total liabilities of $253.3 million, including $151 million in old debt from the bankruptcy days."

'Nuff said?

I said all along you'd see short-term growth, that's why I call it short-term profiteering. There's always money at the start, especially with a big budget movie that they actually have a piece of. Again, if the picture is so rosy, why is Cuneo bailing on this "golden age" and why are they altering the supposedly successful editorial policies?

Look at the top 10 for November as they tout the position of Ultimates #10 and remember they had to cancel that order due to lateness, but, by golly, it's still the #3 book for the month. You may want to believe everything they say at face value, but they play very fast and loose with facts, at least when it makes them look good.

[Academic]

[quote]Originally posted by QCCBob:
<strong>

"Statements issued with the press release show Marvel to have total current assets of $126.8 million, with total liabilities of $253.3 million, including $151 million in old debt from the bankruptcy days."

'Nuff said?
</strong><hr></blockquote>

Companies on the stock market don't have to make a profit to look good -- look at Amazon.com.

As for the $100 million in liabilities post-bankruptcy... does anyone know if Quebecor's monthly bill is kept as a liability? Debt interest?

[quote]Originally posted by QCCBob:
<strong>
I said all along you'd see short-term growth, that's why I call it short-term profiteering. There's always money at the start, especially with a big budget movie that they actually have a piece of. Again, if the picture is so rosy, why is Cuneo bailing on this "golden age" and why are they altering the supposedly successful editorial policies?
</strong><hr></blockquote>

Again, I'd like to point out to people that Marvel's profits from Spider-Man are 2nd quarter (for the film's box office performance) and 4th quarter (DVD/video sales) heavy.

As for your comment: "There's always money at the start, especially with a big budget movie that they actually have a piece of," this is the FIRST movie Marvel ever had a piece of, and it's not going to be the last. If Marvel can use the films to wipe out its bankruptcy debt, why should that be considered a bad thing by anyone in or out of the industry? I mean, we all know that less debt = great percentage of the income to spend = greater profit and chance of expansion for the company.

Turning to Cuneo, I don't think you - or me, or anyone else for that matter - knows his daily level of stress in the job, whether he envisioned himself there for longer than he had been, had a better job offer, or whathaveyou. The one thing we should all note is that Marvel's gone through financial officers faster than most of its creative teams, so there must be some part of the job we aren't seeing in the public.

Finally: you asked why "they altering the supposedly successful editorial policies?" Could you be more specific? From my standpoint, they're still trying to encourage trade paperback-aimed writing, keeping overprints to a minimum, and using the Mighty Marvel Must-Haves as a back-up system.

If you're talking about traditional stories vs. the so-called move away from that, I'd have to say that Marvel's done what every other major company in comics has done when revamping their outlook: you do some massive changes, then let them sit to judge them. Plus, with Quesada's saying that he's now going to look at the lower selling books, I don't think we've seen the end of the changes at Marvel... Thunderbolts is not being offered in this month's Previews, is it?

[quote]Originally posted by QCCBob:
<strong>
Look at the top 10 for November as they tout the position of Ultimates #10 and remember they had to cancel that order due to lateness, but, by golly, it's still the #3 book for the month. You may want to believe everything they say at face value, but they play very fast and loose with facts, at least when it makes them look good.</strong><hr></blockquote>

Or you can just state outright that you despise Marvel.

Marvel can claim pride in Ultimates #10 being the #3 ordered book in that month -- it shows the demand for the book, and retailer anticipation of that demand. It's also a sign to Marvel that somebody is doing something that clicks with the audience.

It was cancelled due to lateness because someone is suing them over late books, and now they've changed their policy to prevent late books. The latest joke around here is that Marvel's taking out medical policies on Brian Michael Bendis because if Bendis is sick, the whole line goes late.

[Academic]

[quote]Originally posted by Academic:
<strong>
Or you can just state outright that you despise Marvel.
</strong><hr></blockquote>

Sorry, forgot the :D after it. :o It wasn't meant aggessively, it was meant to be a joke. :)

[QCCBob]

[quote]Originally posted by Academic:
<strong>Marvel can claim pride in Ultimates #10 being the #3 ordered book in that month -- it shows the demand for the book, and retailer anticipation of that demand. It's also a sign to Marvel that somebody is doing something that clicks with the audience.

It was cancelled due to lateness because someone is suing them over late books, and now they've changed their policy to prevent late books. </strong><hr></blockquote>

The Marvel Zombie stink exudes strongly here. :p
The Ultimates #10 order isn't cancelled because of a lawsuit, it's late because Marvel's editorial staff can't manage their creative teams, so it's got to be solicited again. Were they able to do their jobs right in the first place, it wouldn't have been a problem. Claiming pride in an order that literally does not exist fits them to a T!!!

Just to set the record straight, I do despise the way Marvel is run, not the company/characters.

The money they gained from Spider-Man is great. Daredevil won't make that much, X-Men 2 won't make that much, Hulk won't make that much, but the three together could net them a pretty penny. What if DD bombs? What if DD sets off an anti-superhero movie backlash and theaters are scared off on multiple X-2 and Hulk screens? It isn't a sure thing. Movie revenue should be icing on the cake, not their only hope of getting out of debt. Unfortunately, their business practices have cost them lots of money and that lawsuit you mentioned looms in the future. Wouldn't it be a crying shame if that movie money has to go to retailers because Mr. J and company thought they could ignore our contract???

Oh, stock value is all well and good, but Marvel has debts that have to be paid and profits are pretty necessary for that. Huge racks of Spider-Man movie toys in virtually every toy department in town doesn't bode well for Toy Biz which is traditionally a huge drain on the company as a whole. Marvel's publishing division should be printing money but it isn't. Raw revenue data doesn't tell you a whole lot. If you spend $83 million to make $84.4 million, it's going to be a very long time to black ink.

[Academic]

[quote]Originally posted by QCCBob:
<strong>
Daredevil won't make that much, X-Men 2 won't make that much, Hulk won't make that much, but the three together could net them a pretty penny.
</strong><hr></blockquote>

Hit or not, Marvel gets nothing from X-2. The rights were sold for a flat $500k. AFAIK, neither Daredevil nor The Hulk have the same type of royalty deals that Spider-Man had.

Spider-Man: The Movie created revenue streams Marvel can exploit later with the next films if it wants to.

Marvel ain't alone either. DC only exists at AOL to keep revenue streams for other, profitable divisions alive.

[quote]Originally posted by QCCBob:
<strong>
Huge racks of Spider-Man movie toys in virtually every toy department in town doesn't bode well for Toy Biz which is traditionally a huge drain on the company as a whole.
</strong><hr></blockquote>

During the mid-nineties, Toy Biz was the ONLY division at Marvel making money. How is that a drain when it's the one who consistently produces a profit?

[quote]Originally posted by QCCBob:
<strong>
Marvel's publishing division should be printing money but it isn't. Raw revenue data doesn't tell you a whole lot. If you spend $83 million to make $84.4 million, it's going to be a very long time to black ink.</strong><hr></blockquote>

None of the major publishers are making money on comics. DC hasn't turned a profit in 30 years. Marvel's paying down its debt with its present profits from Spider-Man, which means less interest payments being drained off future revenues and the possibility of further payments.

As for low profits getting you back to black ink, Marvel's a public company. As long as the everyday bills get paid and the shares are at a decent price, they stay in business. On paper, Marvel's actually worth less than it really is because the characters and potential licenses from the characters have a $0 value for the balance sheet.

Given that about 1/3 of DC's revenues MINIMUM come from revenues outside of the publishing and they aren't turning a profit, Marvel's present strategy of using licenses to help pay down the debt in preparation for the next dip in comic sales (due sometime soon the way this market works, irregardless of whether the publishers are responsible or the fans) isn't so bad as one may think.

And it's not Marvel's editorial board that makes this decision, it's their board of directors (two different things for those out there who may have them confused). Joe Quesada isn't on the board of directors, nor are any of the company's editors.