'Hulk,' 'Daredevil' Add Muscle to Marvel's 2003 View

Although its profits on "The Hulk" film will be capped, Marvel Enterprises Inc. expects the Green Goliath will be a powerhouse when it comes to 2003 earnings.
NEW YORK -- Although its profits on "The Hulk" film will be capped, Marvel Enterprises Inc. (NYSE:MVL - News) expects the Green Goliath will be a powerhouse when it comes to 2003 earnings.

Marvel President and Chief Executive Allen Lipson said during a conference call to discuss fourth-quarter earnings that the company renegotiated its "not very good deal," with Vivendi Universal's (V) Universal Pictures unit on "The Hulk" to a first-dollar gross deal so it can collect a percentage of the box- office sales.

However, Mr. Lipson said, that meant a cap on the box-office for Marvel from " The Hulk," but there's no such limits on merchandising revenue from "The Hulk" or any potential sequels. He added that the company was also able to renegotiate a more favorable deal with Fox Entertainment Group Inc. (NYSE:FOX - News) on the "X-Men" sequel, "X2," scheduled for release May 2, however it isn't for first-dollar gross on the box office.

With an upbeat view for the film slate for its comic-book characters, the New York entertainment company raised its 2003 earnings projection to a range of 64 cents to 69 cents a share, above a Thomson First Call (News - Websites) analyst consensus of 59 cents and the range of 57 cents to 62 cents Marvel predicted Jan. 7.

In the first quarter, Marvel said it expected earnings this year to be between 36 cents and 41 cents a share, compared with a First Call projection of 17 cents. On Feb. 14, the movie "Daredevil," also a Twentieth Century Fox release, hit theaters and racked up more than $84 million in box office revenue in its first 17 days. Marvel Studios Chief Executive Ari Arad said the film's domestic box-office should rise to more than $100 million.

Revenue in 2003 is expected to decline to between $215 million and $220 million from the $299.1 million of 2002 because of lower toy sales from the movie "Spider-Man." Sony Corp. (SNE) has a Spider-Man sequel set for 2004.

In the fourth-quarter, Marvel realized $4.3 million in royalty income from digital video disc and videotape sales of "Spider-Man" and about $6.7 million in earnings before interest, taxes, depreciation and amortization -- or Ebitda, a cash flow measurement -- from Marvel's equity interest in net income from Spider-Man licensing joint venture with Sony.

The company should see more revenue from sales of "Spider-Man" DVDs and videos through the first half of 2003, Marvel Chief Financial Officer Ken West said.

Marvel was "encouraged," by sales of toys related to the Hulk movie and Universal will put a huge marketing push behind the movie. Marvel's toys and actions figures, except those related to Spider-Man, are manufactured and sold through a licensing agreement with Toy Biz Worldwide, a former Marvel unit.

"The contribution from the master toy license for Hulk toys and products will be substantial," Mr. Lipson said, adding that with $20 million in advanced payments on the Hulk license worked through, the company should receive new cash payments on all royalties earned.

Licensing deals on movies and toys led to Marvel's fourth-quarter revenue rising 74% to $86.5 million, with Ebitda rising 136% to $24.8 million. Including a one-time, noncash charge mostly related to a convertible preferred stock exchange offer in November and early retirement of a bank loan, the company posted fourth-quarter earnings, before a preferred dividend, of $7.2 million. After the preferred dividend, the company posted a loss of $48.7 million, or $ 1.03 a share. Excluding charges, Marvel earned 19 cents a share, above analyst expectations of 13 cents.

Licensing sales in the quarter rose to $28.2 million from $17.4 million a year ago, toy revenue swelled to $41.6 million from $16.9 million, and publishing revenue improved to $16.7 million from $15.3 million. Publishing reflects sales of comic books and graphic novels.

At the end of the year, Marvel had $53.7 million in cash and $151 million in 12% senior notes, for net debt of $97.3 million, compared with net debt of $ 166.4 million at Dec. 31, 2001. Mr. Lipson said the company expects to retire the senior notes by June 2004 if interest rates remain low. He added that the company would consider the acquisition of additional intellectual properties with its increased cash flow.
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3/4/2003
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