UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13638
MARVEL ENTERPRISES, INC.
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3711775
________________________________________________ ________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
387 Park Avenue South, New York, NY 10016
________________________________________________ ________________________
(Address of principal executive offices) (Zip Code)
212-696-0808
_______________________________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At October 29, 1999, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 33,532,222 shares of Common Stock.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $79,182 $43,691
Accounts receivable, net 66,693 50,312
Inventories, net 42,348 32,598
Income tax receivable - 7,396
Deferred income taxes, net 538 538
Assets held for resale - 26,000
Deferred financing costs 1,397 8,281
Prepaid expenses and other 6,029 3,768
------------ ---------------
Total current assets 196,187 172,584
Goodwill and other intangibles, net 468,512 487,731
Molds, tools and equipment, net 17,369 15,548
Product and package design costs, net 7,633 5,909
Deferred charges and other assets 9,265 5,053
Deferred financing costs 9,696 -
Deferred income taxes, net 3,079 3,079
------------ ---------------
Total assets $711,741 $689,904
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $8,962 $7,294
Accrued expenses and other 63,782 70,672
Administrative claims payable 13,137 19,914
Unsecured creditors payable 8,382 8,096
Bridge loan payable - 200,000
------------ ---------------
Total current liabilities 94,263 305,976
------------ ---------------
Long-term liabilities
Senior Notes 250,000 -
Panini liability 27,000 27,000
Deferred income taxes 924 924
------------ ---------------
Total long-term liabilities 277,924 27,924
------------ ---------------
Total liabilities 372,187 333,900
Redeemable cumulative convertible
exchangeable preferred stock 183,128 172,380
Stockholders' equity
Common stock 408 408
Additional paid-in capital 215,036 215,035
Retained (deficit) earnings (26,063) 1,136
------------ ---------------
Total stockholders' equity before treasury stock 189,381 216,579
------------ ---------------
Treasury stock (32,955) (32,955)
------------ ---------------
Total stockholders' equity 156,426 183,624
------------ ---------------
Total liabilities, redeemable preferred stock and
Stockholders' equity $711,741 $689,904
============ ===============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
2
<PAGE>
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 89,882 $ 65,045 $ 226,650 $ 156,361
Cost of sales 42,351 38,745 105,832 87,758
---------- ---------- ----------- -----------
Gross profit 47,531 26,300 120,818 68,603
Operating expenses:
Selling, general & administrative 33,018 32,234 81,342 60,925
Depreciation & amortization 4,754 5,822 11,920 13,572
Amortization of goodwill and other intangibles 6,587 213 19,361 586
---------- ---------- ----------- -----------
Total operating expenses 44,359 38,269 112,623 75,083
---------- ---------- ----------- -----------
Operating income (loss) 3,172 (11,969) 8,195 (6,480)
Interest expense, net 6,891 212 21,309 335
---------- ---------- ----------- -----------
Loss before benefit for income taxes (3,719) (12,181) (13,114) (6,815)
Income tax provision (benefit) 925 (4,958) 1,996 (2,774)
---------- ---------- ----------- ------------
Loss before extraordinary expense (4,644) (7,223) (15,110) (4,041)
---------- ---------- ----------- ------------
Extraordinary expense, net of tax benefit of $1,021 - - 1,531 -
---------- ---------- ----------- ------------
Net loss (4,644) (7,223) (16,641) (4,041)
---------- ---------- ----------- ------------
Less: preferred dividend requirement 3,590 - 10,558 -
---------- ---------- ----------- ------------
Net loss attributable to Common Stock (8,234) (7,223) (27,199) ($ 4,041)
---------- ---------- ----------- ------------
Basic and dilutive earnings per share:
Loss from continuing operations attributable
to Common Stock ($ 0.25) ($ 0.26) ($ 0.76) ($ 0.15)
Extraordinary expense - - ($ 0.05) -
---------- ---------- ----------- ------------
Loss attributable to Common Stock ($ 0.25) ($ 0.26) ($ 0.81) ($ 0.15)
---------- ---------- ----------- ------------
Weighted average number of basic and diluted
shares outstanding 33,532 27,746 33,532 27,746
---------- ---------- ----------- ------------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($16,641) ($4,041)
------------ ------------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation & amortization 31,281 14,158
Amortization of bridge loan and bond offering costs 2,532 -
Benefit for deferred income taxes - (1,847)
Extraordinary expense, net 1,531 -
Change in assets & liabilities:
Increase in accounts receivable (16,381) (2,178)
Increase in inventories (9,750) (10,914)
Decrease in income tax receivable 7,396 16,477
(Increase) decrease in prepaid expenses and other (2,261) 2,960
Increase in deferred charges and other assets (4,047) -
Increase (decrease) in accounts payable 1,668 (1,245)
Decrease in accrued expenses and other (2,920) (2,153)
------------ ------------
Total adjustments 9,049 15,258
------------ ------------
Net cash (used in) provided by operating activities (7,592) 11,217
------------ ------------
Cash flows from investing activities:
Acquisition of Marvel Entertainment Group, net of cash acquired (3,374) (255,812)
Purchases of molds, tools and equipment (10,226) (8,610)
Expenditures for product and package design costs (5,239) (3,697)
Other investments (141) (1,678)
Net proceeds from the sale of Fleer assets 22,885 -
Net proceeds from the sale of Colorforms assets - 2,786
------------ ------------
Net cash provided by (used in) investing activities 3,905 (267,011)
------------ ------------
Cash flows from financing activities:
Net proceeds from Senior Notes offering 238,987 -
Proceeds from preferred stock offering - 90,000
(Repayment) receipt of proceeds from Bridge
Facility (200,000) 200,000
Stock warrants exercised 191 -
Net repayments under credit agreement - (12,000)
------------ ------------
Net cash provided by financing activities 39,178 278,000
------------ ------------
Net increase in cash and cash equivalents 35,491 22,206
------------ ------------
Cash and cash equivalents, at beginning of period 43,691 7,596
------------ ------------
Cash and cash equivalents, at end of period $79,182 $29,802
------------ ------------
Supplemental disclosures of cash flow information
Interest paid during the period $14,673 $729
Income taxes, net, refunded during the period $4,802 ($12,594)
Other non-cash transactions:
Preferred stock dividends $10,558 -
Issuance of securities in connection with the acquisition of
Marvel Entertainment Group and acquisition of treasury stock - $189,133
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited Condensed Consolidated Financial
Statements of Marvel Enterprises, Inc. (formerly Toy Biz, Inc.) and its
subsidiaries (collectively, the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1998 and the Condensed Consolidated Statement of
Cash Flows for the nine months ended September 30, 1998 do not include
operations of Marvel Entertainment Group, Inc. ("MEG") which was acquired on
October 1, 1998 (See Note 2). The Condensed Consolidated Statement of Operations
and the Condensed Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999 are not necessarily indicative of those for the full year
ending December 31, 1999. For further information on the Company's historical
financial results, refer to the consolidated financial statements and footnotes
thereto contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and the amendment to that report on Form 10-K/A,
dated April 1, 1999, as filed with the Securities and Exchange Commission.
2. ACQUISITION OF MARVEL
On October 1, 1998, pursuant to the Fourth Amended Joint Plan of
Reorganization (the "Plan") proposed by the senior secured lenders of MEG and
Toy Biz, Inc., MEG became a wholly owned subsidiary of Toy Biz, Inc. The
acquisition of MEG was accounted for using the purchase method of accounting.
The results of the acquired business are included in the Company's consolidated
results of operations as of October 1, 1998. Toy Biz, Inc. also changed its name
to Marvel Enterprises, Inc. on that date.
The following unaudited pro forma consolidated financial information
gives effect to the acquisition as if it occurred at the beginning of the period
presented. These pro forma results include certain adjustments, such as
increased amortization and interest expense, and do not reflect MEG's
reorganization items and are not necessarily indicative of the results that
would have been achieved had the acquisition occurred at the beginning of the
period. This financial information also does not include the results of
operations of Fleer/Skybox International ("Fleer"), MEG's subsidiary engaged in
the sale of sports and entertainment trading cards, or Panini S.p.A. ("Panini"),
MEG's Italian subsidiary engaged in the children's activity sticker and adhesive
paper businesses, during the nine months ended September 30, 1998 (see Note 3).
Nine Months Ended
September 30, 1998
------------------
(in thousands,
except per share data)
Net sales $200,613
Net loss (43,214)
Preferred dividend 10,558
Basic/dilutive net loss attributable to common stock ($1.60)
5
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. ASSETS HELD FOR RESALE
On February 11, 1999, the Company sold substantially all of the
assets of Fleer for approximately $22.9 million, in cash, net of related fees
and closing adjustments. Proceeds from this transaction were partially used to
repay the bridge facility (See Note 5) with the remainder used for working
capital purposes. The Company's results of operations for the periods presented
do not include the results of operations of Fleer.
On October 8, 1999, the Company completed the sale of Panini. The
Company received nominal consideration for its equity interest in Panini. In
connection with the sale of Panini, the Company made a payment to Panini's
secured lenders of $11.2 million and obtained a release from a $27.0 million
guarantee of Panini's debt in favor of such secured lenders. The Company's
results of operations for the periods presented do not include the results of
Panini.
6
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
Description
-----------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $92,938 $75,235
Less allowances (26,245) (24,923)
-------------------- ---------------------
Total $66,693 $50,312
==================== =====================
Inventories, net:
Toys:
Finished goods $33,120 $24,685
Component parts, raw materials and
Work-in-process 5,749 3,977
-------------------- ---------------------
Total Toys $38,869 $28,662
-------------------- ---------------------
Publishing:
Finished goods $430 $754
Component parts, raw materials and
Work-in-process 3,049 3,182
-------------------- ---------------------
Total Publishing $3,479 $3,936
-------------------- ---------------------
Total $42,348 $32,598
==================== =====================
Goodwill and other intangibles, net:
Goodwill $492,424 $492,424
Patents and other intangibles 3,866 3,726
Less accumulated amortization (27,778) (8,419)
-------------------- ---------------------
Total $468,512 $487,731
==================== =====================
Accrued expenses and other:
Accrued advertising costs $7,117 $8,183
Accrued royalties 10,657 9,584
Inventory purchases 8,758 7,389
Deferred financing costs - 4,000
Accrued Interest payable 8,750 1,619
Income taxes payable 4,411 4,709
Deferred income taxes payable 2,693 2,693
Litigation trusts accrual 798 1,922
Other accrued expenses 20,598 30,573
-------------------- ---------------------
Total $63,782 $70,672
==================== =====================
</TABLE>
7
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. DEBT FINANCING
To partially finance the acquisition of MEG, the Company obtained a
$200.0 million loan (the "Bridge Facility") from UBS AG, Stamford Branch ("UBS
AG") on October 1, 1998. The Bridge Facility bore interest at either the bank's
base rate (defined as the higher of the prime rate or the sum of 1/2 of 1% plus
the Federal Funds Rate) plus 5.50% or at the Eurodollar rate plus 6.50%.
On February 25, 1999, the Company completed a $250.0 million offering
of senior notes (the "Senior Notes") in a private placement exempt from
registration under the Securities Act of 1933 ("the Act") pursuant to Rule 144A
under the Act. Net proceeds of approximately $239.0 million were used to pay all
outstanding balances under the Bridge Facility and for working capital. The
Senior Notes are due June 15, 2009 and bear interest at 12% per annum. The
Senior Notes may be redeemed beginning June 15, 2004 for a redemption price of
106% of the principal amount, plus accrued interest. The redemption price
decreases 2% each year after 2004 and will be 100% of the principal amount, plus
accrued interest, beginning on June 15, 2007. In addition, 35% of the Senior
Notes may, under certain circumstances, be redeemed before June 15, 2002 at 112%
of the principal amount, plus accrued interest. Principal and interest on the
Senior Notes are guaranteed on a senior basis jointly and severally by each of
the Company's domestic subsidiaries. On August 20, 1999, the Company completed
an exchange offer under which it exchanged virtually all of the Senior Notes,
which contained restrictions on transfer, for an equal principal amount of
registered, transferable notes whose terms are identical in all other material
respects to the terms of the Senior Notes.
In February 1999, in connection with the repayment of the Bridge
Facility and the termination of a revolving credit facility, the Company
recorded an extraordinary charge of approximately $1.5 million, net of tax
benefit, for the write-off of deferred financing costs associated with these two
facilities.
On April 1, 1999, the Company and Citibank, N.A. ("Citibank") entered
into an agreement for a $60.0 million Revolving Credit Facility ("Citibank
Credit Facility"). The Citibank Credit Facility bears interest at either the
bank's base rate (defined as the higher of the prime rate or the sum of 1/2 of
1% plus the Federal Funds Rate) plus a margin ranging from 0.75% to 1.25%
depending on the Company's financial performance or at the Eurodollar rate plus
a margin ranging from 2.25% to 2.75% depending on the Company's financial
performance. The Citibank Credit Facility requires the Company to pay a
commitment fee of 0.625% per annum on the average daily unused portion of the
facility unless there is at least $20.0 million outstanding borrowings in which
case the rate is 0.50% per annum for the amount outstanding above $20.0 million.
The Company has not borrowed under the Citibank Credit Facility. The amount
available under this facility is reduced by the amount of letters of credit
outstanding, which is $385,000 as of October 29, 1999. The Citibank Credit
Facility is secured by a lien on all of the Company's inventory and receivables.
8
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. SHARES OUTSTANDING
The Condensed Consolidated Statement of Operations presents
operations of the Company for the three months and nine months ended September
30, 1999. During the first nine months of 1999, the Company issued 80,000 shares
of common stock as annual compensation to its non-employee directors and issued
95 shares of common stock upon the exercise of warrants. The total number of
shares of common stock outstanding as of September 30, 1999 is 33,532,222,
excluding treasury shares (assuming no conversion of the 8% cumulative
convertible exchangable preferred stock ("8% Preferred Stock") and no additional
exercise of any warrants or employee stock options); assuming conversion of all
of the 8% Preferred Stock, the number of shares outstanding at September 30,
1999 would have been 52,557,638; assuming conversion of all of the 8% Preferred
Stock and exercise of all outstanding warrants, all remaining warrants required
to be issued by the Company under the Plan and all employee stock options, the
number of shares would have been 71,261,632.
7. SEGMENT REPORTING
Following the Company's acquisition of MEG, the Company realigned its
business into four divisions: Licensing, Publishing, Toys ("Toy Biz") and
Corporate.
The Marvel Licensing division licenses the Marvel characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media, consumer products and promotions.
The Marvel Publishing division publishes comic books and paperbacks
based upon the Company's library of over 3,500 characters as well as certain
licensed material.
The Toy Biz division designs, develops, markets and distributes both
innovative and traditional toys worldwide. The toy products fall into three
categories: toys based on the Company's characters, proprietary toys designed
and developed by the Company and toys based on properties licensed to the
Company by third parties.
The Corporate division monitors the three operating divisions,
manages external debt and equity holders, outlines business strategy and
generally conducts the corporate governance functions of the Company.
Set forth below is certain operating information for the divisions of the
Company.
Three months ended September 30, 1999
- -------------------------------------
<TABLE>
<CAPTION>
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $6,240 $10,885 $72,757 $ - $89,882
Gross Profit 6,039 5,269 36,223 - 47,531
Operating (Loss) Income (881) 1,552 5,562 (3,061) 3,172
EBITDA(1) 4,116 2,725 10,733 (3,061) 14,513
</TABLE>
9
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, 1998
- -------------------------------------
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ - $65,045 $ - $65,045
Gross Profit - - 26,300 - 26,300
Operating Loss - - (11,969) - (11,969)
EBITDA(1) - - (5,934) - (5,934)
Nine months ended September 30, 1999
- ------------------------------------
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
Net Sales $28,673 $32,043 $165,934 $ - $226,650
Gross Profit 28,219 14,680 77,919 - 120,818
Operating Income(Loss) 7,380 3,917 7,809 (10,911) 8,195
EBITDA(1) 22,371 7,436 20,580 (10,911) 39,476
Nine months ended September 30, 1998
- ------------------------------------
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
Net Sales $ - $ - $156,361 $ - $156,361
Gross Profit - - 68,603 - 68,603
Operating Loss - - (6,480) - (6,480)
EBITDA(1) - - 7,678 - 7,678
</TABLE>
(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.
8. CONTINGENCIES
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding and there can be no
assurances, the Company believes that its legal proceedings and claims
(including those described below), individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition, results of
operations or cash flows.
Spider-Man Litigation. The Company's MEG and Marvel Characters, Inc.
subsidiaries (collectively, the "Marvel Parties") have been parties to a
consolidated case, concerning rights to produce and/or distribute a live action
motion picture based on the Spider-Man character in the Superior Court of the
State of California for the County of Los Angeles (the "Superior Court"), to
which Metro-Goldwyn Mayer Studios Inc. and two of its affiliates ("MGM"),
Columbia Tristar Home Video and related entities ("Sony"), Viacom International
Inc. ("Viacom") and others were also parties. In February 1999, the Superior
Court granted summary judgement to the Marvel Parties and dismissed MGM's
claims. In March 1999, MGM, Sony and the Marvel Parties settled all remaining
claims among themselves. In April 1999 the Superior Court ruled, following the
completion of a trial on the claims asserted by Viacom, that Viacom
10
<PAGE>
had no rights in a motion picture based on the Spider-Man character. In July
1999, Viacom filed an appeal from the judgement entered against it in the
Superior Court.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the Central
District of California against New Line Cinema Corporation, Time Warner
Companies, Inc., the Company, MEG and Marvel Characters, Inc., and others. On
August 30, 1999 the court entered an order approving Wolfman's voluntary
dismissal without prejudice of the action against the Company, MEG and Marvel
Characters, Inc. The complaint alleges that the motion picture Blade, produced
and distributed by New Line pursuant to an agreement with MEG, in which MEG
agreed to indemnify New Line for claims arising from its use of the Blade and
Deacon Frost characters, infringes Wolfman's claimed copyrights and trademarks
as the author of the original stories featuring the Blade and Deacon Frost
characters (collectively, the "Work") and that Wolfman created the Work as an
independent contractor engaged by MEG. The relief sought by complaint includes a
declaration that the defendants have infringed Wolfman's copyrights,
compensatory and punitive damages, an injunction and various other forms of
equitable relief. The Company believes that each component of the Work was
created for MEG as a "work for hire" within the meaning of the copyright law and
believes that all of Wolfman's claims are without merit and intends to defend
the action vigorously if the action is allowed to proceed.
Prior to commencing his action in California, Wolfman had filed a
proof of claim in the bankruptcy cases of MEG and Marvel Characters, Inc.
asserting ownership rights to the Blade and Deacon Frost characters, among
others. On February 24, 1999, Wolfman and the Company entered into a stipulation
pursuant to which the United States District Court for the District of Delaware
will determine the issue of whether Wolfman or Marvel Characters, Inc. is the
rightful owner of Blade and Deacon Frost and a number of other characters. In
the context of this proceeding, the Company has sought a declaration that Marvel
Characters, Inc., not Wolfman, is the lawful owner of the rights claimed by
Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
arising out of MEG's bankruptcy and that have been submitted to the Company for
payment. While the amounts claimed are material to the Company's financial
position, the Company believes that the ultimate resolution of these matters
will not be material to the Company's financial condition, results of operations
or cash flows, although there can be no assurance.
9. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The domestic subsidiaries are wholly owned by the Company and have
fully and unconditionally guaranteed the Senior Notes. The foreign subsidiaries
of the Company are not guarantors of the Senior Notes. Separate financial
statements of each of the domestic subsidiaries are not presented because
management has determined that they would not be material to holders of the
Senior Notes. The supplemental consolidating condensed financial statements of
Marvel Enterprises, Inc., the issuer of the Senior Notes, and its domestic
subsidiaries that will guarantee the Senior Notes and the non-guarantor
subsidiaries are presented as follows: statements of operations for the three
and nine months ended September 30, 1999 and 1998, balance sheets as of
September 30, 1999 and December 31, 1998 and statements of cash flows for the
nine months ended September 30, 1999 and 1998.
11
<PAGE>
9. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Issuer
and Non-
Guarantors Guarantors Total
---------- ---------- -----
(in thousands)
For The Three Months Ended September 30, 1999
<S> <C> <C> <C>
Net sales....................................................... $76,934 $ 12,948 $89,882
Gross profit.................................................... 42,842 4,689 47,531
Operating income................................................ 277 2,895 3,172
Net (loss)income................................................ (7,246) 2,602 (4,644)
For The Three Months Ended September 30, 1998
Net sales....................................................... $54,134 $ 10,911 $65,045
Gross profit.................................................... 24,202 2,098 26,300
Operating loss.................................................. (8,408) (3,561) (11,969)
Net loss........................................................ (3,348) (3,875) (7,223)
For The Nine Months Ended September 30, 1999
Net sales....................................................... $198,736 $ 27,914 $226,650
Gross profit.................................................... 110,922 9,896 120,818
Operating income................................................ 2,318 5,877 8,195
Net (loss)income................................................ (21,817) 5,176 (16,641)
For The Nine Months Ended September 30, 1998
Net sales....................................................... $125,505 $ 30,856 $ 156,361
Gross profit.................................................... 55,845 12,758 68,603
Operating (loss)income.......................................... (10,959) 4,479 (6,480)
Net (loss)income................................................ (6,796) 2,755 (4,041)
</TABLE>
<TABLE>
<CAPTION>
Issuer
and Non- Inter-
Guarantors Guarantors Company Total
---------- ---------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
September 30, 1999
- ------------------
Current assets...................................... $185,267 $ 38,978 $(28,058) $196,187
Non-current assets.................................. 511,692 3,862 - 515,554
--------------- -------------- -------------- --------------
Total assets......................................... $696,959 $ 42,840 $(28,058) $711,741
=============== ============== ============== ==============
Current liabilities.................................. 110,634 11,687 (28,058) 94,263
Non-current liabilities.............................. 277,924 - - 277,924
8% Preferred Stock................................... 183,128 - - 183,128
Stockholders' equity................................. 125,273 31,153 - 156,426
--------------- -------------- -------------- --------------
$696,959 $ 42,840 $(28,058) $711,741
=============== ============== ============== ==============
December 31, 1998
- ------------------
Current assets....................................... $167,921 $ 29,571 $(24,908) $172,584
Non-current assets................................... 512,667 4,653 - 517,320
--------------- -------------- -------------- -------------
Total assets......................................... $680,588 $ 34,224 $(24,908) $689,904
=============== ============== ============== =============
Current liabilities................................... 325,471 5,413 (24,908) 305,976
Non-current liabilities............................... 27,924 - - 27,924
8% Preferred Stock.................................... 172,380 - - 172,380
Stockholders' equity.................................. 154,813 28,811 183,624
--------------- -------------- -------------- -------------
$680,588 $ 34,224 $(24,908) $689,904
=============== ============== ============== =============
</TABLE>
12
<PAGE>
9. SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
Issuer
and Non-
Guarantors Guarantors Total
---------- ---------- -----
(in thousands)
<S> <C> <C> <C>
Nine Months Ended September 30, 1999
Cash Flows From Operating Activities:
Net (loss) income.......................................................... $(21,817) $ 5,176 $(16,641)
============== ============= ===========
Net cash (used in) provided by operating activities............ (8,633) 1,041 (7,592)
Net cash provided by (used in) investing activities............ 3,934 (29) 3,905
Net cash provided by financing activities...................... 39,178 - 39,178
-------------- ------------- ------------
Net increase in cash............................................................ 34,479 1,012 35,491
Cash, at beginning of period.................................................... 42,282 1,409 43,691
-------------- ------------- ------------
Cash, at end of period.......................................................... $ 76,761 $ 2,421 $ 79,182
============== ============= ============
Nine Months Ended September 30, 1998
Cash Flows From Operating Activities:
Net (loss) income.......................................................... $(6,796) $ 2,755 $(4,041)
============== ============= ============
Net cash provided by operating activities...................... 9,458 1,759 11,217
Net cash used in investing activities.......................... (266,914) (97) (267,011)
Net cash provided by financing activities...................... 278,000 - 278,000
-------------- ------------- ------------
Net increase in cash............................................................ 20,544 1,662 22,206
Cash, at beginning of period.................................................... 6,962 634 7,596
-------------- ------------- ------------
Cash, at end of period.......................................................... $ 27,506 $ 2,296 $ 29,802
============== ============= ============
</TABLE>
13
<PAGE>
Item 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURTIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" could cause actual results to differ materially from those contained
in forward-looking statements made in this form 10-Q Quarterly Report and in
oral statements made by authorized officers of the Company. When used in this
Form 10-Q, the words "intend", "estimate", "believe", "expect", and similar
expressions are intended to identify forward-looking statements. In addition,
the following factors, among others, could cause the Company's financial
performance to differ materially from that expressed in any forward-looking
statements made by, or on behalf of, the Company: (i) the Company's potential
need for additional financing, (ii) the Company's potential inability to
integrate Toy Biz's operations with those of MEG, (iii) the Company's potential
inability to successfully implement its business strategy, (iv) 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, (v) the lack of
commercial success of properties owned by major entertainment companies that
have granted the Company toy licenses, (vi) the lack of consumer acceptance of
new product introductions, (vii) 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, (viii) changing consumer preferences, (ix) production delays
or shortfalls, (x) continued pressure by certain of the Company's major retail
customers to significantly reduce their toy inventory levels, (xi) the impact of
competition and changes to the competitive environment on the Company's products
and services, (xii) changes in technology (including uncertainties associated
with Year 2000 compliance), (xiii) changes in governmental regulation, and (xiv)
other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
General
The Company operates in the licensing, comic book publishing and toy
businesses. The Company owns the copyrights to over 3,500 fictional characters,
including Spider-Man, X-Men, Captain America, Fantastic Four and The Incredible
Hulk. The Company operates through the following four divisions:
The Marvel Licensing division licenses the Marvel characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media, consumer products and promotions.
The Marvel Publishing division publishes comic books and paperbacks
based upon the Company's library of over 3,500 characters as well as certain
licensed material.
The Toy Biz division designs, develops, markets and distributes both
innovative and traditional toys worldwide. The toy products fall into three
categories: toys based on the Company's characters, proprietary toys designed
and developed by the Company and toys based on properties licensed to the
Company by third parties.
The Corporate division monitors the three operating divisions,
manages external debt and equity holders, outlines business strategy and
generally conducts the corporate governance functions of the Company.
The Company acquired Fleer and Panini in connection with the
acquisition of MEG on October 1, 1998. The Company sold Fleer in February 1999.
The Company sold Panini in October 1999. The results of operations of Fleer and
Panini are not included in the Company's consolidated results of operations for
any period.
14
<PAGE>
The Condensed Consolidated Statements of Operations and Cash Flows
for the three months and nine months ended September 30, 1998 do not include the
Licensing and Publishing divisions which were acquired on October 1, 1998.
Results of Operations
Three months ended September 30, 1999 compared with the three months ended
September 30, 1998
The Company's net sales increased 38% to approximately $89.9 million
for the three months ended September 30, 1999 from approximately $65.0 million
in the corresponding 1998 period. The increase was due primarily to the
inclusion of approximately $6.2 million in sales from the Licensing division and
approximately $10.9 million in sales from the Publishing division in the 1999
period. The Licensing and Publishing divisions were acquired on October 1, 1998
and therefore were not included in results for the 1998 period. Toy Biz sales
increased by approximately $7.8 million from the 1998 period to the 1999 period
primarily due to sales of World Championship Wrestling ("WCW") action figures, a
product line that was introduced in 1999, and increased sales of large and small
dolls, partially offset by a decline in the sales of Marvel-related product.
Gross profit increased 81% to approximately $47.5 million in the
three months ended September 30, 1999 from approximately $26.3 million in the
corresponding 1998 period. The inclusion of the Licensing and Publishing
divisions in 1999 accounted for approximately $6.0 million and approximately
$5.3 million, respectively, of the increase while gross profit from the Toy Biz
division increased approximately $9.9 million. Gross profit as a percentage of
net sales increased to approximately 53% in the 1999 period from approximately
40% in the 1998 period. The Licensing and Publishing divisions produced gross
margins of approximately 97% and 48%, respectively. The gross profit margin for
the Toy Biz division increased to 50% in the 1999 period from 40% in the 1998
period. This is due primarily to a higher percentage of promotional products,
that generally have higher gross profit margins, sold during the 1999 period and
various one-time sales adjustments relating to the Company's acquisition of MEG
in the 1998 period.
Selling, general and administrative expenses increased 2% to
approximately $33.0 million or approximately 37% of net sales in the three
months ended September 30, 1999 from approximately $32.2 million or
approximately 50% of net sales in the three months ended September 30, 1998. The
1998 period included approximately $9.8 million of one-time expenses resulting
from the Company's restructuring in connection with the acquisition of MEG. The
Licensing, Publishing and Corporate divisions collectively accounted for
approximately $7.5 million in selling, general and administrative expense
increases. After eliminating the one-time expenses resulting from the Company's
restructuring in connection with the acquisition of MEG in 1998, the net $3.1
million increase in selling, general and administrative expenses for the Toy Biz
division is primarily related to increased advertising expenses due to increased
sales of promotional items in the 1999 period.
Depreciation and amortization expense decreased from approximately
$5.8 million to approximately $4.8 million due to approximately $1.0 million of
additional amortization expense relating to early write-offs of product
discontinued as a result of the acquisition of MEG in 1998.
Amortization of goodwill and other intangibles increased to
approximately $6.6 million in the quarter ended September 30, 1999 from
approximately $200,000 in the corresponding quarter of 1998 due to the goodwill
created in the MEG acquisition in October 1998 which is being amortized over 20
years.
Net interest expense of approximately $6.9 million was recorded in
the three months ended September 30, 1999 which consisted of approximately $7.9
million in interest and deferred financing costs attributable to the Senior
Notes, offset by approximately $1.0 million in interest and other income.
15
<PAGE>
Nine months ended September 30, 1999 compared with the nine months ended
September 30, 1998
The Company's net sales increased 45% to approximately $226.7 million
for the nine months ended September 30, 1999 from approximately $156.4 million
in the corresponding 1998 period. The increase was due primarily to the
inclusion of approximately $28.7 million in sales from the Licensing division
and approximately $32.0 million in sales from the Publishing division in the
1999 period. The Licensing and Publishing divisions were acquired on October 1,
1998 and therefore were not included in results for the 1998 period. Toy Biz
sales increased by approximately $9.6 million from the 1998 period to the 1999
period primarily due to sales of WCW action figures, a product line that was
introduced in 1999, offset by a decline in the sales of Marvel-related product
and shipment of product related to the Godzilla feature film in the 1998 period
that did not recur in the 1999 period.
Gross profit increased 76% to approximately $120.8 million in the
nine months ended September 30, 1999 from approximately $68.6 million in the
corresponding 1998 period. The inclusion of the Licensing and Publishing
divisions in 1999 accounted for approximately $28.2 million and approximately
$14.7 million, respectively, of the increase while gross profit from the Toy Biz
division increased approximately $9.3 million. Gross profit as a percentage of
net sales increased to approximately 53% in the 1999 period from approximately
44% in the 1998 period. The Licensing and Publishing divisions produced gross
margins of approximately 98% and 46%, respectively. The gross profit margin for
the Toy Biz division increased to 47% in the 1999 period from 44% in the 1998
period. This is due primarily to a higher percentage of promotional products,
that generally have higher gross profit margins, sold during the 1999 period and
various one-time sales adjustments relating to the Company's acquisition of MEG
in the 1998 period.
Selling, general and administrative expenses increased 34% to
approximately $81.3 million or approximately 36% of net sales in the nine months
ended September 30, 1999 from approximately $60.9 million or approximately 39%
of net sales in the nine months ended September 30, 1998. The 1998 period
included approximately $9.8 million of one-time expenses resulting from the
Company's restructuring in connection with the acquisition of MEG in 1998. The
Licensing, Publishing and Corporate divisions collectively accounted for
approximately $24.0 million in selling, general and administrative expense
increases. Included in this amount, $2.6 million was related to certain payments
made in connection with the separation of the Company's then Chief Executive
Officer. After eliminating the one-time expenses resulting from the Company's
restructuring in connection with the acquisition of MEG in 1998, the net $6.2
million increase in selling, general and administrative expenses for the Toy Biz
division is primarily related to increased advertising and royalty expenses due
to increased sales of promotional and third-party licensed products in the 1999
period.
Depreciation and amortization expense decreased from approximately
$13.6 million to approximately $11.9 million primarily due to approximately $1.0
million of additional amortization expense relating to early write-offs of
product discontinued as a result of the acquisition of MEG in 1998.
Amortization of goodwill and other intangibles increased to
approximately $19.4 million in the nine months ended September 30, 1999 from
approximately $600,000 in the corresponding period in 1998 due to the goodwill
created in the MEG acquisition in October 1998 which is being amortized over 20
years.
Net interest expense of approximately $21.3 million was recorded in
the nine months ended September 30, 1999 which consisted of approximately $18.8
million in interest and deferred financing costs attributable to the Senior
Notes, and approximately $5.4 million in interest and deferred financing costs
for the Bridge Facility, offset by approximately $2.9 million in interest and
other income.
In connection with the repayment of the Bridge Facility in 1999, the
Company recorded an extraordinary expense of approximately $1.5 million, net of
tax benefit, for the write-off of the Bridge Facility deferred financing costs.
16
<PAGE>
The Company's effective tax rate for the nine months ended September
30, 1999 was higher than the statutory rate due primarily to non-deductible
goodwill, other intangibles and state income taxes. The Company expects this to
continue. The Company has Net Operating Loss Carryforwards ("NOLs") of $66.8
million related to the acquisition of MEG. Benefits from the NOLs, if realized,
will be a reduction in goodwill in the period realized.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $7.6 million
in the first nine months of 1999, while net cash provided by operating
activities was approximately $11.2 million in the first nine months of 1998. The
increase in accounts receivable (both current and long-term), which resulted
from increased sales, account for a significant portion of the decrease in cash
provided by operating activities from the 1998 period to the 1999 period.
On February 11, 1999, the Company sold substantially all of the
assets of Fleer, for approximately $22.9 million, in cash, net of related fees
and closing adjustments. Proceeds from this transaction were partially used to
repay the Bridge Facility with the remainder used for working capital purposes.
On October 8, 1999, the Company completed the sale of Panini. The
Company received nominal consideration for its equity interest in Panini. In
connection with the sale of Panini, the Company made a payment to Panini's
secured lenders of $11.2 million and obtained a release from the $27.0 million
guarantee of Panini's debt in favor of such secured lenders. The Company's
results of operations for the periods presented do not include the results of
Panini and the Condensed Consolidated Financial Statements do not reflect this
cash payment or goodwill adjustment because it occurred in the fourth quarter of
1999.
To partially finance the acquisition of MEG, the Company obtained a
$200.0 million Bridge Facility from UBS AG on October 1, 1998. The Bridge
Facility bore interest at either the bank's base rate (defined as the higher of
the prime rate or the sum of 1/2 of 1% plus the Federal Funds Rate) plus 5.50%
or at the Eurodollar rate plus 6.50%.
On February 25, 1999, the Company completed a $250.0 million Senior
Notes offering in a private placement exempt from registration under the Act
pursuant to Rule 144A under the Act. Net proceeds of approximately $239.0
million were used to pay all outstanding balances under the Bridge Facility and
for working capital. The Senior Notes are due June 15, 2009 and bear interest at
12% per annum. The Senior Notes may be redeemed beginning June 15, 2004 for a
redemption price of 106% of the principal amount, plus accrued interest. The
redemption price decreases 2% each year after 2004 and will be 100% of the
principal amount, plus accrued interest, beginning on June 15, 2007. In
addition, 35% of the Senior Notes may, under certain circumstances, be redeemed
before June 15, 2002 at 112% of the principal amount, plus accrued interest.
Principal and interest on the Senior Notes are guaranteed on a senior basis
jointly and severally by each of the Company's domestic subsidiaries. On August
20, 1999, the Company completed an exchange offer under which it exchanged the
Senior Notes, which contained restrictions on transfer, for an equal principal
amount of registered, transferable notes whose terms are identical in all other
material respects to the terms of the Senior Notes.
On April 1, 1999, the Company and Citibank entered an agreement for a
$60.0 million Citibank Credit Facility. The Citibank Credit Facility bears
interest at either the bank's base rate (defined as the higher of the prime rate
or the sum of 1/2 of 1% plus the Federal Funds Rate) plus a margin ranging from
0.75% to 1.25% depending on the Company's financial performance or at the
Eurodollar rate plus a margin ranging from 2.25% to 2.75% depending on the
Company's financial performance. The Citibank Credit Facility requires the
Company to pay a commitment fee of 0.625% per annum on the average daily unused
portion of the facility unless there is at least $20.0 million outstanding
borrowings in which case the rate is 0.50% per annum for the amount outstanding
above $20.0 million. The Company has not borrowed under the Citibank Credit
Facility. The amount available under this facility is reduced by the amount of
letters of
17
<PAGE>
credit outstanding, which is $385,000 as of October 29, 1999. The Citibank
Credit Facility is secured by a lien on all of the Company's inventory and
receivables.
The Company believes that it has sufficient funds available from cash
and cash equivalents, operating activities and borrowings under the Citibank
Credit Facility to meet peak working capital needs and capital expenditure
requirements.
Year 2000
Through September 30, 1999, the Company incurred Year 2000 ("Y2K")
conversion costs of approximately $2.3 million, and the Company expects to incur
an additional $200,000 in 1999. The Company is utilizing both internal and
external resources to upgrade or replace its software for Y2K compliance. The
Company anticipates completing the Y2K project by November 15, 1999.
During MEG's bankruptcy, the Licensing and Publishing divisions
received only nominal Y2K conversion attention. The Company has placed all of
its divisions on an accelerated program and has enlisted full time external
project management resources to supplement its efforts.
A steering committee monitors the Y2K program weekly. The Y2K
program's primary goal is to remedy critical systems in three key areas: 1)
Enterprise software for basic accounting and order execution; 2) legacy and
infrastructure (i.e. remaining systems, personal computers and telephones); and
3) third party (customers, vendors) status and contingency planning. A quality
assurance program will be initiated in the fourth quarter.
The expected cost of the project and the expected date on which the
Company will complete the Y2K modifications are only estimates. The Company is
currently not aware of any material issues of Y2K non-compliance with its
customers and suppliers. The worst-case scenarios would be manual performance of
all accounting functions and the loss of relationships with major customers
because of the inability of the Company's computers to interface with those of
its customers. The Company has not yet developed a contingency plan to assess
the likelihood of, and to address, the worst-case scenarios. If the Y2K project
is not completed on a timely basis, or if the Company's customers or suppliers
fail to address all the Y2K issues, it could have a material adverse impact on
the Company's operations. The Company currently believes that the Y2K issue will
not pose significant operational problems for the Company's computer systems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
PART II. Other Information.
Item 1. Legal Proceedings
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding and there can be no
assurances, the Company believes that its legal proceedings and claims
(including those described below), individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition, results of
operations or cash flows.
Spider-Man Litigation. The Marvel Parties have been parties to a
consolidated case, concerning rights to produce and/or distribute a live action
motion picture based on the Spider-Man character in the Superior Court of the
State of California for the County of Los Angeles, to which MGM, Sony, Viacom
and others were also parties. In February 1999, the Superior Court granted
summary judgement to the
18
<PAGE>
Marvel Parties and dismissed MGM's claims. In March 1999, MGM, Sony and the
Marvel Parties settled all remaining claims among themselves. In April 1999 the
Superior Court ruled, following the completion of a trial on the claims asserted
by Viacom, that Viacom had no rights in the Spider-Man character. In July 1999,
Viacom filed an appeal from the judgement entered against it in the Superior
Court.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the Central
District of California against New Line Cinema Corporation, Time Warner
Companies, Inc., the Company, MEG and Marvel Characters, Inc., and others. On
August 30, 1999 the court entered an order approving Wolfman's voluntary
dismissal without prejudice of the action against the Company, MEG and Marvel
Characters, Inc. The complaint alleges that the motion picture Blade, produced
and distributed by New Line pursuant to an agreement with MEG, in which MEG
agreed to indemnify New Line for claims arising from its use of Blade and Deacon
Frost characters, infringes Wolfman's claimed copyrights and trademarks as the
author of the Work and that Wolfman created the Work as an independent
contractor engaged by MEG. The relief sought by complaint includes a declaration
that the defendants have infringed Wolfman's copyrights, compensatory and
punitive damages, an injunction and various other forms of equitable relief. The
Company believes that each component of the Work was created for MEG as a "work
for hire" within the meaning of the copyright law and believes that all of
Wolfman's claims are without merit and intends to defend the action vigorously
if the action is allowed to proceed.
Prior to commencing his action in California, Wolfman had filed a
proof of claim in the bankruptcy cases of MEG and Marvel Characters, Inc.
asserting ownership rights to the Blade and Deacon Frost characters, among
others. On February 24, 1999, Wolfman and the Company entered into a stipulation
pursuant to which the United States District Court for the District of Delaware
will determine the issue of whether Wolfman or Marvel Characters, Inc. is the
rightful owner of Blade and Deacon Frost and a number of other characters. In
the context of this proceeding, the Company has sought a declaration that Marvel
Characters, Inc., not Wolfman, is the lawful owner of the rights claimed by
Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
arising out of MEG's bankruptcy and that have been submitted to the Company for
payment. While the amounts claimed are material to the Company's financial
position, the Company believes that the ultimate resolution of these matters
will not be material to the Company's financial condition, results of operations
or cash flows, although there can be no assurance.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1999 Annual Meeting of Stockholders of the Company was held on
September 30, 1999. On August 27, 1999, the record date for determining
stockholders entitled to vote at the Annual Meeting, there were 33,532,222
shares of Common Stock and 17,952,257 shares of 8% Preferred Stock (each with a
voting power equivalent to 1.039 Common Stock), for a total possible vote
equivalent to 52,184,617 shares of Common Stock, eligible to vote at the Annual
Meeting. As proposed in the proxy solicitation issued pursuant to Regulation 14A
of the Securities Exchange Act of 1934, stockholders elected the following
persons to serve as directors until the earlier of the 2000 Annual Meeting or
the election and qualification of their respective successors: Morton E. Handel,
Avi Arad, Mark Dickstein, Shelly F. Greenhaus, James F. Halpin, Michael M.
Lynton, Lawrence Mittman, Isaac Perlmutter, Rod Perth, and Michael J. Petrick.
Stockholders also ratified the selection of Ernst & Young LLP as the Company's
independent accountants for the year ending December 31, 1999.
The results of the shares voted for the election of the directors was
as follows: there were 45,178,166 votes for the election of Mark Dickstein with
208,432 abstentions while all other directors received 45,256,396 votes for
their election with 130,202 abstentions. There were 45,357,649 shares voted for
the ratification of Ernst & Young LLP as the Company's independent accountants
for the year ending December 31, 1999 with 25,849 voted against and 3,100
abstentions.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Exhibit 12 Statement re: Computation of Ratios dated as of
September 30, 1999.
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K.
During the quarter ended September 30, 1999, the Registrant filed a
Current Report on Form 8-K, dated July 20, 1999 announcing the
appointment of Peter Cuneo as President and CEO of the Company,
replacing Eric Ellenbogen, who resigned from the Company.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
MARVEL ENTERPRISES, INC.
(Registrant)
Dated: November 4, 1999 By: /s/ Robert S. Hull
--------------------
Robert S. Hull
Executive Vice President and
Chief Financial Officer
21
Exhibit 12
Statement re: Computation of Ratios
MARVEL ENTERPRISES, INC.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS
NINE MONTHS ENDED SEPTEMBER 30, 1999
Fixed Charges and Preference Dividends:
Interest Expense - Gross 24,193
Interest on Rent Expense 661
-------------
Total Fixed Charges 24,854
Preference Stock Dividends 10,558
-------------
Total Fixed Charges and Preference Dividends 35,412
=============
Earnings:
Pretax (Loss) (13,114)
Fixed Charges 24,854
-------------
Total Earnings before Preference Dividend 11,740
Dividends
Preference Dividends 10,558
-------------
Total Earnings 22,298
=============
Ratio of Earnings to Fixed Charges -
=============
Ratio of Earnings to Combined Fixed
Charges and Preference Dividends -
=============
For the purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preference dividends, earnings were
calculated by adding pretax income (loss), interest expense, the portion of
rents representative of an interest factor and, in the latter ratio, preference
dividends. Fixed charges consist of interest expense and the portion of rents
representative of an interest factor. During the nine months ended September 30,
1999, (i) earnings were insufficient to cover fixed charges and the dollar
amount of the
Page 1
<PAGE>
coverage deficiency was $13.1 million and (ii) earnings were
insufficient to cover combined fixed charges and preference dividends and the
dollar amount of the coverage deficiency was $13.1 million.
Page 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Marvel Enterprises,
Inc. Condensed Consolidated Balance Sheets and
Statements of Income and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000933730
<NAME> MARVEL ENTERPRISES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 79,182
<SECURITIES> 0
<RECEIVABLES> 92,938
<ALLOWANCES> 26,245
<INVENTORY> 42,348
<CURRENT-ASSETS> 196,187
<PP&E> 29,289
<DEPRECIATION> 11,920
<TOTAL-ASSETS> 711,741
<CURRENT-LIABILITIES> 94,263
<BONDS> 250,000
0
183,128
<COMMON> 408
<OTHER-SE> 156,018
<TOTAL-LIABILITY-AND-EQUITY> 711,741
<SALES> 226,650
<TOTAL-REVENUES> 226,650
<CGS> 105,832
<TOTAL-COSTS> 105,832
<OTHER-EXPENSES> 112,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,193
<INCOME-PRETAX> (13,114)
<INCOME-TAX> 1,996
<INCOME-CONTINUING> (15,110)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,531)
<CHANGES> 0
<NET-INCOME> (16,641)
<EPS-BASIC> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
