MVL Marvel Entertainment

Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company celebrating the 70th anniversary of its founding in 1939, today reported operating results for its second quarter and six months ended June 30, 2009. Marvel also today raised the low end of its full year 2009 financial guidance for net sales, net income and diluted earnings per share as a result of stronger than anticipated operating performance in the first half of 2009.

For Q2 2009, Marvel reported net sales of $116.3 million and net income of $29.0 million, or $0.37 per diluted share, compared to net sales of $156.9 million and net income of $46.7 million, or $0.59 per diluted share, in Q2 2008. The year-over-year decrease in net sales principally reflects the anticipated decrease in Licensing Segment net sales which benefited in the year-ago period from the initial recognition of licensing revenues related to the Iron Man and The Incredible Hulk feature films and from licensing associated with the Spider-Man 3 feature film which debuted in May 2007.

     

Marvel Entertainment, Inc.

Segment Net Sales and Operating Income (Unaudited)

(in millions)

        Three Months

Ended June 30,

2009 2008

  Six Months Ended June 30,

2009 2008

Licensing:

 

Net Sales

  $ 51.8     $ 94.9     $ 132.6     $ 179.4       Operating Income     34.1       77.5       92.9       162.9  

Publishing:

 

Net Sales

    31.7       31.8       57.5       58.3       Operating Income     10.9       11.7       17.9       21.6  

Film Production:

 

Net Sales

    32.8       28.9       123.1       28.9       Operating Income     11.7       2.2       27.3       0.2  

All Other:

 

Net Sales

    –       1.3       –       2.8       Operating (Loss)     (4.2 )     (6.2 )     (12.0 )     (12.0 ) TOTAL NET SALES   $ 116.3     $ 156.9     $ 313.2     $ 269.4   TOTAL OPERATING INCOME   $ 52.5     $ 85.2     $ 126.1     $ 172.7          

Marvel's Chairman, Morton Handel, commented, “Marvel’s solid Q2 operating results reflect the strength of our core businesses supported by the growing global exposure of our corporate and character brands. We remain focused on extending demand for Marvel branded entertainment and licensed products, particularly for brands and international markets that have previously been underdeveloped. We pursue these initiatives while maintaining the strategic and financial discipline that has yielded high operating margins and strong cash flows.

“Principal photography for our Iron Man 2 feature film concluded on schedule last month, and the media and fan anticipation for this May 2010 release continues to build, as was demonstrated by tremendous media coverage and positive fan response around the recent Comic-Con in San Diego, attended by well over 120,000 fans. Iron Man 2 will be the first of four self-produced films to debut over the two-year period 2010-2012, in an ambitious creative project that will, for the first time, unite many of Marvel’s favorite Super Heroes in a story arc that builds to The Avengers in May 2012.

“Driving further brand exposure are the multiple Marvel character animated television series on air in the US and abroad. After the successful ’09 launches of Iron Man Armored Adventures and Wolverine and the X-Men, we are looking forward to the September launch of The Super Hero Squad on The Cartoon Network. This new series re-imagines existing Marvel characters for younger audiences. Also, our online exposure is ramping nicely with increasing levels of content and games which has led to a solid increase in our online traffic.”

Second Quarter Segment Review:

• Q2 2009 Licensing Segment net sales of $51.8 million were higher than anticipated primarily reflecting strength in collecting worldwide royalty minimum guarantees. Licensing Segment net sales declined versus Q2 2008 reflecting the recognition in the year-ago period of merchandise licensing revenue related to the Iron Man and The Incredible Hulk feature films, as well as a decrease in revenue from the Spider-Man JV. Licensing Segment operating income was $34.1 million in Q2 2009, reflecting an operating margin of 66%.

 

Marvel Entertainment, Inc.

Licensing Sales by Division (Unaudited)

(in millions)

  Three Months Ended   Six Months Ended     6/30/09   6/30/08   6/30/09   6/30/08 Domestic Consumer Products (1)   $ 20.9   $ 47.3   $ 70.3   $ 73.1 International Consumer Products     24.3     30.1     45.9     45.0 Spider-Man L.P. (Domestic and International)     2.8     13.0     7.9     42.7 Studio Licensing     3.8     4.5     8.5     18.6 Total Licensing Segment   $ 51.8   $ 94.9   $ 132.6   $ 179.4    

(1) Domestic Consumer Products includes substantially all of Marvel ’s global interactive licensing business.

• Q2 2009 Publishing Segment net sales were in line with Q2 2008 and reflect a $5.9 million or 23% sequential increase over Q1 2009. The sequential improvement principally reflects a gain in advertising and custom publishing sales as well as an increase in the number of comic and trade titles released. Operating income declined by 7% on a year-over-year basis to $10.9 million in Q2 2009, principally attributable to a lower level of high-margin advertising and custom publishing sales reflecting conditions in the broader advertising market. The Publishing Segment operating margin was 34% in Q2 2009 versus 37% in Q2 2008.
• Film Production Segment net sales in Q2 2009 primarily reflect initial revenues for the Iron Man domestic pay TV window as well as ongoing Iron Man DVD sales. Against these revenues, Marvel amortized capitalized film production costs of $18.9 million. Marvel had film production revenue of $28.9 million and operating income of $2.2 million in Q2 2008, primarily from the theatrical component of foreign presales of Iron Man and The Incredible Hulk.
• Under the category All Other, Marvel recorded operating losses (principally corporate overhead) of $4.2 million and $6.2 million in Q2 2009 and Q2 2008, respectively. All Other in Q2 2009 includes $2.4 in other income from a distribution of a 1998 bankruptcy-related settlement. In Q2 2008, All Other included $1.3 million in revenue and $1.3 million in operating income contribution from Marvel’s former in-house toy operations. Corporate overhead in Q2 2009 and Q2 2008 was $7.3 million and $7.5 million, respectively.

Balance Sheet and Cash Use Update:

As of June 30, 2009, Marvel had cash and cash equivalents of $81.0 million, restricted cash of $80.5 million and no outstanding borrowings under its $100 million line of credit with HSBC Bank. Marvel also had no outstanding film-facility borrowings at June 30, 2009 compared to $61.9 million at March 31, 2009, reflecting strong cash receipts associated with the Iron Man and The Incredible Hulk feature films. Production costs of the Iron Man 2 feature film incurred in Q2 2009 were financed through Marvel’s one-third funding of the film’s budget as well as from cash receipts from both Iron Man and The Incredible Hulk collected during the quarter. Marvel did not repurchase any shares of its common stock during Q2 2009 and has $111.3 million remaining under its share repurchase authorization.

  Marvel Studios Entertainment Pipeline

(scheduled release dates are subject to change)

Feature Films

   

Scheduled release date

Iron Man 2     May 7, 2010 Thor     May 20, 2011 The First Avenger: Captain America     July 22, 2011 The Avengers     May 4, 2012

Animated TV Series

   

Status

The Super Hero Squad     26, 30-minute episodes in production; scheduled for Q3 2009 release on Cartoon Network The Avengers: Earth’s Mightiest Heroes     26, 30-minute episodes in production; planned for Q3 2011 release; network TBD     Marvel Licensed Entertainment Pipeline

(scheduled release dates are subject to change)

Feature Films

   

Scheduled Release Date

X-Men Origins: Wolverine     Released May 1, 2009 Spider-Man 4     May 6, 2011

Animated TV Series

   

Status

Black Panther     8, 30-minute episodes in production for BET; timing TBD. Fantastic Four: World’s Greatest Heroes     26, 30-minute episodes airing internationally and on Marvel.com and Marvelkids.com Iron Man: Armored Adventures     26, 30-minute episodes airing in the U.S. on Nicktoons and on various networks internationally Spectacular Spider-Man     26, 30-minute episodes airing on Disney XD in the U.S. and on various networks internationally Wolverine and the X-Men     52, 30-minute episodes. Episodes 1-26 are airing on Nicktoons in the U.S. and are on air internationally. Episodes 27-52 are currently in pre-production

Licensed Broadway Musical

    Status Spider-Man, Turn off the Dark, Julie Taymor director; music & lyrics by U2’s Bono and The Edge     Previews commence February 25, 2010   Marvel Licensed Video Game Pipeline

(scheduled release dates are subject to change)

Game / Publisher     Status X-Men Origins: Wolverine / Activision     Released May 1, 2009 The Punisher: No Mercy / Zen     Released July 2, 2009 Marvel vs. Capcom 2 / Capcom     Released July 29, 2009 for X-Box console; Scheduled for August 13, 2009 release for PS3 console Marvel Ultimate Alliance 2 / Activision     Scheduled for September 15, 2009 release Marvel Super Hero Squad / THQ     Scheduled for October 20, 2009 release Iron Man 2 / Sega     Scheduled for April 2010 release  

2009 Financial Guidance:

Marvel today revised its 2009 financial guidance as reflected below as a result of a stronger than anticipated first half 2009 operating performance.

 

Marvel Entertainment – Financial Guidance

(in millions, except per-share amounts)   Updated

2009

Guidance

 

Previous 2009

Guidance (1)

  2008

Actual

Net sales   $465 - $485   $450 - $485   $676 Net income   $95 - $105   $86 - $105   $206 Diluted EPS   $1.25 - $1.35   $1.10 - $1.35   $2.61      

(1) As provided on May 5, 2009.

Primary Assumptions for 2009 Financial Guidance:

• The Licensing segment is expected to contribute net sales of approximately $205 million - $215 million in 2009 with an operating margin of approximately 66 - 70%.
• The Film Production segment is expected to contribute revenues of approximately $145 million - $150 million in 2009 and to generate an operating margin of approximately 15% - 21%.
• The Publishing segment is expected to contribute net sales of approximately $115 million - $120 million in 2009, with an operating margin of approximately 31% - 35%, reflecting an anticipated $5 million negative impact to operating income from digital media initiatives.
• Corporate overhead, net is expected to approximate $31 million in 2009.
• Marvel anticipates a 2009 effective tax rate of 38.0%.
• Marvel’s guidance is based on 78.4 million diluted shares for 2009 and does not reflect any future share repurchase activity.

Marvel cautions investors that variations in the timing of licenses and entertainment events, the timing of their revenue recognition, and their level of success result in variations and uncertainty in forecasting Marvel’s financial results. These factors could have a material impact on year-over-year annual and sequential quarterly results comparisons as well as on Marvel’s ability to achieve its financial guidance.

About Marvel Entertainment, Inc.

Marvel Entertainment, Inc. is one of the world's most prominent character-based entertainment companies, built on a proven library of over 5,000 characters featured in a variety of media over seventy years. Marvel utilizes its character franchises in licensing, entertainment (via Marvel Studios and Marvel Animation) and publishing (via Marvel Comics). Marvel's strategy is to leverage its franchises in a growing array of opportunities around the world, including feature films, consumer products, toys, video games, animated television, direct-to-DVD and online. For more information visit www.marvel.com.

Except for any historical information that they contain, the statements in this news release regarding Marvel’s plans are forward-looking statements that are subject to certain risks and uncertainties, including exposure to the current economic recession, exposure to tightening credit markets, financial difficulties of Marvel’s licensees, a decrease in the level of media exposure or popularity of Marvel’s characters, changing consumer preferences, delays and cancellations of movies and television productions based on Marvel characters, Marvel’s dependence on a single distributor to the direct comic-book market, and concentration of Marvel’s toy licensing with one licensee.

In addition, the following factors, among others, could cause the financial performance of Marvel’s film production operations to differ materially from that expressed in any forward-looking statements: (i) Marvel Studios’ potential inability to attract and retain creative talent, (ii) key film talent’s potentially becoming incapacitated or suffering reputational damage, (iii) the potential lack of popularity of Marvel’s films, (iv) the expense associated with producing films, (v) union activity or other events which could interrupt film production, including strikes by Hollywood writers, directors and actors, (vi) changes or disruptions in the way films are distributed, including a decline in the DVD market, (vii) piracy of films and related products, (viii) Marvel Studios’ dependence on a single distributor for each self-produced film, (ix) Marvel’s dependence on its film distributors for information related to the accounting of film-production activities, (x) Marvel’s potential inability to meet the conditions imposed by lenders for the funding of individual films, (xi) Marvel’s potential inability to obtain financing to make more than four films if an interim asset test related to the economic performance of the film slate is not satisfied, (xii) cash flows from our films potentially being insufficient to pay our film facility interest costs and (xiii) a possible default by the lending banks in our film facility.

These and other risks and uncertainties are described in Marvel’s filings with the Securities and Exchange Commission, including Marvel’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Marvel assumes no obligation to publicly update or revise any forward-looking statements.

 

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

    Three Months Ended Six Months Ended June 30,   June 30, 2009   2008 2009   2008 (in thousands, except per share amounts)     Net sales $ 116,266 $ 156,859 $ 313,230 $ 269,426   Costs and expenses: Cost of revenues 33,590 35,357 117,610 47,824 Selling, general and administrative 32,973 37,060 72,144 68,579 Depreciation and amortization   383   388   656   763 Total costs and expenses 66,946 72,805 190,410 117,166 Other income, net   3,203   1,104   3,324   20,430 Operating income 52,523 85,158 126,144 172,690 Interest expense 2,713 5,486 6,367 8,572 Interest income 158 963 326 1,942 Gain on repurchase of debt   –   2,333   –   2,333 Income before income tax expense 49,968 82,968 120,103 168,393 Income tax expense   20,348   30,974   44,839   64,184 Net income 29,620 51,994 75,264 104,209 Noncontrolling interest in consolidated Joint Venture   598   5,323   1,761   12,307 Net income attributable to Marvel Entertainment, Inc. $ 29,022 $ 46,671 $ 73,503 $ 91,902   Basic and diluted earnings per share: Net income attributable to Marvel Entertainment, Inc. $ 29,022 $ 46,671 $ 73,503 $ 91,902 Weighted average shares outstanding: Weighted average shares for basic earnings per share 77,969 78,006 78,127 77,714 Effect of dilutive stock options and restricted stock   346   639   359   722 Weighted average shares for diluted earnings per share   78,315   78,645   78,486   78,436 Earnings per share, attributable to Marvel Entertainment, Inc.: Basic $ 0.37 $ 0.60 $ 0.94 $ 1.18   Diluted $ 0.37 $ 0.59 $ 0.94 $ 1.17    

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

    June 30,   December 31, 2009 2008 (in thousands, except per share amounts) ASSETS Current assets: Cash and cash equivalents $ 81,039 $ 105,335 Restricted cash 38,220 12,272 Short-term investments – 32,975 Accounts receivable, net 29,471 144,487 Inventories, net 13,473 11,362 Income tax receivable 206 2,029 Deferred income taxes, net 25,497 34,072 Prepaid expenses and other current assets   9,164   5,135 Total current assets 197,070 347,667   Fixed assets, net 4,194 3,432 Film inventory, net 192,068 181,564 Goodwill 346,152 346,152 Accounts receivable, non–current portion 7,010 1,321 Income tax receivable, non–current portion 5,906 5,906 Deferred income taxes, net – non–current portion 17,046 13,032 Deferred financing costs 3,320 5,810 Restricted cash, non–current portion 42,274 31,375 Other assets   5,489   455 Total assets $ 820,529 $ 936,714   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 2,860 $ 2,025 Accrued royalties 89,912 76,580 Accrued expenses and other current liabilities 33,826 40,635 Deferred revenue 67,468 81,335 Film facility   –   204,800 Total current liabilities 194,066 405,375 Accrued royalties, non-current portion 806 10,499 Deferred revenue, non-current portion 93,696 48,939 Film facility, non-current portion – 8,201 Income tax payable 66,522 59,267 Other liabilities   10,680   8,612 Total liabilities   365,770   540,893   Commitments and contingencies   Marvel Entertainment, Inc. stockholders’ equity: Preferred stock, $.01 par value, 100,000,000 shares authorized, none issued – –

Common stock, $.01 par value, 250,000,000 shares authorized, 134,681,030 issued and 77,997,619

outstanding in 2009 and 134,397,258 issued and 78,408,082 outstanding in 2008

1,347 1,344 Additional paid-in capital 752,438 750,132 Retained earnings 628,628 555,125 Accumulated other comprehensive loss   (4,574 )   (4,617 ) Total Marvel Entertainment, Inc. stockholders’ equity before treasury stock 1,377,839 1,301,984 Treasury stock, at cost, 56,683,411 shares in 2009 and 55,989,176 shares in 2008   (921,700 )   (905,293 ) Total Marvel Entertainment, Inc. stockholders’ equity 456,139 396,691 Noncontrolling interest in consolidated Joint Venture   (1,380 )   (870 ) Total equity   454,759   395,821 Total liabilities and equity $ 820,529 $ 936,714    

MARVEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

  Six Months Ended June 30, 2009   2008 (in thousands) Cash flows from operating activities: Net income $ 75,264 $ 104,209 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 656 763 Amortization of film inventory 90,198 21,202 Provision for doubtful accounts 163 – Gain on repurchase of debt – (2,333 ) Amortization of deferred financing costs 2,490 2,490 Unrealized gain on interest rate cap and foreign currency forward contracts (604 ) (754 ) Non-cash charge for stock-based compensation 3,972 3,305 Excess tax benefit from stock-based compensation (458 ) (8,367 ) Loss on sale of equipment – 5 Impairment of long-term assets 99 – Deferred income taxes 3,589 (26,177 ) Changes in operating assets and liabilities: Accounts receivable 109,164 (14,560 ) Inventories (2,111 ) (106 ) Income tax receivable 823 9,350 Prepaid expenses and other current assets (4,029 ) (1,710 ) Film inventory (100,702 ) (47,027 ) Other assets (2,830 ) (872 ) Deferred revenue 30,890 6,800 Income taxes payable 9,553 51,154 Accounts payable, accrued expenses and other current liabilities   (2,743 )   (15,828 ) Net cash provided by operating activities   213,384   81,544   Cash flows from investing activities: Purchases of fixed assets (1,517 ) (279 ) Sales of short-term investments 32,983 66,055 Purchases of short-term investments (8 ) (45,039 ) Acquisition of other intangibles (1,600 ) – Change in restricted cash   (36,847 )   10,635 Net cash (used in) provided by investing activities   (6,989 )   31,372   Cash flows from financing activities: Borrowings from film facilities 1,000 71,100 Repayments of film facilities (214,001 ) (96,166 ) Distributions to the noncontrolling interest in consolidated Joint Venture (2,235 ) (13,016 ) Purchases of treasury stock (16,407 ) (9,945 ) Exercise of stock options 472 8,142 Excess tax benefit from stock-based compensation   458   8,367 Net cash used in financing activities   (230,713 )   (31,518 )   Effect of exchange rates on cash   22   257 Net (decrease) increase in cash and cash equivalents (24,296 ) 81,655 Cash and cash equivalents, at beginning of period   105,335   30,153 Cash and cash equivalents, at end of period $ 81,039 $ 111,808