Marvel Entertainment, Inc. (NYSE: MVL), a global character-based
entertainment and licensing company celebrating the 70th
anniversary of its founding, today reported operating results for
its third quarter and nine months ended September 30, 2009.
Reflecting a lower level of feature film activity and related
licensing compared to the year-ago period, Marvel reported Q3 2009
net sales of $105.7 million and net income of $20.4 million, or
$0.26 per diluted share, compared to net sales of $182.5 million
and net income of $50.6 million, or $0.64 per diluted share, in Q3
2008. The anticipated year-over-year decline in net sales and net
income principally reflects approximately $65 million in lower film
revenues in Q3 2009 compared to the prior year period, as well as
lower licensing segment net sales related to last year’s Iron Man
and The Incredible Hulk feature films as well as the Spider-Man
merchandising joint venture.
Marvel Entertainment,
Inc.
Segment Net Sales and Operating
Income (Unaudited)
(in millions)
Three Months
Ended September 30,
2009 2008
Nine Months
Ended September 30,
2009 2008
Licensing:
Net Sales
$ 48.9 $ 58.1 $ 181.5
$ 237.5
Operating Income
37.5 42.5
130.5 205.4
Publishing:
Net Sales
32.0 34.0
89.5 92.3
Operating Income
10.2 12.7
28.2 34.3
Film Production:
Net Sales
24.8 90.2
147.9 119.1
Operating (Loss) Income
(2.3 ) 40.4 25.0
40.6
All Other:
Net Sales
- 0.2 -
3.0
Operating (Loss)
(8.8 ) (7.4 ) (20.9 )
(19.4 )
TOTAL NET SALES $
105.7 $ 182.5
$ 418.9 $ 451.9
TOTAL OPERATING INCOME $ 36.6
$ 88.2 $ 162.8
$ 260.9
Marvel's Chairman, Morton Handel, commented, “Despite the
absence of any Marvel Studios feature film releases in 2009, Marvel
continued to deliver solid operating performance across all our
operating segments. Anticipation for the high profile Iron Man 2
feature film continues to build, and we are focusing our efforts on
the film’s May 2010 release and the related licensing
opportunities. At the same time, we are making solid progress on
the development and pre-production of our Thor, The First Avenger:
Captain America and The Avengers feature film projects.
“On August 31, 2009, The Walt Disney Company and Marvel agreed,
subject to Marvel shareholder approval and other customary closing
conditions, that Disney will acquire Marvel in a stock and cash
transaction. Disney is the ideal home to nurture and further
develop the distinctive Marvel brands because of its ability to
extend the breadth, diversity and global reach of Marvel-branded
entertainment and consumer products. We continue to expect this
transaction will close by calendar year end.”
Third Quarter Segment Review:
- As anticipated, Q3 2009
Licensing Segment net sales declined versus the year ago
period, primarily due to the recognition in Q3 2008 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
merchandising joint venture. Q3 2009 licensing segment net sales
reflect a total contribution of $6.3 million from Hasbro, ($3.8
million within domestic consumer products and $2.5 million within
international consumer products) compared to a total contribution
from Hasbro of $12.0 million in the year ago period ($7.2 million
in domestic consumer products and $4.8 million in international
consumer products). Licensing Segment operating income also
declined in Q3 2009 to $37.5 million (an operating margin of 77%)
principally reflecting the lower sales level.
Marvel Entertainment,
Inc.
Licensing Sales by Division
(Unaudited)
(in millions)
Three Months Ended Nine Months Ended
9/30/09
9/30/08
9/30/09
9/30/08
Domestic Consumer Products (1) $ 25.6 $ 24.8 $
95.9 $ 97.8 International Consumer Products
15.8 22.0 61.8 67.0
Spider-Man L.P. (Domestic and International) 2.4
8.1 10.3 50.9 Studio
Licensing 5.1 3.2 13.5
21.8
Total Licensing Segment $
48.9 $ 58.1 $
181.5 $ 237.5
(1) Domestic Consumer Products includes substantially all of
Marvel ’s global interactive licensing business.
- Q3 2009 Publishing
Segment net sales declined 6%, or $2 million, compared to Q3
2008 and were in line with Q2 2009 net sales. The year-over-year
decline principally reflects $3.2 million in lower custom
publishing and advertising revenue compared to the prior year
period, partially offset by a year-over-year increase of $1.6
million in revenue from the book market. Operating income declined
by $2.5 million, or 19.7%, on a year-over-year basis, to $10.2
million and operating margin decreased to 32% in Q3 2009 versus 37%
in Q3 2008, principally due to an increase in talent costs and the
decrease in custom publishing which carries a higher margin.
- Film Production Segment
net sales declined to $24.8 million in Q3 2009 from $90.2 million
in Q3 2008. Net sales in Q3 2009 primarily reflect the recognition
of revenues associated with the international pay TV window for
Iron Man and the domestic pay TV window for The Incredible Hulk as
well as contributions from DVD sales for both Iron Man and The
Incredible Hulk. Against these revenues Marvel amortized
capitalized film production costs of $20.5 million. Year-ago Q3
film production segment results reflected theatrical box office
revenues from Iron Man and The Incredible Hulk and the opening of
the home video window in certain international pre-sold territories
for Iron Man.
- In the All Other
category, Marvel recorded Q3 2009 and Q3 2008 operating losses of
$8.8 million and $7.4 million, respectively, reflecting respective
corporate overhead expense of $9.5 million and $7.6 million. Q3
2009 corporate overhead includes a provision of $2.9 million for
transaction costs (principally legal fees) associated with Disney’s
proposed acquisition of Marvel.
Balance Sheet and Cash Use Update:
As of September 30, 2009, Marvel had cash and cash equivalents
of $109.6 million, restricted cash of $79.0 million and no
outstanding borrowings under its $100 million line of credit.
Marvel’s outstanding film-facility borrowings increased to $21.5
million at September 30, 2009 compared to no outstanding film
borrowings at June 30, 2009. The quarterly sequential increase in
film-facility borrowings reflects ongoing production funding for
the Iron Man 2 feature film.
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 52, 30-minute episodes airing on
Cartoon Network in the U.S. and launching on International
broadcast channels in Q4 2009 The Avengers: Earth’s Mightiest
Heroes 52, 30-minute episodes in production; timing and network TBD
Marvel Licensed Entertainment Pipeline
(scheduled release dates are
subject to change)
Feature Films Scheduled Release Date Spider-Man 4 May
6, 2011
Animated TV Series Status Black Panther 6,
30-minute episodes in production for BET; timing TBD Fantastic
Four: World’s Greatest Heroes 26, 30-minute episodes airing on
Nicktoons in the U.S., various networks internationally and on
Marvel.com and Marvelkids.com Iron Man: Armored Adventures 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 development 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 development Marvel Anime: Iron Man
12, 30-minute episodes in production. Scheduled to launch on Animax
in Japan in Q2 2010. Scheduled to launch in the U.S. in 2011 Marvel
Anime: Wolverine 12, 30-minute episodes in production. Scheduled to
launch on Animax in Japan in Q3 2010. Scheduled to launch in the
U.S. in 2011
Licensed Broadway Musical Status
Spider-Man, Turn off the Dark, Julie Taymor director; music &
lyrics by U2’s Bono and The Edge Opening Night TBD
Animated
Direct-to-DVD Projects Status Planet Hulk Production
complete. Scheduled for February 2010 release Thor: Tales of Asgard
Production complete. Release date TBD
Marvel Licensed Video Game
Pipeline
(scheduled release dates are
subject to change)
Game / Publisher Status The Punisher: No Mercy / Zen
Released July 2, 2009 Marvel vs. Capcom 2 / Capcom Released July
29, 2009 for X-Box console and August 13, 2009 for PS3 console
Marvel Ultimate Alliance 2 / Activision Released September 15, 2009
Marvel Super Hero Squad / THQ Released October 20, 2009 Iron Man 2
/ Sega Scheduled for April 2010 release Thor / Sega Scheduled for
May 2011 release Captain America / Sega Scheduled for July 2011
release
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, including statements relating to (i)
the ability to further develop the Marvel brand as a result of the
proposed merger with The Walt Disney Company, (ii) the closing of
the Disney merger and the expected timing of that closing and (iii)
Marvel’s future movie, television, theatrical and game releases.
These forward-looking statements are subject to certain risks and
uncertainties, including those related to Marvel’s 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
Studios’ potential inability to attract and retain creative talent,
key film talent’s potentially becoming incapacitated or suffering
reputational damage, the potential lack of popularity of Marvel’s
films, union activity or other events which could interrupt film
production, including strikes by Hollywood writers, directors and
actors, piracy of films and related products, Marvel Studios’
dependence on a single distributor for each self-produced film, a
possible default by the lending banks in our film facility and the
risks relating to the proposed merger with The Walt Disney Company
as outlined under the heading “Risk Factors” in Amendment No. 1 to
the Form S-4 filed by The Walt Disney Company on October 27, 2009
(the “Disney S-4”).
These and other risks and uncertainties are described under the
headings “Risk Factors” and Management’s Discussion and Analysis of
Financial Condition and Results of Operations” 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. As noted above, certain risks relating
the Marvel’s proposed merger with Disney are described in the
Disney S-4. Marvel assumes no obligation to publicly update or
revise any forward-looking statements.
Important Merger Information and Additional
Information:
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. In connection with the proposed transaction,
Disney filed a Registration Statement on Form S-4 with the SEC on
September 22, 2009, as amended on October 27, 2009, that includes a
preliminary proxy statement of Marvel that also constitutes a
preliminary prospectus of Disney. These materials are not yet final
and will be further amended. Marvel will mail the proxy
statement/prospectus to its stockholders once it is final.
Investors are urged to read the definitive proxy
statement/prospectus regarding the proposed transaction when it
becomes available, because it will contain important
information. You may obtain copies of all documents filed with
the SEC regarding this transaction, including the definitive proxy
statement/prospectus when it becomes available, free of charge at
the SEC’s website, www.sec.gov, or by directing a request when such
a filing is made to The Walt Disney Company, 500 South Buena Vista
Street, Burbank, CA 91521-9722, Attention: Shareholder Services or
by directing a request when such a filing is made to Marvel’s proxy
solicitor, MacKenzie Partners, Inc., 105 Madison Avenue, New York,
New York 10016 or by calling Mackenzie Partners, Inc. at (800)
322-2885 (toll free) or (212) 929-5500 (call collect).
Disney, Marvel, their respective directors and certain of their
executive officers may be considered participants in the
solicitation of proxies in connection with the proposed
transaction. Information about the directors and executive
officers of Marvel is set forth in the preliminary proxy
statement/prospectus contained in the Registration Statement on
Form S-4 (Amendment No. 1) filed by Disney on October 27, 2009.
Information about the directors and executive officers of Disney
is set forth in its definitive proxy statement, which was filed
with the SEC on January 16, 2009.
MARVEL ENTERTAINMENT,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2009
2008
2009
2008
(in thousands, except per share amounts) Net
sales $ 105,663 $ 182,499 $ 418,893 $ 451,925 Costs and
expenses: Cost of revenues (excluding depreciation expense) 35,844
60,351 153,454 108,175 Selling, general and administrative 33,633
35,596 105,777 104,175 Depreciation and amortization 401
401 1,057 1,164 Total costs and expenses
69,878 96,348 260,288 213,514 Other) income 855 2,051
4,179 22,481 Operating income 36,640 88,202 162,784
260,892 Interest expense 2,736 5,656 9,103 14,228 Interest income
155 870 481 2,812 (Loss) gain on repurchase of debt –
(417 ) – 1,916 Income before income tax expense
34,059 82,999 154,162 251,392 Income tax expense 13,139
30,239 57,978 94,423 Net income 20,920 52,760
96,184 156,969 Noncontrolling interest in consolidated Joint
Venture 504 2,134 2,265 14,441 Net
income attributable to Marvel Entertainment, Inc. $ 20,416 $ 50,626
$ 93,919 $ 142,528 Basic and diluted earnings per share: Net
income attributable to Marvel Entertainment, Inc. $ 20,416 $ 50,626
$ 93,919 $ 142,528 Weighted average shares outstanding: Weighted
average shares for basic earnings per share 78,018 78,403 78,090
77,946 Effect of dilutive stock options and restricted stock
619 514 446 652 Weighted average shares for
diluted earnings per share 78,637 78,917
78,536 78,598 Earnings per share, attributable to Marvel
Entertainment, Inc.: Basic $ 0.26 $ 0.65 $ 1.20 $ 1.83
Diluted $ 0.26 $ 0.64 $ 1.20 $ 1.81
MARVEL ENTERTAINMENT,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited)
September 30, December 31, 2009
2008 (in thousands, except share data) ASSETS
Current assets: Cash and cash equivalents $ 109,604 $ 105,335
Restricted cash 37,266 12,272 Short-term investments – 32,975
Accounts receivable, net 28,853 144,487 Inventories, net 12,356
11,362 Income tax receivable – 2,029 Deferred income taxes, net
27,959 34,072 Prepaid expenses and other current assets
8,442 5,135 Total current assets 224,480 347,667
Fixed assets, net 4,523 3,432 Film inventory, net 217,416 181,564
Goodwill 346,152 346,152 Accounts receivable, non–current portion
5,157 1,321 Income tax receivable, non–current portion 6,264 5,906
Deferred income taxes, net – non–current portion 22,458 13,032
Deferred financing costs, net 2,075 5,810 Restricted cash,
non–current portion 41,742 31,375 Other assets 5,801
455 Total assets $ 876,068 $ 936,714
LIABILITIES AND
EQUITY Current liabilities: Accounts payable $ 1,609 $ 2,025
Accrued royalties 84,355 76,580 Accrued expenses and other current
liabilities 40,183 40,635 Income tax payable 4,926 – Deferred
revenue 73,159 81,335 Film facility – 204,800 Total
current liabilities 204,232 405,375 Accrued royalties, non-current
portion 556 10,499 Deferred revenue, non-current portion 87,438
48,939 Film facility, non-current portion 21,537 8,201 Income tax
payable, non-current portion 71,597 59,267 Other liabilities
13,811 8,612 Total liabilities 399,171 540,893
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, 134,704,780 issued and
78,021,369 outstanding in 2009 and 134,397,258 issued and
78,408,082 outstanding in 2008 1,347 1,344 Additional paid-in
capital 754,621 750,132 Retained earnings 649,044 555,125
Accumulated other comprehensive loss (4,457 ) (4,617
) Total Marvel Entertainment, Inc. stockholders’ equity before
treasury stock 1,400,555 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 478,855 396,691 Noncontrolling interest in
consolidated Joint Venture (1,958 ) (870 ) Total
equity 476,897 395,821 Total liabilities and equity $
876,068 $ 936,714
MARVEL ENTERTAINMENT,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, 2009
2008 (in thousands) Cash flows from operating
activities: Net income $ 96,184 $ 156,969 Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation and amortization 1,057 1,164 Amortization of film
inventory 110,422 65,599 Provision for doubtful accounts 218 – Gain
on repurchase of debt – (1,916 ) Amortization of deferred financing
costs 3,735 3,736 Unrealized gain on interest rate cap and foreign
currency forward contracts (635 ) (253 ) Non-cash charge for
stock-based compensation 6,051 4,743 Excess tax benefit from
stock-based compensation (551 ) (9,013 ) Impairment of long-term
assets 3,906 1,663 Deferred income taxes (3,325 ) (16,592 ) Changes
in operating assets and liabilities: Accounts receivable 111,580
(4,915 ) Inventories (994 ) (852 ) Prepaid expenses and other
current assets (3,307 ) (802 ) Film inventory (150,081 ) (48,220 )
Other assets (3,111 ) (3,346 ) Deferred revenue 30,323 (5,085 )
Income taxes payable 19,303 58,847 Accounts payable, accrued
expenses and other current liabilities (154 ) (14,954
) Net cash provided by operating activities 220,621
186,773 Cash flows from investing activities: Purchases of
fixed assets (2,247 ) (441 ) 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 (35,361 ) 1,270 Net cash (used in) provided by
investing activities (6,233 ) 21,845 Cash
flows from financing activities: Borrowings from film facilities
33,037 75,600 Repayments of film facilities (224,501 ) (180,509 )
Distributions to the noncontrolling interest in consolidated Joint
Venture (3.309 ) (15,135 ) Purchases of treasury stock (16,407 )
(9,945 ) Exercise of stock options 483 8,285 Excess tax benefit
from stock-based compensation 551 9,013 Net cash used
in financing activities (210,146 ) (112,691 )
Effect of exchange rates on cash 27 (275 ) Net
increase in cash and cash equivalents 4,269 95,652 Cash and cash
equivalents, at beginning of period 105,335 30,153
Cash and cash equivalents, at end of period $ 109,604 $ 125,805
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