News
Marvel Reports Q4 EPS of $0.35 and 2007 EPS of $1.70
NEW YORK-(Business Wire)-February 19, 2008 - Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for its fourth quarter and full year ended December 31, 2007. -0- *T Marvel Entertainment, Inc. Segment Net Sales and Operating Income (Unaudited) (in millions) ——————————————————————————————————— Three Months Twelve Months Ended December 31, Ended December 31, 2007 2006 2007 2006 ——————————————————————————————————— Licensing: Net Sales $ 58.5 $ 25.5 $ 272.7 $ 127.2 ——————————————————————————————————— Operating Income 33.1 15.2 196.1 77.6 ——————————————————————————————————— Publishing: Net Sales 30.3 28.6 125.7 108.5 ——————————————————————————————————— Operating Income 12.3 11.6 53.5 44.1 ——————————————————————————————————— Toys: Net Sales 20.5 31.1 87.4 116.1 ——————————————————————————————————— Operating Income 15.0 6.5 54.7 21.1 ——————————————————————————————————— Film Production: Operating Loss (3.1) (2.2) (7.5) (7.5) ——————————————————————————————————— Corporate Overhead: (5.7) (4.7) (22.4) (22.7) ——————————————————————————————————— TOTAL NET SALES $ 109.3 $ 85.2 $ 485.8 $ 351.8 ——————————————————————————————————— TOTAL OPERATING INCOME $ 51.6 $ 26.4 $ 274.4 $ 112.6 ——————————————————————————————————— *T
Marvel reported that net income for Q4 2007 rose to $27.6 million, or $0.35 per diluted share, compared to net income of $11.7 million, or $0.14 per diluted share, in Q4 2006. The net income and EPS increases were largely attributable to the strength of the Company's worldwide licensing operations and the benefit of higher operating margins in toys. For the full year 2007, Marvel reported net income of $139.8 million, or $1.70 per diluted share, compared to net income of $58.7 million, or $0.67 per diluted share, in fiscal 2006.
Marvel's Chairman, Morton Handel, commented, "Marvel's Q4 and full year 2007 operating results reflected strong global demand for consumer products and entertainment based on our characters. We look forward to building on our success with the launch of our self-produced feature film slate and the debut of our first two feature films - Iron Man and The Incredible Hulk - this summer. Consumer excitement surrounding these projects is already significant and growing. Our approach to feature film production is an important new business opportunity for our company. The film slate will provide global exposure for our characters and the Marvel brand and drive growth across our businesses."
Fourth Quarter Segment Review:
— Licensing Segment net sales increased approximately 129% in Q4 2007 to $58.5 million compared to Q4 2006, primarily due to continued strength from Marvel's Spider-Man merchandising joint venture (JV) with Sony as well as from royalty receipts related to the box office and home video/DVD performance of the Spider-Man 3 theatrical release. Operating margins in the Licensing segment were 57% in Q4 2007, slightly below operating margins of 60% in Q4 2006. Licensing segment operating income in Q4 2007 reflected a charge of $11.5 million associated with talent participations under the JV merchandising program related to Q4 2007 and prior periods. -0- *T Marvel Entertainment, Inc. Licensing Sales by Division (Unaudited) (in millions) ——————————————————————————————————— Three Months Ended Twelve Months Ended 12/31/07 12/31/06 12/31/07 12/31/06 ————————————————=========-========-=========-========= Domestic Consumer Products $ 13.5 $ 12.0 $ 71.8 $ 65.1 ——————————————————————————————————— International Consumer Products 8.9 10.2 41.8 42.4 ——————————————————————————————————— Spider-Man L.P. (Domestic and International) 22.7 0.6 122.0 4.1 ——————————————————————————————————— Studio Licensing 13.4 2.7 37.1 15.6 ——————————————————————————————————— Total Licensing Segment $ 58.5 $ 25.5 $ 272.7 $ 127.2 ——————————————————————————————————— *T
— Marvel's Publishing Segment net sales increased $1.7 million or 6% to $30.3 million in Q4 2007 principally due to continued strength in the Direct and Mass Market channels and the benefit of special event publishing such as World War Hulk and Stephen King's Dark Tower series. Operating income in the publishing segment also rose 6% on a year-over-year basis to $12.3 million in Q4 2007 with a comparable operating margin of approximately 41%.
— Marvel's Toy Segment net sales decreased to $20.5 million in Q4 2007 compared to $31.1 million in Q4 2006. The decrease was due to the transition from toys produced and sold by Marvel in 2006 to toys licensed to and produced and sold by Hasbro, Marvel's master toy licensee, in 2007. Margins improved sharply in the Toy Segment in Q4 2007 to 73% from 21%, reflecting the significantly greater proportion of higher-margin license income recorded in 2007 as a result of that transition. Q4 2006 revenues were largely comprised of wholesale sales, subject to a corresponding cost-of-revenues expense. Toy Segment operating income more than doubled in Q4 2007 compared to Q4 2006, reflecting the benefit of higher margin license income from sales of toys related to the Spider-Man 3 feature film.
— Marvel's Film Production segment operating losses increased to $3.1 million for Q4 2007, compared to $2.2 million in Q4 2006, reflecting the expanded staffing of our studio operation. Film Production Segment operating costs consist primarily of employee compensation and the expenses associated with a portion of the Marvel Studios office in California.
Balance Sheet And Share Repurchase Update:
As of December 31, 2007, Marvel had cash and investments of $72.0 million (including $20.8 million in restricted cash) with no outstanding borrowings under its $100 million line of credit with HSBC Bank. Marvel did not purchase any of its common stock during the fourth quarter of 2007. Subsequent to December 31, 2007, Marvel purchased approximately 414,000 shares of its common stock, at an average price of $24.01. The Company also announced that its Board of Directors has increased its share repurchase authorization by $100 million, adding to the $28.2 million remaining under its May 2007 share repurchase authorization. When this new authorization has been fully utilized, Marvel will have invested $1 billion in the repurchase of its common stock since the summer of 2004. Marvel's repurchase program now extends through March 1, 2010, and the Company's CEO, Vice Chairman and largest stockholder, Isaac Perlmutter, has agreed to not sell any of his Marvel shares while the repurchase program is in effect. -0- *T Marvel Studios Entertainment Pipeline (Development and release dates for licensed properties are controlled by studio partners) ——————————————————————————————————— Feature Film Projects Being Developed by Marvel - partial list ——————————————————————————————————— Film/Character Studio Status ——————————————————————————————————— Iron Man Marvel Scheduled for May 2, 2008 release ——————————————————————————————————— The Incredible Hulk Marvel Scheduled for June 13, 2008 release ——————————————————————————————————— Ant-Man Marvel Writer/director engaged ——————————————————————————————————— Captain America Marvel Writer engaged ——————————————————————————————————— Thor Marvel Writer engaged ——————————————————————————————————— The Avengers Marvel Writer engaged ——————————————————————————————————— Licensed Marvel Character Feature Film Line-Up ——————————————————————————————————— Film/Character Studio/Distributor Status ——————————————————————————————————— Punisher: War Zone Lionsgate Completed principal photography; scheduled for September 12, 2008 release (1) ——————————————————————————————————— X-Men Origins: Wolverine Fox Director engaged; scheduled for May 1, 2009 release ——————————————————————————————————— Marvel Character Animated TV Projects ——————————————————————————————————— Character Studio Status ——————————————————————————————————— Fantastic Four: World's Moonscoop SAS 26, 30-minute Greatest Heroes (France) episodes airing internationally. ——————————————————————————————————— Spectacular Spider-Man Sony In development; US distribution agreement with Kids' WB; scheduled for Spring 2008 release. ——————————————————————————————————— Wolverine and the X-Men First Serve Toonz 26, 30-minute (India) episodes in development; scheduled for Spring 2009 release. (1) ——————————————————————————————————— Iron Man: The Animated Method Films (France) 26, 30-minute Series episodes in development; scheduled for Spring 2008 release. (1) ——————————————————————————————————— Hulk: The Animated Series TBD In development; scheduled for Spring 2009 release. (1) ——————————————————————————————————— Super Hero Squad TBD In development; scheduled for Spring 2009 release. (1) ——————————————————————————————————— Marvel Character Animated Direct-to-DVD Projects ——————————————————————————————————— Title Partner Status ——————————————————————————————————— Next Avengers: Heroes of Lionsgate Scheduled for August Tomorrow 2008 release. (1) ——————————————————————————————————— Hulk Vs. Lionsgate Scheduled for January 2009 release. (1) ——————————————————————————————————— Thor: Son of Asgard Lionsgate Scheduled for September 2009 release. (1) ——————————————————————————————————— Planet Hulk Lionsgate Scheduled for February 2010 release. (1) ——————————————————————————————————— Marvel Character Live Stage Projects ——————————————————————————————————— Project Producers Status ——————————————————————————————————— Spider-Man, the Musical Hello In Entertainment/David development/opening Garfinkle, Martin date to be McCallum, Marvel determined; Julie Entertainment, SONY Taymor director; Pictures music & lyrics by Entertainment U2's Bono and The Edge ——————————————————————————————————— Marvel 2007 - 2008 Video Game Releases (Release dates controlled by Publishing partner) ——————————————————————————————————— Publisher Title Status ——————————————————————————————————— Sega Iron Man Scheduled for release Friday, May 2, 2008. ——————————————————————————————————— Sega The Incredible Hulk Scheduled for release Tuesday, June 3, 2008. ——————————————————————————————————— (1) Represents a change from the previously supplied schedule *T
Financial Guidance:
As announced last November, Marvel's 2008 financial guidance does not include revenues or expenses related to the box office, home video/DVD, TV or media sales performance of its self-produced Iron Man and The Incredible Hulk films. Marvel's 2008 financial guidance does reflect the overhead costs related to its film production business, and the interest and fees related to the origination of Marvel's $525 million film slate facility, as well as the anticipated results of the Company's licensing, publishing and toy operations (including Iron Man and Hulk movie toys and merchandising).
During the first quarter of 2008, Marvel has received licensee settlement payments of approximately $20 million. Previous 2008 guidance had included anticipated revenues from these licensees, which partially offsets the effect of these settlements on guidance. For that reason, and because of uncertainty caused by deteriorating macroeconomic conditions since initiating 2008 guidance, Marvel has elected to maintain its 2008 financial guidance at this time. -0- *T Marvel Entertainment, Inc. Financial Guidance ——————————————————————————————————— 2008 2007 (in millions, except per-share amounts) Guidance (1) (2) Actual ——————————————————————————————————— Net sales $360 - $400 $486 ——————————————————————————————————— Net income $100 - $118 $140 ——————————————————————————————————— Diluted EPS $1.30 - $1.50 $1.70 ——————————————————————————————————— *T -0- *T (1) Marvel's financial guidance for 2008 does not reflect revenues or expenses related to the box office, home video/DVD, TV or media sales performance from the Company's self-produced films, Iron Man and The Incredible Hulk, slated for release mid-2008. (2) Unchanged from guidance provided on November 5, 2007. *T
Primary Assumptions/Drivers for Full Year 2008 Financial Guidance:
— Marvel's Licensing segment is expected to contribute net sales of approximately $190M - $215M in 2008 and to generate an operating margin of approximately 65% - 68%. Marvel expects full year-2008 Licensing segment net sales will have the following approximate mix: -0- *T — 45% from Domestic Consumer Products — 30% from International Consumer Products — 15% from Spider-Man L.P. — 10% from Marvel Studios (excludes revenues related to Marvel's self-produced feature films) *T
— Marvel's Publishing segment is expected to contribute net sales of approximately $130M - 135M in 2008 and to generate an operating margin of approximately 41% - 43%.
— Marvel's Toy segment is expected to contribute net sales of approximately $40M - 50M in 2008 and to generate an operating margin of approximately 80% - 85%.
— Marvel anticipates an effective tax rate of 39% in 2008.
— Marvel's guidance is based on 78.5 million diluted shares for 2008 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 the Company'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.
With a library of over 5,000 high-profile characters built over more than sixty years of comic book publishing, Marvel Entertainment, Inc. is one of the world's most prominent character-based entertainment companies. Marvel utilizes its character franchises in licensing, entertainment (via Marvel Studios), publishing (via Marvel Comics) and toys, with emphasis on feature films, home DVD, consumer products, video games, action figures and role-playing toys, television and promotions. Marvel's strategy is to leverage its franchises in a growing array of opportunities around the world. 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 a decrease in the level of media exposure or popularity of Marvel's characters, financial difficulties of Marvel's licensees, changing consumer preferences, delays and cancellations of movies and television productions based on Marvel characters, and concentration of Marvel's toy business in a single licensee.
In addition, in connection with Marvel Studios' film production operations, including those related to the slate of feature films Marvel plans to produce on its own with proceeds from its $525 million film slate facility (the "Film Facility"), the following factors, among others, could cause Marvel's financial performance to differ materially from that expressed in any forward-looking statements: (i) Marvel Studios' potential inability to attract and retain creative talent, (ii) the potential lack of popularity of Marvel's films, (iii) the expense associated with producing films, (iv) union activity or other events which could interrupt film production, including strikes by Hollywood writers, directors and actors, (v) changes or disruptions in the way films are distributed, including a decline in the profitability of the DVD market, (vi) piracy of films and related products, (vii) Marvel Studios' dependence on a single distributor for its self-produced films, (viii) that Marvel will depend on its film distributors for the implementation of internal controls related to the accounting of film-production activities, (ix) Marvel's potential inability to meet the conditions necessary for an initial funding of a film under the Film Facility, (x) Marvel's potential inability to obtain financing to make more than four films if certain tests related to the economic performance of the film slate are not satisfied (specifically, an interim asset test and a foreign pre-sales test) and (xi) fluctuations in reported income or loss related to the accounting of film-production activities.
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. -0- *T MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, —————————- —————————- 2007 2006 2007 2006 ———————————————————- (in thousands, except per share data) Net sales $109,288 $ 85,216 $485,807 $351,798 ————- ————- ————- ————- Costs and expenses: Costs of revenue (excluding depreciation expense) 14,022 27,147 60,933 103,584 Selling, general and administrative 42,488 26,888 147,118 123,130 Depreciation and amortization 1,301 5,089 5,970 14,322 ————- ————- ————- ————- Total costs and expenses 57,811 59,124 214,021 241,036 Other income, net 150 274 2,643 1,798 ————- ————- ————- ————- Operating income 51,627 26,366 274,429 112,560 Interest expense 3,934 3,631 13,756 15,225 Interest income 580 232 2,559 1,465 ————- ————- ————- ————- Income before income taxes and minority interest 48,273 22,967 263,232 98,800 Income tax expense (19,318) (11,116) (98,908) (39,071) Minority interest in consolidated joint venture (1,329) (153) (24,501) (1,025) ————- ————- ————- ————- Net income $ 27,626 $ 11,698 $139,823 $ 58,704 ========= ========= ========= ========= Basic and diluted net income per share: Weighted average shares outstanding: Weighted average shares for basic earnings per share 76,292 81,496 79,751 82,161 Effect of dilutive stock options, warrants and restricted stock 2,153 3,624 2,716 5,069 ————- ————- ————- ————- Weighted average shares for diluted earnings per share 78,445 85,120 82,467 87,230 Net income per share: Basic $ 0.36 $ 0.14 $ 1.75 $ 0.71 ========= ========= ========= ========= Diluted $ 0.35 $ 0.14 $ 1.70 $ 0.67 ========= ========= ========= ========= *T -0- *T MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) December 31, 2007 2006 ——————————— (in thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 30,153 $ 31,945 Restricted cash 20,836 8,527 Short-term investments 21,016 - Accounts receivable, net 28,679 59,392 Inventories, net 10,647 10,224 Income tax receivable 10,882 45,569 Deferred income taxes, net 21,256 22,564 Advances to joint venture partner - 8,535 Prepaid expenses and other current assets 4,245 7,231 —————- ————— Total current assets 147,714 193,987 Fixed assets, net 2,612 4,444 Product and package design costs, net - 1,497 Film production costs 264,817 15,055 Goodwill 346,152 341,708 Accounts receivable, non-current portion 1,300 12,879 Income tax receivable, non-current portion 4,998 - Deferred income taxes, net 37,116 36,406 Deferred financing costs 11,400 15,771 Other assets 1,249 2,118 —————- ————— Total assets $ 817,358 $ 623,865 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,054 $ 5,112 Accrued royalties 84,694 68,467 Accrued expenses and other current liabilities 37,012 38,895 Deferred revenue 88,617 140,072 Film facilities 42,264 - Minority interest to be distributed 556 - —————- ————— Total current liabilities 256,197 252,546 Accrued royalties, non-current portion 10,273 12,860 Deferred revenue, non-current portion 58,166 35,667 Line of credit - 17,000 Film facilities, non-current portion 246,862 33,200 Income tax payable, non-current portion 54,066 10,999 Other liabilities 10,291 6,702 —————- ————— Total liabilities 635,855 368,974 —————- ————— Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 100,000,000 shares authorized, none issued - - Common stock, $.01 par value, 250,000,000 shares authorized, 133,179,310 issued and 77,624,842 outstanding in 2007 and 128,420,848 issued and 81,326,627 outstanding in 2006 1,333 1,284 Additional paid-in capital 728,815 710,460 Retained earnings 349,590 228,466 Accumulated other comprehensive loss (3,395) (2,433) —————- ————— Total stockholders' equity before treasury stock 1,076,343 937,777 Treasury stock, at cost, 55,554,468 shares in 2007 and 47,094,221 shares in 2006 (894,840) (682,886) —————- ————— Total stockholders' equity 181,503 254,891 —————- ————— Total liabilities and stockholders' equity $ 817,358 $ 623,865 =========== ========== *T -0- *T MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Years Ended December 31, ———————————— 2007 2006 ———————————— (in thousands) Net income $ 139,823 $ 58,704 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,970 14,322 Amortization of deferred financing charges 4,980 4,980 Unrealized (gain) loss on interest rate cap and foreign currency forward contracts 915 1,504 Non-cash charge for stock based compensation 7,926 11,040 Tax benefit of stock options exercised (2,454) (45,569) Gain on sales of equipment - (133) Impairment of long term assets 1,301 962 Deferred income taxes 1,161 (300) Minority interest of joint venture (net of distributions of $14,751 in 2007 and $6,071 in 2006) 9,750 (5,046) Changes in operating assets and liabilities: Accounts receivable 42,292 7,127 Income tax receivable 30,963 - Inventories (423) (1,047) Prepaid expenses and other current assets 2,986 (2,446) Film production costs (251,045) (15,055) Other assets (46) 172 Deferred revenue (28,956) 140,087 Income taxes payable 17,820 (1,296) Accounts payable, accrued expenses and other current liabilities 10,431 (9,831) —————- —————— Net cash provided by operating activities (6,606) 158,175 —————- —————— Cash flow provided by investing activities: Payment of administrative claims and unsecured claims, net - - Purchases of fixed assets (2,169) (10,034) Expenditures for product and package design (490) (6,252) Proceeds from sales of equipment - 1,876 Sales of short-term investments 333,380 80,671 Purchases of short-term investments (354,396) (65,532) Change in restricted cash (12,309) (144) —————- —————— Net cash (used in) provided by investing activities (35,984) 585 —————- —————— Cash flow used in financing activities: Borrowings from film facilities 255,926 7,400 Borrowings from line of credit 2,000 169,200 Repayments of line of credit (19,000) (152,200) Deferred financing costs (609) - Purchase of treasury stock (211,954) (287,350) Exercise of stock options 12,060 46,882 Excess tax benefit from stock-based compensation 2,454 64,802 —————- —————— Net cash used in financing activities 40,877 (151,266) —————- —————— Effect of exchange rates on cash (79) 224 —————- —————— Net (decrease) increase in cash and cash equivalents (1,792) 7,718 Cash and cash equivalents, at beginning of year 31,945 24,227 —————- —————— Cash and cash equivalents, at end of year $ 30,153 $ 31,945 =========== ============ *T
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