NEW YORK -- Nov. 5, 2007 -- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for the third quarter and nine months ended September 30, 2007. Marvel also today raised its 2007 financial guidance for net sales, net income and diluted EPS and initiated financial guidance for 2008.
Marvel Entertainment, Inc.
Segment Net Sales and Operating Income (Unaudited)
(in millions)
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Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
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Licensing: Net Sales $ 66.0 $ 28.3 $ 214.2 $ 101.7
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Operating Income 45.3 17.2 163.0 62.4
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Publishing: Net Sales 34.9 30.9 95.4 79.9
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Operating Income 15.0 13.1 41.3 32.5
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Toys: Net Sales 22.7 33.0 66.9 85.0
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Operating Income 13.8 7.4 39.7 14.6
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Film Production: Operating Costs (1.2) (3.8) (4.5) (5.3)
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Corporate Overhead: (7.2) (6.3) (16.7) (18.0)
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TOTAL NET SALES $ 123.6 $ 92.2 $ 376.5 $ 266.6
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TOTAL OPERATING INCOME $ 65.7 $ 27.6 $ 222.8 $ 86.2
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For Q3 2007, Marvel reported that net income rose to $36.3 million, or $0.45 per diluted share, compared to net income of $13.2 million, or $0.16 per diluted share, in Q3 2006. The year-over-year increases in net income and EPS are largely attributable to the strength of the Company's worldwide licensing operations. The Q3 performance also benefited from continued growth in the publishing segment. Net income for the first nine months of 2007 was $112.2 million, or $1.34 per diluted share, compared to net income of $47.0 million, or $0.53 per diluted share, for the same period in 2006.
Marvel's Chairman, Morton Handel, commented, "Marvel achieved strong operating results across all its businesses for the third quarter and nine months ending September 30, 2007. Licensing segment results benefited from strong contributions related to Spider-Man 3 consumer merchandise licensing. The publishing segment continues to benefit from strong sales of event-driven imprints such as World War Hulk and Stephen King's Dark Tower series. Finally, our toy license agreement with Hasbro yielded an improved operating income contribution in the 2007 periods, largely due to fees from Spider-Man 3-based products.
"We are excited by the progress on our Iron Man and Incredible Hulk feature films for next year and the growing retail and consumer product support for these properties. We are also focused on tapping the potential of Marvel properties online, and are poised to unveil the first stage of that evolution by the end of 2007."
Third Quarter Segment Review:
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
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Three Months Ended Nine Months Ended
9/30/07 9/30/06 9/30/07 9/30/06
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Domestic Consumer Products $ 14.2 $ 14.3 $ 58.3 $ 52.9
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International Consumer Products 10.8 8.9 32.9 32.4
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Spider-Man L.P. (Domestic and
International) 24.2 0.8 99.3 3.5
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Marvel Studios 16.8 4.3 23.7 12.9
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Total Licensing Segment $ 66.0 $ 28.3 $ 214.2 $ 101.7
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-- Licensing Segment net sales more than doubled in Q3 2007 to $66.0 million compared to Q3 2006, primarily due to continued strength from Marvel's Spider-Man merchandising joint venture (JV) with Sony. Supported by the May 2007 release of Spider-Man 3, the JV contributed revenues of $24.2 million in Q3 2007, compared to JV revenues of $0.8 million Q3 2006. Licensing segment net sales also benefited from the settlement of various audit claims totaling $16.8 million in Q3 2007, which were predominantly recorded in the Marvel Studios division. Operating margins increased in the Licensing segment to 69% in Q3 2007 from 61% during Q3 2006 due to higher overall sales, the higher weighting of Spider-Man JV revenues and the benefit provided by the settlement of the audit claims.
-- Marvel's Publishing Segment net sales increased $4.0 million or 13% to $34.9 million in Q3 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 rose to $15 million with an operating margin of 43% in Q3 2007 compared to an operating margin of 42% in Q3 2006.
-- Marvel reported Toy Segment net sales of $22.7 million in Q3 2007, a decrease from revenues of $33.0 million in Q3 2006. The decrease was primarily due to the transition from toys produced by Marvel in 2006 to toys principally licensed to and produced by Hasbro, Marvel's master toy licensee, in 2007. Margins improved sharply in the Toy Segment in Q3 2007 to 61% from 22%, reflecting the higher-margin nature of license income recorded in 2007. This compares to Q3 2006 revenues, which were largely comprised of wholesale sales, subject to a corresponding cost-of-revenues expense.
-- Marvel reported Film Production segment operating costs of $1.2 million for Q3 2007, which consist primarily of employee compensation and the expenses associated with a portion of the Marvel Studios office in California, partially offset by changes in the fair value of Canadian Dollar forward contracts related to The Incredible Hulk filming in Canada.
Balance Sheet Update:
As of September 30, 2007, Marvel had cash and investments of $45.6 million (including $24 million in restricted cash) and no borrowings under its $100 million line of credit with HSBC Bank. During the third quarter of 2007, Marvel purchased approximately 5.3 million shares of its common stock, at an average price of $23.81, under its repurchase program. The company has $38.1 million remaining under its May 2007 $200 million share repurchase authorization.
Marvel Studios Entertainment Pipeline
(Development and release dates for licensed properties are controlled
by studio partners)
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Feature Film Projects Being Developed by Marvel - partial list
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Film/Character Studio Status
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Iron Man Marvel Completed principal
photography; May 2, 2008
release
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The Incredible Hulk Marvel Commenced principal
photography; June 13,
2008 release
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Ant-Man Marvel Writer and director
engaged
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Captain America Marvel Writer engaged
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Thor Marvel Writer engaged
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The Avengers Marvel Writer engaged
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Licensed Marvel Character Feature Film Line-Up
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Film/Character Studio/Distributor Status
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Ghost Rider Sony Released February 16, 2007
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Spider-Man 3 Sony Released May 4, 2007
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Fantastic Four: Rise of Fox Released June 15, 2007
the Silver Surfer
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Punisher 2 Lionsgate Commenced principal
photography, slated for
2008 release (1)
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X-Men Origins: Fox Director engaged, slated
Wolverine for May 1, 2009 release
(1)
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Marvel Character Animated TV Projects
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Character Studio Status
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Fantastic Four Moonscoop SAS 26, 30-minute episodes;
(France) Running Internationally.
(1)
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Spider-Man Sony In development; US
distribution agreement
with Kids' WB for Spring
2008 release. (1)
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Wolverine and the X-Men First Serve Toonz 26, 30-minute episodes in
(India) development; Fall 2008
release. (1)
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Iron Man Method Films 26, 30-minute episodes in
(France) development; Fall 2008
release. (1)
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Hulk TBD In development. (1)
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Marvel Character Animated Direct-to-DVD Projects
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Title Partner Status
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Next Avengers Lionsgate Targeted July 2008 release
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Hulk Smash Lionsgate Targeted October 2008
release
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Thor Lionsgate Targeted April 2009
release
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TBD Lionsgate Targeted September 2009
release (1)
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Marvel Character Live Stage Projects
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Project Producer Status
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Spider-Man the Musical Hello In development/opening
Entertainment/David date to be determined;
Garfinkle, Martin Julie Taymor director;
McCallum, Marvel music & lyrics by U2's
Entertainment, SONY Bono and The Edge
Pictures
Entertainment
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Marvel 2007 - 2008 Video Game Releases (Release dates controlled by
Publishing partner)
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Publisher Title Status
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Take-Two Ghost Rider Released Q1 2007
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Konami Marvel Vs. Card Game Released Q1 2007
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Activision Spider-Man 3 Released Q3 2007
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Take-Two Fantastic Four II Released Q3 2007
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Sega Iron Man Targeted 2008
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Sega The Incredible Hulk Targeted 2008
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(1) Represents a change from the previously supplied schedule
Financial Guidance:
As reflected in the tables below, Marvel today updated its financial guidance for 2007 to reflect its year-to-date performance and initiated financial guidance for 2008. Similar to other film studios, Marvel will not announce expected financial results for its self-produced films. As a result, 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 of its self-produced Iron Man and The Incredible Hulk films. Consistent with its guidance in 2007, Marvel's 2008 financial guidance does reflect the non-capitalized expenses and 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).
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 approximately the following mix:
- 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)
- 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 85% - 90%.
- Marvel anticipates an effective tax rate of 40% in 2008.
- Marvel's guidance is based on 78.6 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 and sequential quarterly results comparisons as well as Marvel's ability to achieve the financial performance included in 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 http://www.marvel.com.
