Marvel Reports Q2 EPS of $0.37; Net Sales and Income Drop

by Jeff

Marvel_pipeline Marvel Reports Q2 EPS of $0.37; Net Sales and Income DropMedia Release — NEW YORK–(BUSINESS WIRE)–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’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%.

* 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.

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_Guidance_1249394931248 Marvel Reports Q2 EPS of $0.37; Net Sales and Income Drop

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.

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