NEW YORK--(BUSINESS WIRE)--Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for its second quarter and six months ended June 30, 2008.

For Q2 2008, Marvel reported net sales of $156.9 million and net income of $46.7 million, or $0.59 per diluted share, compared to net sales of $101.5 million and net income of $29.1 million, or $0.34 per diluted share, in Q2 2007. The year-over-year improvement reflects a strong performance in the licensing segment and initial contributions from the film production segment of $28.9 million in net sales and $7.7 million in gross profit attributable to a portion of the foreign presales for the Iron Man and The Incredible Hulk feature films.

Marvel’s Chairman, Morton Handel, commented, “Revenue from Marvel’s film production segment commenced in the second quarter with the release of Iron Man and The Incredible Hulk. We’re very pleased with the success of these films which have generated $817 million in global box office receipts -- $571 million from Iron Man and $246 million from The Incredible Hulk -- with Iron Man still to open in Japan. Because of the timing of our distributors’ revenue reporting, our Q2 results did not reflect any revenue from the films’ box office performance. We did, however, record initial revenues in Q2 from the foreign pre-sales of both movies. In addition, the high level of media and consumer interest in these two films helped to drive strong results in our domestic and international licensing divisions in the period.

“With growing international sales to complement our already strong domestic licensing program and a focus on generating higher value from online and interactive activities, we believe Marvel is well positioned as we develop our pipeline of future self-produced feature films.

“During the second quarter we repurchased, at a discount to face value, $46.7 million of the Mezzanine notes outstanding under our film slate facility. The repurchase reflects our long-term confidence in the film slate, improves our ability to seek enhancements to the film slate structure, and significantly reduces our net interest expense on the facility going forward.”

Read the full report here.

Second Quarter Segment Review:

Licensing Segment net sales increased to $94.9 million in Q2 2008 from $65.6 million in Q2 2007. The increase was driven primarily by the recognition of revenue previously deferred due to earliest-in-store restrictions related to the Iron Man and The Incredible Hulk feature films. The increase was partially offset by a decline in Spider-Man JV net sales to $13.0 million compared to $18.2 million in Q2 2007. Operating income in the licensing segment increased 54% on a year-over-year basis to $77.5 million in Q2 2008 from $50.2 million in Q2 2007. Q2 2008 licensing segment operating income benefited from an $8.3 million reduction in a reserve we had taken in Q4 2007 for amounts claimed due to Sony, our joint venture partner in our Spider-Man merchandising limited partnership, as our share of merchandise participations paid by Sony to film talent on Spider-Man movies. The reversal was made after Sony notified us that it had revised those amounts. Including this reduction, which has been recorded as a benefit to SG&A in the licensing segment, the licensing segment operating margin for Q2 2008 was 82% compared to 77% in the prior-year period.

Marvel’s Publishing Segment net sales declined 3% to $31.8 million in Q2 2008 principally due to a decline in sales to the direct channel. The decline in sales principally reflects stronger sales in Q2 2007 generated from Civil War trade paperbacks and the high profile limited edition comic book series The Dark Tower and The Death of Captain America. Operating income declined 20% to $11.7 million in Q2 2008 and operating margin declined to 37% versus 45% in Q2 2007. These decreases principally reflect lower net sales volume of comic books, trade paperbacks and hard cover books, coupled with an increase in cost of goods sold driven by rising costs for talent and paper. Additionally, Publishing’s operating income was affected by additional overhead related to digital media investments in Q2 2008.

Marvel’s Film Production segment recorded sales for the first time of $28.9 million, primarily from the theatrical component of the foreign presales for both Iron Man and The Incredible Hulk. Amortization of capitalized film production expenses of $21.2 million are based on our best estimate of each film’s expected “ultimate” performance, yielding a gross profit of $7.7 million. Q2 2008 Film Production segment operating income of $2.2 million is net of segment SG&A. These results compared to a loss of $0.3 million in Q2 2007, primarily reflecting non-capitalized film-production expenses.
Under the category All Other, Marvel had an operating loss of $6.2 million for Q2 2008, compared to an operating loss of $8.6 million for Q2 2007. All Other includes the remaining results of Marvel’s former toy operations, as well as corporate overhead, which was $7.4 million in Q2 2008 and $5.7 million in Q2 2007.
Balance Sheet and Cash Use Update:

As of June 30, 2008, Marvel had cash and investments of $122.0 million (including $10.2 million in restricted cash) with no outstanding borrowings under its $100 million line of credit with HSBC Bank. During Q2 2008, Marvel repurchased $46.7 million of its film facility Mezzanine notes, which bear interest at LIBOR plus 7%. The notes were repurchased at a 5% discount to par, resulting in a gain of approximately $2.3 million which was recorded as a gain on repurchase of debt. Marvel did not repurchase any shares of its common stock during Q2 2008. Marvel has approximately $128 million remaining under its share repurchase authorizations.

Primary Assumptions/Drivers for Full Year 2008 Financial Guidance:

Marvel’s Licensing segment is expected to contribute net sales of approximately $260M - $270M in 2008 and to generate an operating margin of approximately 68% - 78%.

Marvel’s Film Production segment is expected to contribute revenues of approximately $65-80M in 2008 and to generate an operating margin of approximately 8% – 18%.

Marvel’s Publishing segment is expected to contribute net sales of approximately $130M – $135M in 2008. The Publishing segment should generate an operating margin of approximately 37% - 40% for full year 2008, which principally reflects investments in digital media initiatives approximating $4 million in 2008.

The “All Other” category includes corporate overhead and contributions from in-licensed toy lines. Corporate overhead, which excludes toy contributions, is expected to approximate $26.0 million in 2008 compared to $22.4 million in 2007.

Marvel anticipates an effective tax rate of 38% 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 annual and sequential quarterly results comparisons as well as on Marvel’s ability to achieve its financial guidance.