Marvel Entertainment, Inc. (NYSE: MVL), a global character-based
entertainment and licensing company, today reported operating results
for the first quarter ended March 31, 2007.
For Q1 2007, Marvel reported that net sales rose to $151.4 million
and net income increased to $46.8 million, or $0.56 per diluted share,
compared to net sales of $90.1 million and net income of $17.5
million, or $0.19 per diluted share, in Q1 2006. The year-over-year
increases in net income and EPS are largely attributable to the
strength of the company's licensing operations, complemented by
increased contributions from both toys and comic book publishing. Q1
2007 results reflect the recognition of much of the minimum licensing
guarantees related to Marvel's Spider-Man merchandising joint venture
(JV) with Sony generated by the release of the Spider-Man 3 feature
film last weekend.
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Marvel Entertainment, Inc.
Segment Net Sales/Operating Income
(in Millions)
----------------------------------------------------------------------
Three Months Ended
-------------------
3/31/07 3/31/06
----------------------------------------------------------------------
Licensing: Net Sales $98.9 $39.6
----------------------------------------------------------------------
Operating Income 80.9 25.2
----------------------------------------------------------------------
Publishing: Net Sales 27.5 23.9
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Operating Income 11.5 8.9
----------------------------------------------------------------------
Toys: Net Sales 25.0 26.6
----------------------------------------------------------------------
Operating Income 15.3 4.0
----------------------------------------------------------------------
Film Production: Operating Costs (1) (3.0) (1.5)
----------------------------------------------------------------------
Corporate Overhead: (3.6) (4.6)
----------------------------------------------------------------------
TOTAL NET SALES $151.4 $90.1
----------------------------------------------------------------------
TOTAL OPERATING INCOME $101.1 $32.0
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(1) These costs principally consist of compensation related to
personnel devoted to the Company's film production efforts, which
efforts commenced late in the fourth quarter of 2005.
Marvel's Chairman, Morton Handel, commented, "Marvel's businesses
benefited from global visibility and demand created for Marvel-branded
merchandise, primarily from the recent release of major
studio-licensed feature films including Spider-Man 3, which achieved a
record-breaking opening weekend domestic box office of $151 million.
Our Q1 performance also reflects the diverse base of revenue sources
that we have built across consumer product segments.
"We are very pleased with our partnership with Hasbro and their
performance under our toy license agreement. With the support of our
toy division personnel, Hasbro has executed a broad and compelling toy
line across multiple categories, and the line is performing well in
the marketplace. Of note, the release of Spider-Man 3 triggered a
second, non-refundable minimum guarantee payment to Marvel, amounting
to $70 million, pursuant to our toy license agreement with Hasbro.
That payment has already been received in the second quarter and will
be recognized as revenue in future periods as royalties are 'earned
out' under the agreement.
"Marvel is working on a growing array of initiatives to drive
consumer exposure and provide new revenue streams in coming years.
These initiatives adhere to our risk- and capital-averse business
model. In support of our Marvel Studios film slate, we have partnered
with Sega(R) to produce video games based on Iron Man and The
Incredible Hulk as well as Captain America and Thor. Additionally, in
late March we executed a license agreement in connection with the
development in Dubai of a major new theme park destination centered on
the Marvel Universe of characters. Work has also begun on Marvel's
first Broadway project, with the development, by our licensee, of a
Spider-Man musical led by director Julie Taymor. Music for the project
is being created by Bono and The Edge of the rock band U2. Both
initiatives will take several years to develop but are expected to
support Marvel's core objectives.
"Lastly, work on our Marvel Studios self-produced feature film
line-up for 2008 progresses on schedule. Principal photography is
proceeding well and on schedule for Iron Man, and pre-production on
Hulk, the filming of which is scheduled to begin this summer, is
achieving important milestones. Recent progress includes the casting
of Edward Norton in the lead role of Bruce Banner and Liv Tyler as his
love interest, Betty Ross."
First Quarter Segment Review:
-- Licensing Segment net sales more than doubled from the
year-ago period to $98.9 million, primarily due to the
contribution of Marvel's Spider-Man merchandising joint
venture (JV) with Sony and strength in domestic licensing. The
Spider-Man JV had revenues of $56.9 million in Q1 2007 which
were triggered by the passing of the "on-shelf date" related
to Spider-Man 3 feature film. International licensing sales
declined slightly from Q1 2006 levels, principally due a gain
recorded in the Q1 2006 period. Revenues from Marvel Studios
increased due to participation payments on past films as well
as option payments on potential future films.
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Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
3/31/07 3/31/06
---------------------------------------------------=========-=========
Domestic Consumer Products $27.2 $23.7
----------------------------------------------------------------------
International Consumer Products 11.4 12.1
----------------------------------------------------------------------
Spider-Man L.P. (Domestic and International) 56.9 2.0
----------------------------------------------------------------------
Marvel Studios 3.4 1.8
----------------------------------------------------------------------
Total Licensing Segment $98.9 $39.6
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-- Marvel's Publishing Segment net sales increased 15% or $3.6
million from Q1 2006 to $27.5 million principally due to
higher unit volumes in the direct and bookstore markets and a
price increase that was instituted on various titles during
April 2006. Comic book sales also benefited from the final two
issues of Civil War, a high-profile special comic book series
which has tie-ins to established comic book series, and Dark
Tower, a comic book series based on novels by Stephen King,
sales of which began in the first quarter of 2007. Publishing
segment operating income in Q1 2007 was $11.5 million with an
operating margin of 42%, compared to $8.9 million in operating
income and an operating margin of 37% in the prior-year
period. The improvement in operating margin principally
reflects the benefit of operating leverage on higher sales.
-- The transition in Marvel's Toy Segment net sales from toys
produced by Marvel in 2006 to toy production principally by
Hasbro, Marvel's master toy licensee, in 2007, contributed to
a modest year-over-year decrease in segment revenues to $25.0
million versus $26.6 million in Q1 2006. However, margins
improved sharply in the Toy Segment in Q1 2007 reflecting
contributions of higher margin license and service fee income.
Sales recorded in 2006 as wholesale sales subject to the
corresponding cost of revenues expense generated operating
margins of 15% versus operating margins of 61% achieved in Q1
2007.
Balance Sheet Update:
As of March 31, 2007, Marvel had cash and investments of $40.8
million (including $10.6 million in restricted cash) and no borrowings
under its $100 million line of credit with HSBC Bank. During the first
quarter of 2007, Marvel purchased approximately 829,000 shares, at an
average price of $26.75 under its repurchase program. As of March 31,
2007, the Company had $27.9 million remaining under its $100 million
share repurchase authorization announced June 5, 2006.
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Marvel Studios Entertainment Pipeline
(Development and release dates for licensed properties are controlled
by studio partners)
----------------------------------------------------------------------
Licensed Marvel Character Feature Film Line-Up For 2007
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Ghost Rider Sony Released February 16,
2007
----------------------------------------------------------------------
Spider-Man 3 Sony Released May 4, 2007
----------------------------------------------------------------------
Fantastic Four: Rise of Fox June 15, 2007 release
the Silver Surfer
----------------------------------------------------------------------
Film Projects Being Developed by Marvel - partial list
----------------------------------------------------------------------
Film/Character Studio Status
----------------------------------------------------------------------
Iron Man Marvel Principal photography
in progress; May 2,
2008 release (1)
----------------------------------------------------------------------
The Incredible Hulk Marvel Pre-production, June
13, 2008 release
----------------------------------------------------------------------
Ant-Man Marvel Writer and director
engaged
----------------------------------------------------------------------
Captain America Marvel Writer engaged
----------------------------------------------------------------------
Nick Fury Marvel Writer engaged
----------------------------------------------------------------------
Thor Marvel Writer engaged
----------------------------------------------------------------------
The Avengers Marvel Writer engaged
----------------------------------------------------------------------
Marvel Character Animated TV Projects
----------------------------------------------------------------------
Character Studio Status
----------------------------------------------------------------------
Fantastic Four Moonscoop SAS 26, 30 minute episodes;
(France) U.S. distribution on
Cartoon Network
started in September
2006; scheduled to
relaunch in June 2007
----------------------------------------------------------------------
Spider-Man Sony In development; US
distribution agreement
with Kids' WB!
----------------------------------------------------------------------
Wolverine and the X-Men First Serve Toonz 26, 30 minute episodes
(India) in development
----------------------------------------------------------------------
Iron Man Method Films (France) 26, 30 minute episodes
in development
----------------------------------------------------------------------
Marvel Character Animated Direct-to-DVD Projects
----------------------------------------------------------------------
Title Partner Status
----------------------------------------------------------------------
The Invincible Iron Man Lionsgate Released January 2007
----------------------------------------------------------------------
Doctor Strange Lionsgate August 14, 2007 release
----------------------------------------------------------------------
Teen Avengers Lionsgate Targeted July 2008
release (1)
----------------------------------------------------------------------
Marvel Character Live Stage Projects
----------------------------------------------------------------------
Project Producer Status
----------------------------------------------------------------------
Spider-Man the Musical Hello In development/opening
Entertainment/David date to be determined;
Garfinkle, Julie Taymor director;
Martin McCallum, music & lyrics by U2's
Marvel Entertainment, Bono and The Edge; (1)
SONY Pictures
Entertainment
----------------------------------------------------------------------
2007 - 2008 Video Game Releases
(Release dates controlled by Publishing partner)
----------------------------------------------------------------------
Publisher Title Status
----------------------------------------------------------------------
Take-Two Ghost Rider Released Q1 2007
----------------------------------------------------------------------
Konami Marvel Vs. Card Game Released Q1 2007
----------------------------------------------------------------------
Activision Spider-Man 3 Released Q2 2007
----------------------------------------------------------------------
Take-Two Fantastic Four II Q2 2007
----------------------------------------------------------------------
Sega Iron Man Targeted 2008 (1)
----------------------------------------------------------------------
Sega The Incredible Hulk Targeted 2008 (1)
----------------------------------------------------------------------
(1) Represents a change from the previously supplied schedule
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Financial Guidance:
Marvel reiterated its 2007 financial guidance for net sales, net
income and diluted earnings per share, as reflected in the table
below. A few key metrics for Marvel's 2007 guidance are highlighted
below.
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Marvel Entertainment, Inc. - Financial Guidance
----------------------------------------------------------------------
(in millions, except per-share amounts) 2007 2006
Guidance (2) Actual
----------------------------------------------------------------------
Net sales $375 - $435 $352
----------------------------------------------------------------------
Net income $111 - $132 $59
----------------------------------------------------------------------
Diluted EPS $1.30 - $1.55 $0.67
----------------------------------------------------------------------
(2) As previously provided on February 26, 2007.
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Primary 2007 Financial Guidance Drivers:
-- Expected strong Spider-Man movie merchandise licensing
triggered by the theatrical release of the Spider-Man 3 movie.
-- Toy license contributions related to Marvel's toy license
agreement with Hasbro.
-- Initial film license revenue contributions from feature films
slated for release in 2007.
-- Strong contributions from domestic and international licensing
revenues.
-- Strong growth in interactive revenues from anticipated license
fees in excess of minimum guarantees.
-- Continued, modest top-line and bottom-line growth from the
publishing division.
-- An estimated effective tax rate of 38-40% in 2007.
-- Marvel anticipates the majority of its revenue and net income
for 2007 will occur in the first half of the year.
-- Marvel's guidance is based on 84 million diluted shares
outstanding for 2007 and does not reflect any prospective
share repurchase activity in 2007.
Marvel cautions investors that variations in the timing of
licenses and entertainment events, the timing of their revenue
recognition, and their level of success may 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 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 or Marvel Studios' 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, (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.
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MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
--------------------
2007 2006
--------- ----------
Net sales $151,402 $ 90,058
Costs and expenses:
Cost of revenues (excluding depreciation
expense) 14,886 23,883
Selling, general and administrative 33,270 33,778
Depreciation and amortization 1,840 2,293
-------- --------
Total costs and expenses 49,996 59,954
Other (expense) income, net (349) 1,915
-------- --------
Operating income 101,057 32,019
Interest expense 2,902 3,234
Interest income 467 436
-------- --------
Income before income tax expense and minority
interest 98,622 29,221
Income tax expense 38,311 11,237
Minority interest in consolidated joint venture 13,469 475
-------- --------
Net income $ 46,842 $ 17,509
Basic earnings per share $ 0.56 $ 0.20
Weighted average number of basic shares
outstanding 83,161 86,114
Diluted earnings per share $ 0.56 $ 0.19
Weighted average number of diluted shares
outstanding 84,020 91,467
Comprehensive income:
Net income $ 46,842 $ 17,509
Other comprehensive income (loss) (1,183) 58
Comprehensive income $ 45,659 $ 17,567
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MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
March 31, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $ 11,346 $ 31,945
Restricted cash 10,609 8,527
Short-term investments 18,876 -
Accounts receivable, net 41,885 59,392
Inventories, net 11,115 10,224
Income tax receivable 5,801 45,569
Deferred income taxes, net 11,074 22,564
Advances to joint venture partner - 8,535
Prepaid expenses and other current assets 4,410 7,231
----------- -----------
Total current assets 115,116 193,987
Molds, tools and equipment, net 4,615 4,444
Product and package design costs, net 1,040 1,497
Film production costs 47,609 15,055
Goodwill 346,152 341,708
Accounts receivable, non-current portion 10,827 12,879
Deferred income taxes, net 32,233 36,406
Deferred financing costs 14,921 15,771
Other assets 1,651 2,118
----------- -----------
Total assets $ 574,164 $ 623,865
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,574 $ 5,112
Accrued royalties 66,004 68,467
Accrued expenses and other current
liabilities 28,185 38,895
Deferred revenue 94,681 140,072
Minority interest to be distributed 2,973 -
----------- -----------
Total current liabilities 195,417 252,546
Accrued royalties, non-current portion 12,322 12,860
Deferred revenue, non-current portion 14,635 35,667
Line of credit - 17,000
Film facilities 49,500 33,200
Income tax payable, net 36,782 10,999
Other liabilities 6,661 6,702
----------- -----------
Total liabilities 315,317 368,974
Commitments and Contingencies (Note 9)
Stockholders' equity:
Preferred stock -
Common stock 1,285 1,284
Additional paid-in capital 709,541 710,460
Retained earnings 256,692 228,466
Accumulated other comprehensive loss (3,616) (2,433)
----------- -----------
Total stockholders' equity before
treasury stock 963,902 937,777
Treasury stock, at cost (705,055) (682,886)
----------- -----------
Total stockholders' equity 258,847 254,891
Total liabilities and stockholders'
equity $ 574,164 $ 623,865
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MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
2007 2006
Cash flows from operating activities:
Net income $ 46,842 $ 17,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,840 2,293
Provision for doubtful accounts 425 -
Amortization of deferred financing costs 1,245 1,245
Unrealized loss on interest rate cap 444 -
Non-cash charge for stock-based compensation 2,231 3,556
Excess tax benefit from stock-based
compensation (502) (698)
Gain on sale of equipment - (19)
Deferred income taxes 15,607 (17,196)
Minority interest in joint venture (net of
distributions of $1,961 in 2007 and $1,814 in
2006) 11,508 (1,339)
Changes in operating assets and liabilities:
Accounts receivable 19,134 (12,268)
Income tax receivable 40,915 -
Inventories (891) (6,060)
Prepaid expenses and other current assets 2,821 389
Film production costs (32,554) -
Other assets 23 93
Deferred revenue (66,423) 121,587
Income taxes payable - 15,041
Accounts payable, accrued expenses and other
current liabilities (18,376) (29,202)
--------- ---------
Net cash provided by operating activities 24,289 94,931
Cash flows from investing activities:
Purchases of molds, tools and equipment (1,256) (4,370)
Expenditures for product and package design (298) (4,695)
Proceeds from sale of fixed assets - 38
Sales of short-term investments 29,133 75,632
Purchases of short-term investments (48,009) (65,532)
Change in restricted cash (2,082) 1,052
--------- ---------
Net cash (used) provided by investing activities (22,512) 2,125
Cash flows from financing activities:
Borrowings from film facilities 16,300 1,000
Borrowings from line of credit 2,000 -
Repayments of line of credit (19,000) -
Deferred financing costs (395) -
Purchases of treasury stock (22,169) (106,921)
Exercise of stock options 368 919
Excess tax benefit from stock-based compensation 502 698
--------- ---------
Net cash (used) in financing activities (22,394) (104,304)
Effect of exchange rates on cash 18 18
--------- ---------
Net (decrease) in cash and cash equivalents (20,599) (7,230)
Cash and cash equivalents, at beginning of
period 31,945 24,227
--------- ---------
Cash and cash equivalents, at end of period $ 11,346 $ 16,997
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 1,817 $ 1,552
Income taxes paid during the period $ 1,185 $ 13,483
Treasury stock repurchases settled in April
2006 $ - $ 17,339
Income tax refund $ 19,000 $ -
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