Marvel Reports Q3 and Nine Months EPS of $0.26 and $1.20
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NEW YORK--(BUSINESS WIRE)-- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company celebrating the 70th anniversary of its founding, today reported operating results for its third quarter and nine months ended September 30, 2009.
Reflecting a lower level of feature film activity and related licensing compared to the year-ago period, Marvel reported Q3 2009 net sales of $105.7 million and net income of $20.4 million, or $0.26 per diluted share, compared to net sales of $182.5 million and net income of $50.6 million, or $0.64 per diluted share, in Q3 2008. The anticipated year-over-year decline in net sales and net income principally reflects approximately $65 million in lower film revenues in Q3 2009 compared to the prior year period, as well as lower licensing segment net sales related to last year's Iron Man and The Incredible Hulk feature films as well as the Spider-Man merchandising joint venture.
Marvel Entertainment, Inc.
Segment Net Sales and Operating Income (Unaudited)
(in millions)
Three Months Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Licensing: Net Sales $ 48.9 $ 58.1 $ 181.5 $ 237.5
Operating Income 37.5 42.5 130.5 205.4
Publishing: Net Sales 32.0 34.0 89.5 92.3
Operating Income 10.2 12.7 28.2 34.3
Film Production: Net Sales 24.8 90.2 147.9 119.1
Operating (Loss) (2.3 ) 40.4 25.0 40.6
Income
All Other: Net Sales - 0.2 - 3.0
Operating (Loss) (8.8 ) (7.4 ) (20.9 ) (19.4 )
TOTAL NET SALES $ 105.7 $ 182.5 $ 418.9 $ 451.9
TOTAL OPERATING INCOME $ 36.6 $ 88.2 $ 162.8 $ 260.9
Marvel's Chairman, Morton Handel, commented, "Despite the absence of any Marvel Studios feature film releases in 2009, Marvel continued to deliver solid operating performance across all our operating segments. Anticipation for the high profile Iron Man 2 feature film continues to build, and we are focusing our efforts on the film's May 2010 release and the related licensing opportunities. At the same time, we are making solid progress on the development and pre-production of our Thor, The First Avenger: Captain America and The Avengers feature film projects.
"On August 31, 2009, The Walt Disney Company and Marvel agreed, subject to Marvel shareholder approval and other customary closing conditions, that Disney will acquire Marvel in a stock and cash transaction. Disney is the ideal home to nurture and further develop the distinctive Marvel brands because of its ability to extend the breadth, diversity and global reach of Marvel-branded entertainment and consumer products. We continue to expect this transaction will close by calendar year end."
Third Quarter Segment Review:
-- As anticipated, Q3 2009 Licensing Segment net sales declined versus the
year ago period, primarily due to the recognition in Q3 2008 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
merchandising joint venture. Q3 2009 licensing segment net sales reflect
a total contribution of $6.3 million from Hasbro, ($3.8 million within
domestic consumer products and $2.5 million within international
consumer products) compared to a total contribution from Hasbro of $12.0
million in the year ago period ($7.2 million in domestic consumer
products and $4.8 million in international consumer products). Licensing
Segment operating income also declined in Q3 2009 to $37.5 million (an
operating margin of 77%) principally reflecting the lower sales level.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
Three Months Ended Nine Months Ended
9/30/09 9/30/08 9/30/09 9/30/08
Domestic Consumer Products (1) $ 25.6 $ 24.8 $ 95.9 $ 97.8
International Consumer Products 15.8 22.0 61.8 67.0
Spider-Man L.P. (Domestic and 2.4 8.1 10.3 50.9
International)
Studio Licensing 5.1 3.2 13.5 21.8
Total Licensing Segment $ 48.9 $ 58.1 $ 181.5 $ 237.5
(1) Domestic Consumer Products includes substantially all of Marvel 's global interactive licensing business.
-- Q3 2009 Publishing Segment net sales declined 6%, or $2 million,
compared to Q3 2008 and were in line with Q2 2009 net sales. The
year-over-year decline principally reflects $3.2 million in lower custom
publishing and advertising revenue compared to the prior year period,
partially offset by a year-over-year increase of $1.6 million in revenue
from the book market. Operating income declined by $2.5 million, or
19.7%, on a year-over-year basis, to $10.2 million and operating margin
decreased to 32% in Q3 2009 versus 37% in Q3 2008, principally due to an
increase in talent costs and the decrease in custom publishing which
carries a higher margin.
-- Film Production Segment net sales declined to $24.8 million in Q3 2009
from $90.2 million in Q3 2008. Net sales in Q3 2009 primarily reflect
the recognition of revenues associated with the international pay TV
window for Iron Man and the domestic pay TV window for The Incredible
Hulk as well as contributions from DVD sales for both Iron Man and The
Incredible Hulk. Against these revenues Marvel amortized capitalized
film production costs of $20.5 million. Year-ago Q3 film production
segment results reflected theatrical box office revenues from Iron Man
and The Incredible Hulk and the opening of the home video window in
certain international pre-sold territories for Iron Man.
-- In the All Other category, Marvel recorded Q3 2009 and Q3 2008 operating
losses of $8.8 million and $7.4 million, respectively, reflecting
respective corporate overhead expense of $9.5 million and $7.6 million.
Q3 2009 corporate overhead includes a provision of $2.9 million for
transaction costs (principally legal fees) associated with Disney's
proposed acquisition of Marvel.
Balance Sheet and Cash Use Update:
As of September 30, 2009, Marvel had cash and cash equivalents of $109.6 million, restricted cash of $79.0 million and no outstanding borrowings under its $100 million line of credit. Marvel's outstanding film-facility borrowings increased to $21.5 million at September 30, 2009 compared to no outstanding film borrowings at June 30, 2009. The quarterly sequential increase in film-facility borrowings reflects ongoing production funding for the Iron Man 2 feature film.
Marvel Studios Entertainment Pipeline
(scheduled release dates are subject to change)
Feature Films Scheduled release date
Iron Man 2 May 7, 2010
Thor May 20, 2011
The First Avenger: Captain America July 22, 2011
The Avengers May 4, 2012
Animated TV Series Status
52, 30-minute episodes airing on Cartoon
The Super Hero Squad Network in the U.S. and launching on
International broadcast channels in Q4
2009
The Avengers: Earth's Mightiest Heroes 52, 30-minute episodes in production;
timing and network TBD
Marvel Licensed Entertainment Pipeline
(scheduled release dates are subject to change)
Feature Films Scheduled Release Date
Spider-Man 4 May 6, 2011
Animated TV Series Status
Black Panther 6, 30-minute episodes in production for
BET; timing TBD
26, 30-minute episodes airing on
Fantastic Four: World's Greatest Heroes Nicktoons in the U.S., various networks
internationally and on Marvel.com and
Marvelkids.com
52, 30-minute episodes. Episodes 1-26
Iron Man: Armored Adventures are airing on Nicktoons in the U.S. and
are on air internationally. Episodes
27-52 are currently in development
26, 30-minute episodes airing on Disney
Spectacular Spider-Man XD in the U.S. and on various networks
internationally
52, 30-minute episodes. Episodes 1-26
Wolverine and the X-Men are airing on Nicktoons in the U.S. and
are on air internationally. Episodes
27-52 are currently in development
12, 30-minute episodes in production.
Marvel Anime: Iron Man Scheduled to launch on Animax in Japan
in Q2 2010. Scheduled to launch in the
U.S. in 2011
12, 30-minute episodes in production.
Marvel Anime: Wolverine Scheduled to launch on Animax in Japan
in Q3 2010. Scheduled to launch in the
U.S. in 2011
Licensed Broadway Musical Status
Spider-Man, Turn off the Dark, Julie
Taymor director; music & lyrics by U2's Opening Night TBD
Bono and The Edge
Animated Direct-to-DVD Projects Status
Planet Hulk Production complete. Scheduled for
February 2010 release
Thor: Tales of Asgard Production complete. Release date TBD
Marvel Licensed Video Game Pipeline
(scheduled release dates are subject to change)
Game / Publisher Status
The Punisher: No Mercy / Zen Released July 2, 2009
Marvel vs. Capcom 2 / Capcom Released July 29, 2009 for X-Box console
and August 13, 2009 for PS3 console
Marvel Ultimate Alliance 2 / Activision Released September 15, 2009
Marvel Super Hero Squad / THQ Released October 20, 2009
Iron Man 2 / Sega Scheduled for April 2010 release
Thor / Sega Scheduled for May 2011 release
Captain America / Sega Scheduled for July 2011 release
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, including statements relating to (i) the ability to further develop the Marvel brand as a result of the proposed merger with The Walt Disney Company, (ii) the closing of the Disney merger and the expected timing of that closing and (iii) Marvel's future movie, television, theatrical and game releases. These forward-looking statements are subject to certain risks and uncertainties, including those related to Marvel's 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 Studios' potential inability to attract and retain creative talent, key film talent's potentially becoming incapacitated or suffering reputational damage, the potential lack of popularity of Marvel's films, union activity or other events which could interrupt film production, including strikes by Hollywood writers, directors and actors, piracy of films and related products, Marvel Studios' dependence on a single distributor for each self-produced film, a possible default by the lending banks in our film facility and the risks relating to the proposed merger with The Walt Disney Company as outlined under the heading "Risk Factors" in Amendment No. 1 to the Form S-4 filed by The Walt Disney Company on October 27, 2009 (the "Disney S-4").
These and other risks and uncertainties are described under the headings "Risk Factors" and Management's Discussion and Analysis of Financial Condition and Results of Operations" 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. As noted above, certain risks relating the Marvel's proposed merger with Disney are described in the Disney S-4. Marvel assumes no obligation to publicly update or revise any forward-looking statements.
Important Merger Information and Additional Information:
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed transaction, Disney filed a Registration Statement on Form S-4 with the SEC on September 22, 2009, as amended on October 27, 2009, that includes a preliminary proxy statement of Marvel that also constitutes a preliminary prospectus of Disney. These materials are not yet final and will be further amended. Marvel will mail the proxy statement/prospectus to its stockholders once it is final. Investors are urged to read the definitive proxy statement/prospectus regarding the proposed transaction when it becomes available, because it will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, including the definitive proxy statement/prospectus when it becomes available, free of charge at the SEC's website, www.sec.gov, or by directing a request when such a filing is made to The Walt Disney Company, 500 South Buena Vista Street, Burbank, CA 91521-9722, Attention: Shareholder Services or by directing a request when such a filing is made to Marvel's proxy solicitor, MacKenzie Partners, Inc., 105 Madison Avenue, New York, New York 10016 or by calling Mackenzie Partners, Inc. at (800) 322-2885 (toll free) or (212) 929-5500 (call collect).
Disney, Marvel, their respective directors and certain of their executive officers may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of Marvel is set forth in the preliminary proxy statement/prospectus contained in the Registration Statement on Form S-4 (Amendment No. 1) filed by Disney on October 27, 2009. Information about the directors and executive officers of Disney is set forth in its definitive proxy statement, which was filed with the SEC on January 16, 2009.
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(in thousands, except per share amounts)
Net sales $ 105,663 $ 182,499 $ 418,893 $ 451,925
Costs and expenses:
Cost of revenues (excluding 35,844 60,351 153,454 108,175
depreciation expense)
Selling, general and 33,633 35,596 105,777 104,175
administrative
Depreciation and amortization 401 401 1,057 1,164
Total costs and expenses 69,878 96,348 260,288 213,514
Other) income 855 2,051 4,179 22,481
Operating income 36,640 88,202 162,784 260,892
Interest expense 2,736 5,656 9,103 14,228
Interest income 155 870 481 2,812
(Loss) gain on repurchase of debt - (417 ) - 1,916
Income before income tax expense 34,059 82,999 154,162 251,392
Income tax expense 13,139 30,239 57,978 94,423
Net income 20,920 52,760 96,184 156,969
Noncontrolling interest in 504 2,134 2,265 14,441
consolidated Joint Venture
Net income attributable to Marvel $ 20,416 $ 50,626 $ 93,919 $ 142,528
Entertainment, Inc.
Basic and diluted earnings per
share:
Net income attributable to Marvel $ 20,416 $ 50,626 $ 93,919 $ 142,528
Entertainment, Inc.
Weighted average shares
outstanding:
Weighted average shares for basic 78,018 78,403 78,090 77,946
earnings per share
Effect of dilutive stock options 619 514 446 652
and restricted stock
Weighted average shares for 78,637 78,917 78,536 78,598
diluted earnings per share
Earnings per share, attributable
to Marvel Entertainment, Inc.:
Basic $ 0.26 $ 0.65 $ 1.20 $ 1.83
Diluted $ 0.26 $ 0.64 $ 1.20 $ 1.81
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2009 2008
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 109,604 $ 105,335
Restricted cash 37,266 12,272
Short-term investments - 32,975
Accounts receivable, net 28,853 144,487
Inventories, net 12,356 11,362
Income tax receivable - 2,029
Deferred income taxes, net 27,959 34,072
Prepaid expenses and other current assets 8,442 5,135
Total current assets 224,480 347,667
Fixed assets, net 4,523 3,432
Film inventory, net 217,416 181,564
Goodwill 346,152 346,152
Accounts receivable, non-current portion 5,157 1,321
Income tax receivable, non-current portion 6,264 5,906
Deferred income taxes, net - non-current 22,458 13,032
portion
Deferred financing costs, net 2,075 5,810
Restricted cash, non-current portion 41,742 31,375
Other assets 5,801 455
Total assets $ 876,068 $ 936,714
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,609 $ 2,025
Accrued royalties 84,355 76,580
Accrued expenses and other current liabilities 40,183 40,635
Income tax payable 4,926 -
Deferred revenue 73,159 81,335
Film facility - 204,800
Total current liabilities 204,232 405,375
Accrued royalties, non-current portion 556 10,499
Deferred revenue, non-current portion 87,438 48,939
Film facility, non-current portion 21,537 8,201
Income tax payable, non-current portion 71,597 59,267
Other liabilities 13,811 8,612
Total liabilities 399,171 540,893
Commitments and contingencies
Marvel Entertainment, Inc. stockholders'
equity:
Preferred stock, $.01 par value, 100,000,000 -
shares authorized, none issued
Common stock, $.01 par value, 250,000,000
shares authorized, 134,704,780 issued and 1,347 1,344
78,021,369 outstanding in 2009 and 134,397,258
issued and 78,408,082 outstanding in 2008
Additional paid-in capital 754,621 750,132
Retained earnings 649,044 555,125
Accumulated other comprehensive loss (4,457 ) (4,617 )
Total Marvel Entertainment, Inc. stockholders' 1,400,555 1,301,984
equity before treasury stock
Treasury stock, at cost, 56,683,411 shares in (921,700 ) (905,293 )
2009 and 55,989,176 shares in 2008
Total Marvel Entertainment, Inc. stockholders' 478,855 396,691
equity
Noncontrolling interest in consolidated Joint (1,958 ) (870 )
Venture
Total equity 476,897 395,821
Total liabilities and equity $ 876,068 $ 936,714
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2009 2008
(in thousands)
Cash flows from operating activities:
Net income $ 96,184 $ 156,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,057 1,164
Amortization of film inventory 110,422 65,599
Provision for doubtful accounts 218 -
Gain on repurchase of debt - (1,916 )
Amortization of deferred financing costs 3,735 3,736
Unrealized gain on interest rate cap and foreign (635 ) (253 )
currency forward contracts
Non-cash charge for stock-based compensation 6,051 4,743
Excess tax benefit from stock-based compensation (551 ) (9,013 )
Impairment of long-term assets 3,906 1,663
Deferred income taxes (3,325 ) (16,592 )
Changes in operating assets and liabilities:
Accounts receivable 111,580 (4,915 )
Inventories (994 ) (852 )
Prepaid expenses and other current assets (3,307 ) (802 )
Film inventory (150,081 ) (48,220 )
Other assets (3,111 ) (3,346 )
Deferred revenue 30,323 (5,085 )
Income taxes payable 19,303 58,847
Accounts payable, accrued expenses and other current (154 ) (14,954 )
liabilities
Net cash provided by operating activities 220,621 186,773
Cash flows from investing activities:
Purchases of fixed assets (2,247 ) (441 )
Sales of short-term investments 32,983 66,055
Purchases of short-term investments (8 ) (45,039 )
Acquisition of other intangibles (1,600 ) -
Change in restricted cash (35,361 ) 1,270
Net cash (used in) provided by investing activities (6,233 ) 21,845
Cash flows from financing activities:
Borrowings from film facilities 33,037 75,600
Repayments of film facilities (224,501 ) (180,509 )
Distributions to the noncontrolling interest in (3.309 ) (15,135 )
consolidated Joint Venture
Purchases of treasury stock (16,407 ) (9,945 )
Exercise of stock options 483 8,285
Excess tax benefit from stock-based compensation 551 9,013
Net cash used in financing activities (210,146 ) (112,691 )
Effect of exchange rates on cash 27 (275 )
Net increase in cash and cash equivalents 4,269 95,652
Cash and cash equivalents, at beginning of period 105,335 30,153
Cash and cash equivalents, at end of period $ 109,604 $ 125,805
Source: Marvel Entertainment, Inc.
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