Marvel Sets Revenue Record for 2008

Blog@: Marvel, Madhouse to Create Anime

Marvel today released its financials for the fourth quarter of 2008 which ended on December 31st, as well as record net sales, net income and earnings per share for the full year 2008.

For the quarter, Marvel reported net sales of $224.3 million and net income of $63.0 million, compared to $109.3 million and a net income of $27.6 million for Q4 2007. For 2009, Marvel reported net sales of $676.2 million and net income of $205.5 million, compared to net sales of $485.8 million and net income of $139.8 million in 2007. The quarterly results – which translate to 80 cents per share, beat analysts’ projections of 70 cents per share for the fourth quarter.

According to the company, the growth in revenue and net income is mostly due to Iron Man and The Incredible Hulk, the first two feature films produced by Marvel Studios.

By segment:

Q4 (in millions)

Licensing: Net Sales: $55.3 (08) $76.1 (07)

Publishing: Net Sales $33.1 (08) $30.3 (07)

Film Production: Net Sales: $135.5 (08) – (07)

Other: Net Sales: $0.4 (08) $2.9 (07)

Annual (in millions)

Licensing: Net Sales: $292.8 (08) $343.6 (07)

Publishing: Net Sales: $125.4 (08) $125.7 (07)

Film Production: Net Sales: $254.6 (08) -- (07)

Other: Net Sales: $3.4 (08) $16.5 (07)

From Marvel’s report:

Marvel's Chairman, Morton Handel, commented, "Our fourth quarter and full year results reflect the benefits derived from our strategy to produce our own feature films. In addition to providing a substantial contribution to our operating results, our 2008 theatrical releases have raised the level of global awareness for Marvel and two of our key brands. We look forward to further building awareness of our characters with an active slate of TV animation, including Wolverine and the X-Men currently airing on Nicktoons, Iron Man: Armored Adventures, launching soon on Nicktoons, The Spectacular Spider-Man which will begin airing on Disney XD in March and Marvel Super Hero Squad which debuts this fall on Cartoon Network.

“Underscoring the strength of our financial performance is the growing worldwide prominence of, and consumer affinity for, the Marvel brand as well as our character brands. Marvel is keenly focused on developing our brands and on the partners we choose to work with around the world. This focus affects our decision-making across all of our businesses and is critical to driving long-term consumer demand for Marvel branded products and entertainment.

“A recent example of our partner focus was last week’s multi-year extension of our master toy license agreement with Hasbro, Inc. Hasbro has done a remarkable job with the Marvel Universe on a worldwide basis, and we are very pleased to extend our partnership with them.”

Fourth Quarter Segment Review:

• Q4 ’08 Licensing Segment net sales were better than expected due to stronger than anticipated revenue from international licensing and Marvel’s Spider-Man feature film merchandising joint venture, Spider-Man L.P. Nonetheless, as expected, Q4 ’08 results were below the year ago period in which the May 2007 release of Spider-Man 3 provided greater benefit. Reflecting the revenue decline, Licensing Segment operating income declined to $36.9 million in Q4 2008 from $47.5 million in Q4 2007. Licensing Segment operating margin for Q4 2008 and Q4 2007 was 67% and 62%, respectively. Q4 2007 operating margin was reduced by a charge of $11.5 million associated with talent participations claimed due by Sony regarding the JV. In Q2 2008, the $11.5 million claim was reduced by $8.3 million after Sony revised the amounts claimed.

• Marvel’s Publishing Segment net sales increased 9%, or $2.8 million, to $33.1 million in Q4 2008 from $30.3 million in Q4 2007, principally reflecting a larger number of high profile titles being released in Q4 2008, as well as one extra week of sales in Q4 2008. Marvel’s major publishing events in 2008 took place in the final three quarters of the year versus major publishing events in 2007 which took place in the first three quarters of the year. Q4 2008 operating income increased 6% to $13.0 million, an operating margin of 39%, compared to 41% in Q4 2007. The decrease in operating margin reflects investments being made in Marvel’s digital media initiatives.

• Marvel’s Film Production Segment recorded sales of $135.5 million in Q4 2008, primarily reflecting revenues related to the Iron Man DVD which was released September 30, 2008. Q4 2008 net sales also include Marvel producer fees for Iron Man and The Incredible Hulk. Against these revenues, Marvel amortized capitalized film production expenses of $68.9 million (based on Marvel’s estimate of each film’s expected “ultimate” performance), contributing $62.1 million to operating income. In Q4 ’07 there was no film production revenue, and there was an operating loss in the segment of $3.1 million, primarily reflecting non-capitalized film-production expenses.

• Under the category All Other, Marvel had operating losses of $4.9 million and $5.1 million in the Q4 2008 and Q4 2007 periods, respectively. All Other in Q4 2008 and Q4 2007, respectively, included $0.4 million and $2.9 million in revenue, and $0.3 million and $0.6 million in operating income related to the wind-down of Marvel’s former toy operations, as well as corporate overhead of $7.2 million and $5.7 million, respectively.

Marvel reaffirmed its release dates for its future films and other projects:

X-Men Origins: Wolverine: May 1st, 2009

Iron Man 2: May 7th, 2010

Thor: July 16th, 2010

The First Avengers: Captain America: May 6th, 2011

The Avengers: July 15th, 2011

Marvel added the following Production update after the release of its numbers:

· Kenneth Branagh is set to direct Marvel Studios’ THOR which Paramount Pictures will distribute worldwide. The film will come to theatres domestically on July 16, 2010.

· IRON MAN 2 will begin principal photography in early April starring Robert Downey Jr., Gwyneth Paltrow and Don Cheadle and directed by Jon Favreau.

Thor: Son of Asgard - direct to DVD, animated: September 2009.

Spider-Man: The Musical: Slated for a February 2010 opening on Broadway.

Marvel also reiterated its 2009 financial guidance, anticipating a $50 million decline in licensing revenue (due to the Spider-Man revenue and no Marvel Studios films debuting in 2009). The company is als looking at a discount of 10-15% in its 2009 guidance, due to “the global economic challenges.” The company is projecting net sales for 2009 falling between $415-$460 million (compared to 2008’s $676 million).

In 2009, Marvel sees $180-$200 million coming from licensing; $120-$135 million from film production, $115-$125 million from publishing, which Marvel notes, reflects approximately $6 million in ongoing investments in digital media initiatives. Corporate overhead is expected to be roughly $30 million in 2009, which is in line with 2008, according to the company.

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