NEW YORK -- May 4, 2006 -- Marvel Entertainment, Inc. (NYSE:MVL)
* Completes $250 Million Share Repurchase Program and Board Authorizes $100 Million Share Repurchase Program
Marvel Entertainment, Inc. (NYSE:MVL), a global character-based entertainment and licensing company, today reported operating results for the first quarter ended March 31, 2006.
For Q1 2006, Marvel reported net income of $17.5 million, or $0.19 per diluted share, net of a $0.01 per diluted share charge for option-based payments as the company implemented FAS 123R for the expensing of stock options. This compares to net income of $27.7 million, or $0.25 per diluted share, in the year-ago first quarter period, which did not include any stock option expense.
Marvel's Chairman, Morton Handel, commented, "Marvel reported solid financial performance and strong cash flows from operations during the first quarter. Reflecting our high level of confidence in Marvel's ability to generate strong levels of free cash flow over the long-term, the Board has approved a new $100 million share repurchase authorization. We believe repurchases represent the best use of our available cash flow at this time, are accretive to earnings and will provide an attractive long-term return on investment.
"The Marvel-produced feature film slate is developing rapidly, and we have engaged directors and writers to spearhead the development of scripts for Iron Man, Captain America, the Incredible Hulk, Thor, Ant-Man and Nick Fury. It is still too early to know which property will be first to begin production, but we have targeted our first release for the summer of 2008. Nearer term, we eagerly await the release this month of our X-Men sequel, and we have a strong slate of films scheduled for release in 2007. These films, produced by studio partners, include sequels to our Spider-Man and Fantastic Four franchises as well as the feature film debut for our Ghost Rider character."
First Quarter Segment Review:
Licensing Segment net sales decreased to $39.6 million, a decline of 44% from the year-ago period, primarily due to lower contributions from domestic licensing, Marvel Studios and Marvel's Spider-Man merchandising joint venture with Sony. Net sales related to the Studio operations during Q1 2005 included approximately $15 million associated with payments for Spider-Man II box office and DVD/video sales and advances related to the commencement of production on Spider-Man III that were not repeated during Q1 2006. International licensing net sales of $12.1 million, excluding the activity of the joint venture, increased 30% year-over-year.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
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Three Months Ended
3/31/06 3/31/05
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Domestic Consumer Products $23.7 $33.5
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International Consumer Products 12.1 9.3
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Spider-Man L.P. 2.0 11.0
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Studios 1.8 17.4
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Total $39.6 $71.2
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Operating margins in the licensing division were 60% in Q1 2006, slightly above margins of 56% in the prior-year period which were impacted by a one-time charge of $10 million related to the settlement of litigation with Stan Lee.
Marvel's Publishing Segment net sales increased 6.7% from the year-ago period to $23.9 million, due primarily to higher sales in the direct market. Growth in the direct market resulted from increasing comic sales leading into this summer's Civil War marketing event and strong reprints of trades. Publishing segment operating income in Q1 2006 was $8.9 million, an operating margin of 37%, compared to $8.9 million in operating income and an operating margin of 40% in the prior-year period. Operating margins declined versus last year due to a slight escalation in talent and paper costs.
The transition in Marvel's Toy Segment net sales from toys produced by our master toy licensee in 2005 to all toy production by Marvel in 2006 led to an expected year-over-year increase in segment revenues. Sales in the quarter were due primarily to core classic Marvel character lines and toys based on the Curious George in-licensed character. The shift from sales recorded in 2005 as royalty and service fee income, with no corresponding Cost of Revenues expense, to sales recorded in 2006 as wholesale sales subject to the corresponding Cost of Revenues expense, was a primary factor in operating margins decreasing to 15% for the first quarter of 2006, as compared to 42% in last year's period. Additionally, Q1 2006 toy S,G&A includes an expense provision of approximately $2.6 million for additional transition costs associated with the termination of the master toy license with Toy Biz Worldwide Ltd. (TBW). During April 2006, Marvel relocated nearly all of its molds and tooling away from TBW to larger, more established vendors. That transition will adversely affect full year 2006 toy production and related sales.
Marvel Entertainment, Inc.
Toy Sales Summary (Unaudited)
(in millions)
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Three Months Ended
3/31/06 3/31/05
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Marvel Toy Net Sales $26.6 $4.1
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Toy License:
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- Toy Royalties -- 3.4
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- Fees for Services Rendered -- 3.0
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Total Toy Segment $26.6 $10.5
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Balance Sheet and Share Repurchase Update:
During Q1 2006 Marvel repurchased 7.2 million shares of its common stock for an aggregate consideration of $124 million under the Company's November 2005 $250 million share repurchase authorization. The Q1 2006 repurchases were financed through existing cash balances and cash generated from operations. Subsequent to the end of the first quarter, the Company purchased an additional 1.1 million shares for a cost of $22 million, which was primarily financed with borrowings under its bank credit facility. These purchases completed Marvel's $250 million share repurchase program, and the Board has approved a new $100 million share repurchase authorization. Marvel had $20 million in borrowings under its working capital credit facility as of April 28, 2006.
Marvel Studios
(Development and release dates for licensed properties are controlled
by studio partners)
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Marvel Character Feature Film Line-Up For 2006
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Film/Character Studio/Distributor Status
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X-Men 3 Fox May 26, 2006 release
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Marvel Character Feature Film Line-Up For 2007
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Film/Character Studio/Distributor Status
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Ghost Rider Sony In post-production, February
16, 2007 release
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Spider-Man 3 Sony In production, May 4, 2007
release
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Fantastic Four 2 Fox In early pre-production,
July 4, 2007 release(1)
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Film Projects Being Developed by Marvel (Partial List)
The first film is anticipated for release in 2008.
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Film/Character Studio Status
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Ant-Man Marvel Writer and director engaged(1)
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Captain America Marvel Writer engaged(1)
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Hulk 2 Marvel Writer engaged(1)
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Iron Man Marvel Writer and director engaged(1)
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Nick Fury Marvel Writer engaged(1)
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Thor Marvel Writer engaged(1)
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The Avengers, Black Panther, Cloak & Dagger, Doctor Strange, Hawkeye,
Power Pack and Shang-Chi are also projects to be developed by Marvel.
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Marvel Character Licensed Film Development Pipeline (Partial List)
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Film/Character Studio/Distributor Status
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Wolverine Fox TBD
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The Punisher 2 Lions Gate TBD
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Magneto Fox TBD(1)
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Namor Universal TBD(1)
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Luke Cage Sony TBD(1)
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Marvel Character Animated TV Projects in Development
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Character Studio Status
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Fantastic Four Moonscoop SAS 26, 30 minute episodes airing
(France) in 2006; U.S. distribution
expected on Cartoon Network(1)
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Wolverine First Serve Toonz 26, 30 minute episodes in
(India) development(1)
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Iron Man Method Films 26, 30 minute episodes in
(France) development(1)
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Marvel Character Animated Direct-to-Video Projects in Development
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Partnership with Lions Gate to develop, produce and distribute
original animated DVD features. Titles include: Ultimate Avengers
(released February 21, 2006), Ultimate Avengers 2 (scheduled for Q3
2006)(1), Iron Man and Doctor Strange.
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Marvel Character Live Action TV Projects (Partial List)
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Blade, in production and premiering on Spike TV in June 2006(1);
Alter Ego and Skrull Kill Krew in development.
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2006 Video Game Release
(Release date controlled by Publishing partner)
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Publisher Character Release
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Activision X-Men 3 1H 2006
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(1) Represents a change from the previously supplied schedule TBD = To
Be Determined
Guidance and Drivers: Cash flow from operations is expected to exceed $120 million in 2006 as cash payments from licensing contracts executed in prior years are made to the Company. Strength in the licensing segment is being largely off-set by declines in the toy segment resulting from a disruption in sales due to the transition in tooling to new vendors. Marvel is revising its 2006 guidance ranges, as highlighted below, due to the shift to the higher-margin licensing segment, coupled with the positive impact of share repurchases to date.
Marvel Entertainment - Financial Guidance
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(in millions, except Updated 2006 Previous 2006 2005
per-share amounts) Guidance Guidance(2) Actual
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Net sales $320 - $350 $320 - $350 $390
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Net income(3) $40 - $53 $38 - $53 $103(1)
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Diluted EPS(3) $0.46 - $0.57 $0.44 - $0.55 $0.97(1)
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(1) FY 2005 net income and diluted EPS include a one-time charge of
approximately $12.5 million associated with the early termination
of Marvel's toy licensee, Toy Biz Worldwide Ltd.
(2) Previous 2006 guidance ranges were originally provided on February
23, 2006.
(3) 2006 Net income and EPS reflect $6.5 million in non-cash expenses
related to the implementation of FAS 123R.
2006 Financial Guidance:
Marvel's financial guidance reflects the following factors:
- Nominal contributions from the X-Men 3 feature film slated for release in May 2006.
- Modest expected initial contributions from animated projects: Ultimate Avengers direct-to-DVD released in Q1 2006 and the Fantastic Four animated television series.
- Contributions from wholesale sales of X-Men 3 movie, Curious George and Marvel Legends toys.
- $2 - $4 million expected from the Spider-Man merchandising joint venture, $2 million of which was recorded in Q1 2006 (compared to roughly $25 million in 2005).
- Studio revenues of $10 - $13 million, $1.8 million of which was recorded in Q1 2006 (compared to $25 million in 2005).
- Continued, modest top-line and bottom-line growth from the publishing division.
- Roughly $6.5 million of incremental non-cash expenses related to the expensing of stock options, $1.8 million of which was recorded in Q1 2006.
- Up to $5 million in incremental expenses related to the expansion of activities and infrastructure within the Marvel Studio operations.
- Marvel's guidance does not reflect the benefit of additional share repurchase activity since May 3, 2006.
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 in its interim financial results from period to period and could have a material impact on quarterly results 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 characters, Marvel Entertainment, Inc. is one of the world's most prominent character-based entertainment companies. Marvel's operations are focused on utilizing its character franchises in licensing, entertainment, publishing and toys. Areas of emphasis include feature films, DVD/home video, consumer products, video games, action figures and role-playing toys, television and promotions. Rooted in the creative success of over sixty years of comic book publishing, Marvel's strategy is to leverage its character franchises in a growing array of opportunities around the world. For more information visit www.marvel.com.
