NEW YORK -- Aug. 7, 2006 -- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for the second quarter and six-month periods ended June 30, 2006.
For Q2 2006, Marvel reported net income of $16.3 million, or $0.19 per diluted share, net of a $0.01 per diluted share charge for FAS 123R share-based payments. This compares to net income of $25.8 million, or $0.24 per diluted share, in the year-ago second quarter period, which did not include any stock option expense.
Marvel Entertainment, Inc.
Segment Net Sales/Operating income
(in thousands)
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Three Months Ended Six Months
June 30, Ended June 30,
2006 2005 2006 2005
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Licensing: Net Sales $ 33,850 $ 43,874 $ 73,490 $115,100
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Operating
Income (1) 19,931 28,219 43,661 67,915
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Publishing: Net Sales 25,101 20,864 48,945 43,282
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Operating
Income 10,393 7,898 19,334 16,783
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Toys: Net Sales 25,412 23,402 51,986 33,902
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Operating
Income 3,295 13,224 7,264 17,601
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Corporate Overhead: (7,071) (6,259) (11,692) (11,261)
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TOTAL NET SALES $ 84,363 $ 88,140 $174,421 $192,284
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TOTAL OPERATING INCOME $ 26,548 $ 43,082 $ 58,567 $ 91,038
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(1) The six-month period in 2005 includes the impact of a $10 million,
one-time charge related to the settlement of litigation with Stan
Lee.
Marvel's Chairman, Morton Handel, commented, "Marvel's licensing based business model continued to generate strong net income and cash flow from operations during the second quarter of 2006, with returns to shareholders enhanced by the benefit of our share repurchase program. Marvel has also made important progress in developing its own slate of feature films, with the signing of respected directors to lead productions based on iconic Marvel characters such as Iron Man, The Incredible Hulk and Ant Man as well as the signing of strong talent to write scripts for Captain America, Thor and Nick Fury.
"The development of our own feature film slate underscores the transformation of Marvel as an entertainment company and leverages our very strong track record in feature film production working with studio partners. The innovative structure of our $525 million non-recourse film fund facility removes much of the cash risk from the development of our feature film slate, while providing Marvel with the full upside from these projects and their merchandising programs. Marvel Studios has a very strong team in place to direct our film development and production activities. Our first film will be Iron Man on May 2, 2008, followed by a second release in 2008. Marvel anticipates the release in 2007 of three licensed films based on major Marvel characters, including two sequels."
Second Quarter Segment Review:
Licensing Segment net sales declined 23% from the year-ago period to $33.9 million, primarily due to lower contributions from domestic licensing and Marvel's Spider-Man merchandising joint venture (JV) with Sony, which were partially offset by gains in the Marvel Studios operations. The $7.5 million decline in domestic merchandise licensing sales resulted from an anticipated decline in new and renewal contract sales in the second quarter. The JV had sales of only $0.7 million, primarily related to licensing overages associated with the July 2004 release of Spider-Man 2 collected in the second quarter of 2006. Marvel Studios sales increased $5.7 million, primarily as a result of a non-refundable advance for Spider-Man III received in the second quarter of 2006.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
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Three Months Ended Six Months Ended
6/30/06 6/30/05 6/30/06 6/30/05
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Domestic Consumer Products $14.9 $22.9 $38.6 56.4
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International Consumer Products 11.4 12.7 23.5 22.0
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Spider-Man L.P. (Domestic and
International) 0.7 7.1 2.7 18.1
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Marvel Studios 6.9 1.2 8.7 18.6
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Total Licensing Segment $33.9 $43.9 $73.5 $115.1
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Operating margins in the licensing division were 59% in Q2 2006, slightly below margins of 64% in the prior-year period due to lower domestic licensing and JV sales. The studio share expense associated with JV sales is classified as minority interest expense, and therefore, such sales have higher margins than other licensing segment sales, where the related royalty expense payable to studios is recorded within SG&A expense.
Marvel's Publishing Segment net sales increased $4.3 million or 21% from the year-ago period to $25.1 million, due to higher sales of trade paperbacks and hard cover books into the direct and book market channels. In addition, comic book sales into the direct and newsstand channels increased due to strong sales associated with Civil War, a high-profile special series that has tie-ins across many established comic book series. Publishing segment operating income in Q2 2006 was $10.4 million, an operating margin of 41%, compared to $7.9 million in operating income and an operating margin of 38% in the prior-year period. Operating margins increased versus 2005 due to increased sales of comic books and trade paperbacks without commensurate cost increases.
The transition in Marvel's Toy Segment net sales from toys produced by a master toy licensee in 2005 to all toy production by Marvel in 2006 contributed to an expected year-over-year increase in segment revenues. Sales in the quarter were primarily core classic Marvel character lines and led to a 9% increase in sales. 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 the principal factor in operating margins decreasing to 13% for the second quarter of 2006, as compared to 56% in last year's period.
Marvel Entertainment, Inc.
Toy Sales Summary (Unaudited)
(in millions)
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Three Months Ended Six Months Ended
6/30/06 6/30/05 6/30/06 6/30/05
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Marvel Toy Net Sales $25.4 $3.7 $52.0 $7.8
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Toy License:
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- Toy Royalties -- 9.3 -- 12.7
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- Fees for Services Rendered -- 10.4 -- 13.4
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Total Toy Segment $25.4 $23.4 $52.0 $33.9
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Balance Sheet and Share Repurchase Update:
During Q2 2006 Marvel repurchased 8.4 million shares of its common stock for an aggregate price of $163 million. The Q2 2006 repurchases were financed with borrowings under Marvel's bank credit facility as well as with cash generated from operations. Marvel had $96.7 million in borrowings under its $150 million credit facility as of June 30, 2006. As of June 30, 2006, the Company had $50.0 million remaining under its $100 million share repurchase authorization announced June 5, 2006.
Marvel Studios
(Development and release dates for licensed
properties are controlled by studio partners)
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Licensed 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 Released May 26, 2006
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Licensed 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, June
15, 2007 release (1)
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Film Projects Being Developed by Marvel (Partial List)
The first two films are anticipated for release in 2008.
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Film/Character Studio Status
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Ant-Man Marvel Writer and director engaged
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Captain America Marvel Writer engaged
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The Incredible Hulk Marvel Writer and director engaged (1)
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Iron Man Marvel Writer and director engaged,
slated for May 2, 2008 (1)
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Nick Fury Marvel Writer engaged
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Thor Marvel Writer engaged
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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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Licensed Marvel Character 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
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Namor Universal TBD
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Luke Cage Sony TBD
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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
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Wolverine First Serve Toonz 26, 30 minute episodes in
(India) development
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Iron Man Method Films 26, 30 minute episodes in
(France) development
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Marvel Character Animated Direct-to-Video Projects in Development
----------------------------------------------------------------------
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
August 8, 2006), Iron Man and Doctor Strange.
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Marvel Character Live Action TV Projects (Partial List)
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Blade, began airing on Spike TV in June 2006 (1); Alter Ego and Skrull
Kill Krew in development.
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2006 Video Game Releases
(Release date controlled by Publishing partner)
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Publisher Character group Release
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Activision X-Men 3 Released Q2 2006 (1)
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Activision Marvel: Ultimate Alliance To be released Q4 2006 (1)
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(1) Represents a change from the previously supplied schedule
TBD = To Be Determined
2006 Financial Guidance:
Marvel's financial guidance reflects the following factors:
- Nominal contributions from the X-Men 3 feature film released in May 2006.
- Modest expected initial contributions from animated projects: Ultimate Avengers direct-to-DVD and the Fantastic Four animated television series.
- Contributions from wholesale sales of X-Men 3 movie, Curious George and Marvel Legends toys.
- $3 - $4 million expected from the Spider-Man merchandising joint venture, $2.7 million of which was recorded in 1H 2006 (compared to roughly $24.7 million in 2005).
- Studio revenues of $10 - $13 million, $8.7 million of which was recorded in 1H 2006 (compared to $25 million in 2005).
- Continued, modest top-line and bottom-line growth from the publishing division.
- Up to $5 million in incremental expenses related to the expansion of activities and infrastructure within the Marvel Studio operations.
- Marvel's guidance assumes no further share repurchases during the second half of 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.
