NEW YORK -- February 26, 2007 -- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for the fourth quarter and full year ended December 31, 2006.
For Q4 2006, Marvel reported net income of $11.7 million, or $0.14 per diluted share, net of a $0.6 million, or $0.01 per diluted share, charge for FAS 123R stock option-based payments. For the twelve months ended December 31, 2006 Marvel reported net income of $58.7 million, or $0.67 per diluted share, net of a $3.5 million, or $0.04 per diluted share, charge for FAS 123R stock option-based payments. These results compare to net income of $25.9 million, or $0.26 per diluted share, and net income of $102.8 million, or $0.97 per diluted share, in the year-ago fourth quarter and full year 2005, respectively, which did not include any share-based payment expense.
Marvel Entertainment, Inc.
Segment Net Sales/Operating Income
(in Millions)
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Three Months Ended Twelve Months Ended
12/31/06 12/31/05 12/31/06 12/31/05
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Licensing: Net Sales $25.5 $81.7 $127.2 $230.1
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Operating Income (1) 14.5 55.4 76.1 143.4
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Publishing: Net Sales 28.6 23.4 108.5 92.4
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Operating Income 11.6 8.6 44.1 36.4
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Toys: Net Sales 31.1 12.0 116.1 68.0
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Operating Income (2) 6.5 (12.5) 21.1 15.5
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Film Production: Operating
Costs (3) (1.5) 0.0 (6.0) 0.0
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Corporate Overhead: (4.7) (6.7) (22.7) (24.1)
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TOTAL NET SALES $85.2 $117.1 $351.8 $390.5
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TOTAL OPERATING INCOME $26.4 $44.8 $112.6 $171.2
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(1) The 2005 twelve-month period includes the impact of a $10 million,
one-time charge related to the settlement of litigation with Stan
Lee.
(2) The 2005 three and twelve-month periods include the impact of a
$12.5 million, one-time charge related to the early termination of a
license agreement with Toy Biz Worldwide.
(3) 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, "We are pleased with the strong cash flows generated by our operations during 2006, a transitional year for the Company. Reflecting the unique strengths of our intellectual property assets and business model, in 2006 Marvel generated approximately $158 million in operating cash flow, inclusive of $15 million spent on pre-production for future feature film slate productions.
"We remain optimistic about the outlook for 2007 and beyond. 2007 has three feature films produced in conjunction with studio partners including Ghost Rider, which easily captured the #1 spot in its opening and second weekends and set an all-time domestic box office record for President's Day weekend. Ghost Rider has achieved total domestic box office receipts of over $76 million since its February 16th release and worldwide box office of approximately $95 million. We believe Ghost Rider's performance highlights the power of the Marvel brand and consumer demand for films based on our comic book characters. Later this year, we should benefit from high-profile sequels to our Spider-Man and Fantastic 4 movie franchises. Operating results in 2007 should also benefit from strong contributions from Marvel-branded toys distributed by Hasbro.
"We are pleased to announce that we intend to launch the next stage of our evolution as a global entertainment company by commencing principal photography on our Iron Man film on March 12th. The profile of the Iron Man character and the Marvel brand have been instrumental in attracting top-tier talent to this project. Later this year, we also plan to commence principal photography on our second self-produced feature film, The Incredible Hulk. With both of these movies scheduled for summer 2008 release and work on other Marvel-produced films also underway, future growth prospects for Marvel are strong."
Fourth Quarter Segment Review:
As anticipated, Licensing Segment net sales declined 69% from the year-ago period to $25.5 million, primarily due to lower contributions from domestic licensing and Marvel's Spider-Man merchandising joint venture (JV) with Sony. The $56.1 million reduction in domestic merchandise licensing sales primarily reflects the inclusion of a $50 million license fee for the extension of the Activision license in Q4 2005. The Spider-Man JV had sales of only $0.6 million in Q4 2006, which were primarily related to licensing overages associated with sales of the Spider-Man 2 video game. International licensing sales increased approximately $3.2 million from Q4 2005 levels, principally due to more robust overages.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
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Three Months Ended Twelve Months Ended
12/31/06 12/31/05 12/31/06 12/31/05
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Domestic Consumer Products $12.0 $68.1 $65.1 $145.3
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International Consumer
Products 10.3 7.1 42.5 36.5
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Spider-Man L.P. (Domestic and
International) 0.6 4.3 4.1 24.7
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Marvel Studios 2.7 2.2 15.6 23.6
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Total Licensing Segment $25.5 $81.7 $127.2 $230.1
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The lower operating margin in the licensing division of 57% in Q4 2006, as compared to a margin of 68% in the prior-year period, reflects higher expenses, coupled with lower revenues in the Q4 2006 period.
Marvel's Publishing Segment net sales increased 22% or $5.2 million from the year-ago period to $28.6 million principally due to higher sales of trade paperbacks and hard cover books sold into the direct and book market channels. Comic book sales were bolstered by strong sales associated with Civil War, a high-profile special series that has tie-ins across many established comic book series. Publishing results in the period also benefited from strong year-over-year growth in custom publishing. Publishing segment operating income in Q4 2006 was $11.6 million with an operating margin of 41%, compared to $8.6 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 higher sales on a relatively stable cost structure.
The transition in Marvel's Toy Segment net sales from toys produced by a master toy licensee in 2005 to toy production by Marvel in 2006 contributed to an expected year-over-year increase in segment revenues. Sales in the quarter increased 159% versus the prior year, consisting primarily of core classic Marvel character lines. In addition, there was $5.2 million in royalties and service fees related to initial shipments made by Hasbro, Marvel's new toy licensee. Sales recorded in 2006 as wholesale sales subject to the corresponding Cost of Revenues expense were the principal factor in operating margins of 21% for the fourth quarter of 2006. Operating margins in Q4 2005 were negative due to the inclusion of a non-recurring expense of $12.5M in Q4 2005 for the early termination of a license agreement with Toy Biz Worldwide.
Marvel Entertainment, Inc.
Toy Sales Summary (Unaudited)
(in millions)
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Three Months Ended Twelve Months Ended
12/31/06 12/31/05 12/31/06 12/31/05
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Marvel Toy Net Sales 25.9 $3.4 110.9 $16.2
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Toy License:
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- Toy Royalties 2.9 4.3 2.9 25.3
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- Fees for Services
Rendered 2.3 4.3 2.3 26.5
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Total Toy Segment $31.1 $12.0 $116.1 $68.0
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Balance Sheet Update:
As of December 31, 2006, Marvel had cash and equivalents of $40.5 million (including $8.5 million in restricted cash) and $17 million in borrowings under its $125 million credit facility with HSBC Bank. During the fourth quarter of 2006 Marvel did not repurchase any additional shares under its repurchase program. As of December 31, 2006, the Company had $50.0 million remaining under its $100 million share repurchase authorization announced June 5, 2006.
Marvel Studios Entertainment Pipeline
(Development and release dates for licensed properties are controlled
by studio partners)
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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 Released February 16, 2007
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Spider-Man 3 Sony Post-production, May 4,
2007 release
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Fantastic Four: Rise of Fox Post-production, June 15,
the Silver Surfer 2007 release
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Film Projects Being Developed by Marvel (Partial List)
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Film/Character Studio Status
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Iron Man Marvel Principal photography to
begin March 12th; May 2,
2008 release
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The Incredible Hulk Marvel Pre-production, June 13,
2008 release
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Ant-Man Marvel Writer and director
engaged
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Captain America Marvel Writer engaged
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Nick Fury Marvel Writer engaged
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Thor Marvel Writer engaged
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The Avengers Marvel Writer engaged
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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
(France) airing in 2006/2007; U.S.
distribution started on
Cartoon Network on
September 2, 2006 and
should continue in 2007.
(1)
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Wolverine and the X-Men 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
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Partnership with Lions Gate to develop, produce and distribute
original animated DVD features. Recent and future titles include:
The Invincible Iron Man (released January 2007)
Doctor Strange (scheduled for release in 2007). (1)
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2007 Video Game Releases
(Release dates controlled by Publishing partner)
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Take-Two Ghost Rider Released Q1 2007
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Konami Marvel Vs. Card Game Q1 2007
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Activision Spider-Man 3 Q2 2007
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Take-Two Fantastic Four II Q2 2007
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(1) Represents a change from the previously supplied schedule
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 40% in 2007 as noted above.
- Marvel's guidance is based on 85.2 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 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.
