NEW YORK -- November 6, 2006 -- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today initiated financial guidance for 2007 and revised its financial guidance for 2006. The financial guidance was provided in conjunction with the reporting of operating results for the third quarter and nine-month periods ended September 30, 2006.
For Q3 2006, Marvel reported net income of $13.2 million, or $0.16 per diluted share, net of a $0.7 million charge for FAS 123R share-based payments. This compares to net income of $23.4 million, or $0.23 per diluted share, in the year-ago third quarter period, which did not include any stock option expense.
Marvel Entertainment, Inc.
Segment Net Sales/Operating Income
(in Millions)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
9/30/06 9/30/05 9/30/06 9/30/05
----------------------------------------------------------------------
Licensing: Net Sales 28.3 33.2 101.7 148.3
----------------------------------------------------------------------
Operating Income (1) 13.4 20.0 57.1 88.0
----------------------------------------------------------------------
Publishing: Net Sales 30.9 25.8 79.9 69.1
----------------------------------------------------------------------
Operating Income 13.1 11.0 32.5 27.7
----------------------------------------------------------------------
Toys: Net Sales 33.0 22.1 85.0 56.0
----------------------------------------------------------------------
Operating Income 7.4 10.5 14.6 28.1
----------------------------------------------------------------------
Corporate Overhead: (6.3) (6.1) (18.0) (17.4)
----------------------------------------------------------------------
TOTAL NET SALES $92.2 $81.1 $266.6 $273.4
----------------------------------------------------------------------
TOTAL OPERATING INCOME $27.6 $35.4 $86.2 $126.4
----------------------------------------------------------------------
(1) The nine-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, "The framework for Marvel's strategic transformation into a global entertainment company is largely complete, and we are excited about the outlook for our business in the coming years. We have refined the 2006 guidance as a result of better than expected operating results for the remainder of 2006. We have also initiated financial guidance for 2007 that demonstrates the strong line-up of entertainment and marketing exposure that should drive consumer awareness and sales of our licensed products. 2007 should be a pivotal year for Marvel, marked by three licensed feature film releases as well as the first full year of our toy license agreement with Hasbro.
"Of particular note in 2007, our Marvel Studios subsidiary expects to commence principal photography on our first Marvel-produced feature film, Iron Man, in the first quarter of 2007, and we anticipate filming on The Hulk to begin later in the year for its newly announced June 27, 2008 release date. In addition, Marvel Studios will continue development on several films targeted for 2009 and beyond."
Financial Guidance:
As reflected in the table below, Marvel today revised its financial guidance for 2006 and initiated financial guidance for 2007. A few key drivers behind Marvel's 2007 guidance are highlighted below.
Marvel Entertainment, Inc. - Financial Guidance
----------------------------------------------------------------------
(in millions,
except per- Updated 2006 Previous 2006 Initial 2007 2005
share amounts) Guidance Guidance (2) Guidance Actual (1)
----------------------------------------------------------------------
Net sales $330 - $340 $320 - $350 $375 - $435 $391
----------------------------------------------------------------------
Net income (3) $53 - $56 $43 - $53 $115 - $132 $103
----------------------------------------------------------------------
Diluted EPS (3) $0.61 - $0.64 $0.50 - $0.60 $1.35 - $1.55 $0.97
----------------------------------------------------------------------
(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 provided on August 2, 2006.
(3) 2006 net income and diluted EPS reflect $5.9 million (pre-tax) of
non-cash expenses related to the implementation of FAS 123R.
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 three feature films slated for release in 2007: Ghost Rider, Spider-Man 3, and Fantastic Four 2.
- Contributions from domestic and international licensing revenues from "classic" brands.
- Strong growth in interactive revenues.
- Continued, modest top-line and bottom-line growth from the publishing division.
- An effective tax rate of 37% in 2007 with only a marginal amount payable in cash for the year.
- Marvel's guidance is based on 85.0 million diluted shares outstanding for 2007 and does not reflect any 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 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.
Third Quarter Segment Review:
Licensing Segment net sales declined 15% from the year-ago period to $28.3 million, primarily due to lower contributions from domestic licensing and Marvel's Spider-Man merchandising joint venture (JV) with Sony. These declines were partially offset by gains in international licensing and the Marvel Studios operations. The $6.2 million reduction in domestic merchandise licensing sales resulted from lower anticipated new and renewal contract sales in the third quarter, which was partially offset by gains in overages. The Spider-Man JV had sales of only $0.8 million in Q3 2006, which were primarily related to licensing overages associated with catalog sales of the Spider-Man 2 video game. Studio media licensing sales increased to $4.3 million in Q3 2006, with the gain from the prior year predominantly generated from animated television and Direct-to-DVD projects.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
9/30/06 9/30/05 9/30/06 9/30/05
----------------------------------------------------------------------
Domestic Consumer Products 14.3 20.5 52.9 76.3
----------------------------------------------------------------------
International Consumer Products 8.9 7.5 32.4 30.1
----------------------------------------------------------------------
Spider-Man L.P. (Domestic and
International) 0.8 2.3 3.5 20.4
----------------------------------------------------------------------
Marvel Studios 4.3 2.9 12.9 21.5
----------------------------------------------------------------------
Total Licensing Segment $28.3 $33.2 $101.7 $148.3
----------------------------------------------------------------------
Operating margins in the licensing division were 47% in Q3 2006, below margins of 60% in the prior-year period, resulting from higher compensation and related expenses, coupled with lower revenues in the Q3 2006 period.
Marvel's Publishing Segment net sales increased $5.1 million or 20% from the year-ago period to $30.9 million, 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 also benefited from strong year-over-year growth in custom publishing. Publishing segment operating income in Q3 2006 was $13.1 million with an operating margin of 42%, compared to $11.0 million in operating income and an operating margin of 43% in the prior-year period.
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 49% versus the prior year, consisting primarily of core classic Marvel character lines. 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 22% for the third quarter of 2006, as compared to 48% in last year's period.
Marvel Entertainment, Inc.
Toy Sales Summary (Unaudited)
(in millions)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
9/30/06 9/30/05 9/30/06 9/30/05
----------------------------------------------------------------------
Marvel Toy Net Sales 33.0 4.9 85.0 12.8
----------------------------------------------------------------------
Toy License:
----------------------------------------------------------------------
- Toy Royalties -- 8.3 -- 21.0
----------------------------------------------------------------------
- Fees for Services Rendered -- 8.9 -- 22.2
----------------------------------------------------------------------
Total Toy Segment $33.0 $22.1 $85.0 $56.0
----------------------------------------------------------------------
Balance Sheet Update:
As of September 30, 2006, Marvel had cash and equivalents of $34.9 million and $79.7 million in borrowings under its $125 million credit facility with HSBC Bank. During the third quarter of 2006 Marvel did not repurchase any additional shares under the repurchase program. As of September 30, 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)
----------------------------------------------------------------------
Licensed Marvel Character Feature Film Line-Up For 2007
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Ghost Rider Sony In post-production,
February 16, 2007
release
----------------------------------------------------------------------
Spider-Man 3 Sony In production, May 4,
2007 release
----------------------------------------------------------------------
Fantastic Four 2 Fox In production, June 15,
2007 release (1)
----------------------------------------------------------------------
Film Projects Being Developed by Marvel (Partial List)
----------------------------------------------------------------------
Film/Character Studio Status
----------------------------------------------------------------------
Iron Man Marvel Writer & director
engaged, slated for May
2, 2008
----------------------------------------------------------------------
The Incredible Hulk Marvel Writer and director
engaged, slated for June
27, 2008 release (1)
----------------------------------------------------------------------
Ant-Man Marvel Writer and director
engaged
----------------------------------------------------------------------
Captain America Marvel Writer engaged
----------------------------------------------------------------------
Nick Fury Marvel Writer engaged
----------------------------------------------------------------------
Thor Marvel Writer engaged
----------------------------------------------------------------------
The Avengers Marvel Writer engaged (1)
----------------------------------------------------------------------
Black Panther, Cloak & Dagger, Doctor Strange, Hawkeye, Power Pack and
Shang-Chi are other projects that may be developed by Marvel. (1)
----------------------------------------------------------------------
Licensed Marvel Character Film Development Pipeline (Partial List)
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Wolverine Fox TBD
----------------------------------------------------------------------
The Punisher 2 Lions Gate TBD
----------------------------------------------------------------------
Magneto Fox TBD
----------------------------------------------------------------------
Namor Universal TBD
----------------------------------------------------------------------
Marvel Character Animated TV Projects in Development
----------------------------------------------------------------------
Character Studio Status
----------------------------------------------------------------------
Fantastic Four Moonscoop SAS (France) 26, 30 minute episodes
airing in 2006; U.S.
distribution started on
Cartoon Network on
September 2, 2006.
----------------------------------------------------------------------
Wolverine First Serve Toonz 26, 30 minute episodes in
(India) development
----------------------------------------------------------------------
Iron Man Method Films (France) 26, 30 minute episodes in
development
----------------------------------------------------------------------
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 (released August 8,
2006), Iron Man (scheduled for release in 2007) and Doctor Strange.
(1)
----------------------------------------------------------------------
Marvel Character Live Action TV Projects (Partial List)
----------------------------------------------------------------------
Alter Ego, Moon Knight and Skrull Kill Krew in development. (1)
----------------------------------------------------------------------
2006 Video Game Releases
----------------------------------------------------------------------
Publisher Character group Release
----------------------------------------------------------------------
Activision X-Men 3 Released Q2 2006
----------------------------------------------------------------------
Activision Marvel: Ultimate Alliance Released Q4 2006
----------------------------------------------------------------------
2007 Video Game Releases
(Release dates controlled by Publishing partner)
----------------------------------------------------------------------
Take-Two Ghost Rider Q1 2007 (1)
----------------------------------------------------------------------
Konami Marvel Vs. Card Game Q1 2007 (1)
----------------------------------------------------------------------
Activision Spider-Man 3 Q2 2007 (1)
----------------------------------------------------------------------
Take-Two Fantastic Four II Q2 2007 (1)
----------------------------------------------------------------------
Electronic Arts Marvel Nemesis 2 Q4 2007 (1)
----------------------------------------------------------------------
Activision Spider-Man Trilogy Q4 2007 (1)
----------------------------------------------------------------------
(1) Represents a change from the previously supplied schedule
TBD = To Be Determined
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.
