NEW YORK -- Feb. 23, 2006 -- Marvel Entertainment, Inc., a global character-based entertainment and licensing company, today reported operating results for the fourth quarter and year ended December 31, 2005. The Company's Q4 and full-year 2005 results, reviewed below, reflect a one-time, pre-tax cash charge of $12.5 million for the early termination of the licensing agreement with its toy licensee, Toy Biz Worldwide Ltd. Marvel's independent auditors are in the process of completing their audit of the Company's 2005 consolidated annual financial statements and their evaluation of the design and effectiveness of the Company's internal controls pursuant to Section 404 of the Sarbanes-Oxley Act. The independent auditor's report will be included in the Company's Form 10-K, which the Company expects to file no later than the March 15th filing deadline.
Marvel Entertainment, Inc.
Segment Net Sales/Operating Income (Unaudited)
(in millions, except per share data)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2005 2004 2005 2004
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Licensing: Net Sales $81.7 $56.7 $230.1 $214.7
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Operating Income(1) 55.4 34.3 143.4 152.7
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Publishing: Net Sales 23.4 22.0 92.4 86.0
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Operating Income 8.6 11.6 36.3 37.3
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Toys: Net Sales 12.0 21.8 68.0 212.8
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Operating Income(2) (12.5) 2.9 15.5 58.1
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Corporate Overhead: (6.7) (7.4) (24.1) (23.7)
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TOTAL NET SALES $117.1 $100.5 $390.5 $513.5
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TOTAL OPERATING INCOME $44.8 $41.4 $171.1 $224.4
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(1) FY 2004 operating income benefited from a higher percentage of
Spider-Man Merchandising L.P. revenues, which have a 100%
operating margin since the studio share expense is recorded
below operating income as a minority interest.
(2) Fourth quarter 2005 and FY 2005 toy results include a one-time
charge of approximately $12.5 million associated with the
early termination of Marvel's toy licensee, Toy Biz Worldwide
Ltd.
Marvel's Chairman, Morton Handel, commented, "We are pleased with the financial results for 2005 and the strong cash flows generated by our operations. Several watershed events in 2005 have set the stage for the next phase of Marvel's growth. We announced a slate of feature films to be produced by Marvel using non-recourse, third-party debt financing. We are actively working on scripts for Captain America, Ant-Man and Nick Fury and expect that one of these could be our first film in production next year with a release in 2008. In addition, the rights for Hulk and Iron Man reverted back to Marvel, which will enable the Company to secure a significantly higher portion of the economic benefit than under the previous licenses signed several years ago. In global licensing, we completed a video game extension agreement with Activision for our Spider-Man and X-Men properties and announced a multi-player online persistent universe game with Microsoft, both leaders in their respective industry segments. Lastly, early in 2006 we entered into a five-year toy license with Hasbro in the action figure and role play toy categories, which should extend the global reach of the Marvel brand."
Fourth Quarter Segment Review:
Licensing Segment net sales increased 44% from the year-ago period to $81.7 million in Q4 2005, primarily due to a $50 million video game extension with Activision, which offset lower contributions from Spider-Man Merchandising L.P. (the limited partnership between Marvel and Sony, referred to as "Spider-Man L.P.") for Spider-Man movie merchandising. International licensing net sales, excluding Spider-Man L.P. activity, decreased 37% year-over-year to $7.1 million in Q4 2005, although full year results totaled $36.5 million, an increase of 10% over 2004, and were above the 2005 guidance of $35 million.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
Three Months Ended Twelve Months Ended
12/31/05 12/31/04 12/31/05 12/31/04
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Domestic Consumer Products $68.1 $13.5 $145.3 $92.4
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International Consumer Products 7.1 11.2 36.5 33.3
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Spider-Man L.P. 4.3 27.9 24.7 67.5
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Studios 2.2 4.1 23.6 21.5
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Total $81.7 $56.7 $230.1 $214.7
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Operating margins in the licensing division were 68% in Q4 2005 compared to 61% in the prior-year period. The prior year-period included a substantial legal accrual related to the settlement of litigation.
Marvel's Publishing Segment net sales increased 6% from the year-ago period to $23.4 million. This year-over-year increase is due primarily to higher advertising revenues. Publishing segment operating income in Q4 2005 was $8.6 million, an operating margin of 37%, compared to an operating margin of 53% in the prior-year period, which included roughly $2.4 million in one-time gains.
The transition in Marvel's Toy Segment net sales from Marvel-produced action figures and accessories based on lines such as Lord of The Rings and the Spider-Man 2 movie in 2004 to lines produced by our toy licensee in 2005 led to an expected decline in segment revenues. Fantastic Four toy sales by Marvel's toy licensee were $2.8 million in Q4 2005, bringing full-year sales of this product line to approximately $69 million. Fourth-quarter operating results in the toy division included the charge associated with the previously mentioned termination of the license agreement with Toy Biz Worldwide. Excluding this charge, operating margins for the quarter were below Q4 2004, resulting from a relatively unchanged expense structure on a lower revenue base.
Marvel Entertainment, Inc.
Toy Sales Summary (Unaudited)
(in millions)
Three Months Ended Twelve Months Ended
12/31/05 12/31/04 12/31/05 12/31/04
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Marvel Toy Net Sales $3.4 $17.3 $16.2 $197.6
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Toy License:
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- Toy Royalties 4.3 2.5 25.3 9.3
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- Fees for Services Rendered 4.3 2.0 26.5 5.9
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Total Toy Segment $12.0 $21.8 $68.0 $212.8
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Balance Sheet Update:
During Q4 2005 Marvel repurchased 6.9 million shares of its common stock for an aggregate consideration of $113 million under the existing $250 million share repurchase authorization. The Company purchased an additional 5.1 million shares for a cost of $82.4 million during Q1 2006 through February 22, 2006. Marvel had cash and short-term investments of $47.7 million as of December 31, 2005.
Marvel Studios
(Development and release dates for licensed properties
are controlled by studio partners)
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 Currently editing, 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 Filming completed,
currently in post-
production, February 16,
2007 release (1)
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Spider-Man 3 Sony In production, May 4, 2007
release (1)
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Fantastic Four 2 Fox Director, In scripting,
July 4, 2007 release
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Marvel Character Feature Film Development Pipeline (Partial List)
----------------------------------------------------------------------
Film/Character Studio/
Distributor Status
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Wolverine Fox TBD
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Hulk 2 TBD TBD
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Iron Man TBD TBD
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Thor TBD TBD
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The Punisher 2 Lions Gate TBD (1)
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Film Projects Included in the Marvel Film-Backed Credit Facility
Ant-Man, The Avengers, Black Panther, Captain America, Cloak & Dagger,
Doctor Strange, Hawkeye, Nick Fury, Power Pack and Shang-Chi. The
first film is anticipated for release in 2008.
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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. Four projects in 2D/3D format are in
production with the first releases slated for 2006. Titles include:
Ultimate Avengers (released February 21, 2006), Ultimate Avengers 2,
Iron Man and Doctor Strange.
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Marvel Character Animated TV Projects in Development
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Fantastic Four: Partnership with Moonscoop SAS (formerly Antefilms
Productions) to produce an original animated television series based
on the Fantastic Four. Twenty-six, 30-minute 2D/3D animated episodes
are planned with initial TV airings in 2006.
Wolverine: In development to produce 26 episodes.
Iron Man: In development to produce 26 episodes.
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Marvel Character Live Action TV Projects in Development
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Alter Ego; Blade, premiering on Spike TV in 2006 (1); Skrull Kill
Krew.
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2006 Video Game Release
(Release date controlled by Publishing partners)
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Publisher Character Release
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Activision X-Men 3 1H 2006 (1)
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(1) Represents a change from the previously supplied schedule TBD
= To Be Determined
Guidance and Drivers: Cash flow from operations exceeded $135 million in 2005 and is expected to exceed $100 million in 2006 as cash payments from licensing contracts are made to the Company. Marvel is revising its 2006 guidance ranges to account for the shift in toy revenues to a greater percentage of wholesale sales and the positive impact of share repurchases to-date on the 2006 diluted EPS.
Marvel Entertainment - Financial Guidance
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(in millions, except Updated 2006 Previous 2006 2005
per-share amounts) Guidance (1) Guidance (1,3) Actual
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Net sales $320 - $350 $270 - $300 $390
----------------------------------------------------------------------
Net income $38 - $53 $38 - $53 $103(2)
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Diluted EPS $0.44 - $0.55 $0.37 - $0.52 $0.97(2)
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(1) 2006 guidance includes approximately $16 million in interest
and non-cash amortization expenses related to Marvel's $525
million feature film production credit facility.
(2) 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.
(3) Previous 2006 guidance ranges were originally provided on
November 9, 2005.
2006 Financial Guidance:
Marvel's financial guidance reflects the following factors:
- Nominal contributions from the X-Men 3 feature film slated for release in 2006.
- Modest expected initial contributions from animated projects: Ultimate Avengers direct-to-DVD in Q1 2006 and the Fantastic Four animated television series in Europe.
- Contributions from wholesale sales of X-Men 3 movie, Curious George and Marvel Legends toys.
- No contribution expected from the Spider-Man L.P. (compared to roughly $25 million in 2005).
- Studio revenues of $10 - $13 million (compared to $25 million in 2005).
- Continued, modest top-line and bottom-line growth from the publishing division.
- Approximately $16 million in interest and non-cash amortization expense related to Marvel's $525 million non-recourse credit facility for feature film production.
- Roughly $5 million of incremental non-cash expenses related to the expensing of stock options.
- 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 impact of any additional share repurchase activity since February 22, 2006.
Marvel cautions investors that inherent variability in the timing of license opportunities and entertainment events, the timing of their revenue recognition, and their level of success may contribute to sequential and year-over-year variability in its interim financial results 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.
