Marvel Reports 2006 EPS of $0.67
Monday February 26, 6:33 am ET
- Maintains Upper End of 2007 EPS Guidance Range at $1.55 and Adjusts Low End to $1.30, to Reflect Higher Effective Tax Rate -
- Marvel's First Self-Produced Feature Film, Iron Man, Scheduled to Begin Principal Photography on March 12 -
Marvel will host a webcast today for all investors at 9:00 a.m. EST available at: www.Marvel.com/webcasts or www.earnings.com
NEW YORK--(BUSINESS WIRE)--Marvel Entertainment, Inc. (NYSE: MVL - News), 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)
----------------------------------------------------------------------
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
----------------------------------------------------------------------
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
----------------------------------------------------------------------
Corporate Overhead: (4.7) (6.7) (22.7) (24.1)
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
Three Months Ended Twelve Months Ended
12/31/06 12/31/05 12/31/06 12/31/05
----------------------------------------------------------------------
Domestic Consumer Products $12.0 $68.1 $65.1 $145.3
----------------------------------------------------------------------
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
----------------------------------------------------------------------
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
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
Three Months Ended Twelve Months Ended
12/31/06 12/31/05 12/31/06 12/31/05
----------------------------------------------------------------------
Marvel Toy Net Sales 25.9 $3.4 110.9 $16.2
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Toy License:
----------------------------------------------------------------------
- Toy Royalties 2.9 4.3 2.9 25.3
----------------------------------------------------------------------
- Fees for Services
Rendered 2.3 4.3 2.3 26.5
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
Licensed Marvel Character Feature Film Line-Up For 2007
----------------------------------------------------------------------
Film/Character Studio/Distributor Status
----------------------------------------------------------------------
Ghost Rider Sony Released February 16, 2007
----------------------------------------------------------------------
Spider-Man 3 Sony Post-production, May 4,
2007 release
----------------------------------------------------------------------
Fantastic Four: Rise of Fox Post-production, June 15,
the Silver Surfer 2007 release
----------------------------------------------------------------------
Film Projects Being Developed by Marvel (Partial List)
----------------------------------------------------------------------
Film/Character Studio Status
----------------------------------------------------------------------
Iron Man Marvel Principal photography to
begin March 12th; May 2,
2008 release
----------------------------------------------------------------------
The Incredible Hulk Marvel Pre-production, June 13,
2008 release
----------------------------------------------------------------------
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
----------------------------------------------------------------------
Marvel Character Animated TV Projects in Development
----------------------------------------------------------------------
Character Studio Status
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
Wolverine and the X-Men First Serve Toonz 26, 30 minute episodes in
(India) development
----------------------------------------------------------------------
Iron Man Method Films 26, 30 minute episodes in
(France) development
----------------------------------------------------------------------
Marvel Character Animated Direct-to-Video Projects in Development
----------------------------------------------------------------------
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)
----------------------------------------------------------------------
2007 Video Game Releases
(Release dates controlled by Publishing partner)
----------------------------------------------------------------------
Take-Two Ghost Rider Released Q1 2007
----------------------------------------------------------------------
Konami Marvel Vs. Card Game Q1 2007
----------------------------------------------------------------------
Activision Spider-Man 3 Q2 2007
----------------------------------------------------------------------
Take-Two Fantastic Four II Q2 2007
----------------------------------------------------------------------
(1) Represents a change from the previously supplied schedule
Updated Financial Guidance:
As noted in the table below, Marvel maintained its 2007 upper guidance ranges and revised the low end of its net income and diluted EPS guidance ranges based on an expectation for a higher full-year effective tax rate. The effective tax rate currently anticipated for 2007 is 40%, compared to the effective rate of 37% on which the Company's 2007 guidance was previously based. This change reflects an expected effective tax rate that is in line with our 2006 actual rate and reflects a continuing trend in higher state and local taxes. It also includes the anticipated effects of the January 1, 2007 adoption of the FASB's Interpretation No. 48 "Accounting for Uncertainty in Income Taxes." At the time Marvel gave initial 2007 guidance, the Company noted that it was evaluating the effect of the adoption of the FASB's Interpretation No. 48 and had not yet given effect to any change in its tax provision resulting from that new rule. Marvel expects to continue to refine its tax provision as it implements this new rule during its first year in effect. A few key drivers behind Marvel's 2007 guidance are highlighted below.
Marvel Entertainment, Inc. - Financial Guidance
----------------------------------------------------------------------
(in millions, Updated 2007 Previous 2007 2006
except per-share amounts) Guidance Guidance (1) Actual
----------------------------------------------------------------------
Net sales $375 - $435 $375 - $435 $352
----------------------------------------------------------------------
Net income $111 - $132 $115 - $132 $59
----------------------------------------------------------------------
Diluted EPS $1.30 - $1.55 $1.35 - $1.55 $0.67
----------------------------------------------------------------------
(1) Previous 2007 guidance ranges were provided on November 6, 2006.
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.
Except for any historical information that they contain, the statements in this news release regarding Marvel's plans are forward-looking statements that are subject to certain risks and uncertainties, including a decrease in the level of media exposure or popularity of Marvel's characters, financial difficulties of Marvel's licensees, changing consumer preferences, delays and cancellations of movies and television productions based on Marvel characters, transition difficulties between licensees, toy-production delays or shortfalls, continued concentration of toy retailers, toy inventory risk, significant appreciation of Chinese currency against other currencies and the imposition of quotas or tariffs on products manufactured in China.
In addition, in connection with Marvel Studios' film production operations, including those related to the slate of feature films Marvel plans to produce on its own with proceeds from its $525 million film slate facility (the "Film Facility"), the following factors, among others, could cause Marvel's or Marvel Studios' financial performance to differ materially from that expressed in any forward-looking statements: (i) Marvel Studios' potential inability to attract and retain creative talent, (ii) the potential lack of popularity of Marvel's films, (iii) the expense associated with producing films, (iv) union activity which could interrupt film production, (v) that Marvel Studios has not, in the past, produced film projects on its own, (vi) changes or disruptions in the way films are distributed, including a decline in the profitability of the DVD market, (vii) piracy of films and related products, (viii) Marvel Studios' dependence on a single distributor, (ix) that Marvel will depend on its distributor for the implementation of internal controls related to the accounting of film-production activities, (x) Marvel's potential inability to meet the conditions necessary for an initial funding of a film under the Film Facility, (xi) Marvel's potential inability to obtain financing to make more than four films if certain tests related to the economic performance of the film slate are not satisfied (specifically, an interim asset test and a foreign pre-sales test) and (xii) fluctuations in reported income or loss related to the accounting of film-production activities.
These and other risks and uncertainties are described in Marvel's filings with the Securities and Exchange Commission, including Marvel's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Marvel assumes no obligation to publicly update or revise any forward-looking statements.
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2006 2005 2006 2005
-------- --------- --------- ---------
Net sales $85,216 $117,095 $351,798 $390,507
-------- --------- --------- ---------
Costs and expenses:
Costs of revenue (excluding
depreciation expense) 27,147 12,972 103,584 50,517
Selling, general and
administrative 26,888 58,859 123,130 166,456
Depreciation and
amortization 5,089 1,159 14,322 4,534
-------- --------- --------- ---------
Total costs and expenses 59,124 72,990 241,036 221,507
Other income, net 274 674 1,798 2,167
-------- --------- --------- ---------
Operating income 26,366 44,779 112,560 171,167
Interest expense 3,631 3,037 15,225 3,982
Interest income and other
expense, net 232 745 1,465 3,863
-------- --------- --------- ---------
Income before income taxes and
minority interest 22,967 42,487 98,800 171,048
Income tax expense (11,116) (15,699) (39,071) (62,820)
Minority interest in
consolidated Joint Venture. (153) (869) (1,025) (5,409)
-------- --------- --------- ---------
Net income $11,698 $25,919 $58,704 $102,819
======== ========= ========= =========
Basic earnings per share
attributable to common stock $0.14 $0.27 $0.71 $1.03
======== ========= ========= =========
Weighted average number of
basic shares outstanding 81,496 94,612 82,161 99,594
======== ========= ========= =========
Diluted earnings per share
attributable to common stock $0.14 $0.26 $0.67 $0.97
======== ========= ========= =========
Weighted average number of
diluted shares outstanding 85,120 100,534 87,230 106,058
======== ========= ========= =========
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
December 31,
---------------------
2006 2005
---------- ----------
(in thousands,
except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 31,945 $ 24,227
Restricted cash 8,527 8,383
Short-term investments - 15,139
Accounts receivable, net 59,392 59,108
Inventories, net 10,224 9,177
Income tax receivable 45,569 -
Deferred income taxes, net 22,564 19,553
Prepaid expenses and other current assets 7,231 4,785
---------- ----------
Total current assets 185,452 140,372
Molds, tools and equipment, net 4,444 5,659
Product and package design costs, net 1,497 1,023
Film production costs 15,055 -
Goodwill 341,708 341,708
Accounts receivable, non-current portion 12,879 20,290
Deferred income taxes, net 36,406 36,460
Deferred financing costs 15,771 20,751
Advances to joint venture partner 8,535 3,489
Other assets 2,118 3,794
---------- ----------
Total assets $ 623,865 $ 573,546
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,112 $ 3,724
Accrued royalties 68,467 65,891
Accrued expenses and other current liabilities 38,895 57,360
Income taxes payable - 12,295
Deferred revenue 140,072 10,865
---------- ----------
Total current liabilities 252,546 150,135
Accrued royalties, non-current portion 12,860 5,908
Deferred revenue, non-current portion 35,667 24,787
Credit facility 17,000 -
Film slate facility obligation 33,200 25,800
Income tax payable, non-current portion 10,999 -
Other liabilities 6,702 6,316
---------- ----------
Total liabilities 368,974 212,946
---------- ----------
Commitments and Contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value, 100,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 250,000,000
shares authorized, 128,420,848 issued and
81,326,627 outstanding in 2006 and 121,742,534
issued and 90,205,853 outstanding in 2005 1,284 1,217
Deferred stock compensation - (6,242)
Additional paid-in capital 710,460 594,873
Retained earnings 228,466 169,762
Accumulated other comprehensive loss (2,433) (3,474)
---------- ----------
Total stockholders' equity before
treasury stock 937,777 756,136
Treasury stock, at cost, 47,094,221 shares in
2006 and 31,536,681 shares in 2005 (682,886) (395,536)
---------- ----------
Total stockholders' equity 254,891 360,600
---------- ----------
Total liabilities and stockholders'
equity $ 623,865 $ 573,546
========== ==========
MARVEL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
Years Ended December 31,
------------------------
2006 2005
----------- -----------
Net income $ 58,704 $ 102,819
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,322 4,534
Amortization of deferred financing
charges 4,980 1,660
Unrealized (gain) loss on interest rate
cap 1,504 (347)
Non-cash charge for stock based
compensation 11,040 4,832
Excess tax benefit from stock-based
compensation (64,802) 7,382
Gain from sales of equipment (133) -
Impairment of fixed assets 962 -
Deferred income taxes (2,957) (13,573)
Minority interest of joint venture (net
of distributions of $6,071 in 2006 and
$17,326 in 2005) (5,046) (11,917)
Changes in operating assets and
liabilities:
Accounts receivable 7,127 31,896
Inventories (1,047) (2,590)
Prepaid expenses and other current
assets (2,446) (2,051)
Film production costs (15,055) -
Other assets 172 (56)
Deferred revenue 140,087 (6,093)
Income taxes payable 17,937 2,166
Accounts payable, accrued expenses and
other current liabilities (7,174) 19,075
----------- -----------
Net cash provided by operating activities 158,175 137,737
----------- -----------
Cash flow provided by investing activities:
Payment of administrative claims and
unsecured claims, net - (50)
Purchases of molds, tools and equipment (10,034) (3,193)
Expenditures for product and package
design costs (6,252) (1,096)
Proceeds from sales of fixed assets 1,876 -
Sales of short-term investments 80,671 442,394
Purchases of short-term investments (65,532) (302,814)
Change in restricted cash (144) 22,514
----------- -----------
Net cash provided by investing activities 585 157,755
----------- -----------
Cash flow used in financing activities:
Proceeds from film slate facility 7,400 25,800
Borrowings from credit facility 169,200 -
Repayments of credit facility (152,200) -
Deferred financing costs - (24,526)
Purchase of treasury stock (287,350 (297,128)
Exercise of stock options 46,882 5,532
Excess tax benefit from stock-based
compensation 64,802 -
----------- -----------
Net cash used in financing activities (151,266) (290,322)
----------- -----------
Effect of exchange rate changes on cash 224 (117)
----------- -----------
Net increase (decrease in cash and cash
equivalents) 7,718 5,053
Cash and cash equivalents, at beginning
of year 24,227 19,174
----------- -----------
Cash and cash equivalents, at end of year $ 31,945 $ 24,227
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