Marvel Entertainment, Inc. Q1 2006 Earnings Conference Call Transcript (MVL)

Marvel Entertainment, Inc. (MVL)
Q1 2006 Earnings Conference Call
May 04, 2006, 9:00 a.m. EST

Executives

Peter Cuneo, Vice Chairman
Kenneth West, Executive Vice President and Chief Financial Officer
Avi Arad, Chairman and Chief Executive Officer
John Turitzin, Chief Administrative Officer

Analysts

Michael Savner - Banc of America Securities
Barton Crockett - J.P. Morgan
Eric Handler - Lehman Brothers
Alan Gould - Natexis Bleichroeder
Lowell Singer - Cowen & Company
Arvind Bhatia - Sterne, Agee & Leach
Gordon Hodge - Thomas Weisel Partner
Robert Routh - Jefferies
Joe Hovorka - Raymond James

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Marvel Entertainment First Quarter Results Conference Call. (Operator Instructions). As a reminder, this conference is being recorded, Thursday May 04, 2006. I would now like to turn the conference over to Peter Cuneo, Vice Chairman. Please go ahead sir.

Peter Cuneo

Thank you very much operator and welcome everyone. We appreciate all of you calling in and as always, today we’re going follow our usual format for conference calls, we will first read our Safe Harbor statement then we will have about 5 minutes of comments from Ken West our, Chief Financial Officer and then we will open the format to questions and answers.

Before we start, I would like to once again, introduce the participants today from Marvel. First, in California, we have Avi Arad who is the CEO of Marvel Studios and of course a member of the Marvel Board. In New York, we have myself, Ken West who is our Chief Financial Officer and John Turitzin who is our Chief Administartive Officer. And with that, we’d like to start with Safe Harbor.

Some of the statements that the company will make on this conference call, such as statements of the company’s plans, expectations and financial guidance are forward-looking. Our forward-looking statements reflect the company’s good faith beliefs, they are not guarantees of future performance and involve risks and uncertainties and the company’s actual results could differ materially from those discussed on this phone call. Some of these risks and uncertainties are described in today’s news announcement and the company’s filings with the Securities and Exchange Commission, including the company’s reports on Form 8-K, 10-K and 10-Q. Marvel assumes no obligation to publicly update or revise any forward-looking statements.

Kenneth West

Good morning, this Ken West. For Q1 2006, total net sales were $90 million, a 13% decline from $104 million in Q1 2005 and as anticipated sales decreased in the licensing segment but were partially offset by increased sales in the toy segment. Consolidated operating margins were approximately 36% in Q1 2006, as compared to 46% in Q1 2005, primarily due to lower sales in the licensing segment which generates the highest margins.

Now for a few Q1 divisional highlights. Licensing segment net sales decreased 44% to $40 million in Q1 2006, primarily due to lower contributions from domestic licensing Marvel Studios and our Spiderman merchandising joint venture with Sony. International licensing net sales of $12 million excluding the activity of the Spiderman merchandising joint venture increased 30% year-over-year. Operating margins in the licensing division increased to 60% in Q1 2006 versus last year in which margins were depressed by a one-time charge related to the settlement of litigation.

As indicated, revenues increased 7% in the publishing segment, primarily due to higher sales in the direct market leading up to this summer’s Civil War event, in which several comic story lines entered around a Civil War theme. Operating margins declined to 37% compared to 40% in the 2005 first quarter primarily due to a modest increase in talent and paper cost.

Marvel’s Q1 2006 toy segment net sales, reflect toy production by the Marvel as compared to toys produced by our master toy licensee in 2005 leading to an expected year-over-year increase in toy segment revenues to $27 million this quarter from $11 million in the year ago period. Operating margins decreased to 15% for the first quarter as compared to 42% in last year’s period predominantly the results of a shift from sales recorded in 2005 as royalty and service fee income with no corresponding cost of revenue expense to sales recorded in 2006 subject to the corresponding cost of revenues.

Q1 2006 toy SG&A also included approximately $2.6 million in additional cost associated with the transition away from Toy Biz Worldwide. During April 2006, Marvel relocated nearly all of its molds and toolings to a different group of established vendors. This relocation transition will adversely affect full year 2006 toy production and related sales.

Consolidated net income and earnings per share amounts in Q1 2006 were $17.5 million or $0.19 per fully diluted share versus $27.7 million or 25% per diluted share in Q1 2005. I will now turn to our balance sheet, free cash flow and share of purchase activity during the first quarter and year-to-date.

During Q1 2006, Marvel repurchased 7.2 million shares of its common stock for an aggregate consideration of $124 million under the company’s November 2005, $215 million share repurchase authorization principally financed by the $100 million Hasbro license advance. Given the effect of these purchases, we close the first quarter of 2006 with cash and short-term investment excluding restricted cash of approximately $22 million. Subsequent to the end of the first quarter, the company purchased an additional 1.2 or 1.1 billion share for a cost of $22 million which was primarily financed with borrowing Norges (ph) bank credit facility. These purchases have completed a $250 million share repurchase program and additionally the board has recently approved a new $100 million share repurchase program.

Now for our financial guidance for the remainder of the year. For the full year 2006, we see initial strength in the licensing segment being largely offset by expected decline from toy operations resulting from the disruption and production in sales caused by the transfer of tooling to new vendors. Marvel has retained its revenue guidance ranges by those revised 2000 net income and earnings per share guidance ranges as highlighted in today’s press release. Due to a shift in sales mix that the higher margin licensing segment coupled with a positive impact of share repurchases since February 23, when we last provided financial guidance.

Additionally, reflecting various patent concepts is, our revived guidance also reflects an increase in our forecasted effective tax rate range to approximately 40% to 42%. We are raising the low end of our net income guidance for 2006 from $38 million to $40 million and maintaining the high-end at $53 million. Full year guidance for fully diluted earnings per share principally reflecting the benefit of share repurchases to date but before any benefit from Q2 share repurchases is now in the range of 46 to 57 increased from the previous range of $0.44 to $0.55.

Additionally recognizing the lumpiness in the timing of entertainment merchandised licensing, we anticipate that first half 2006 revenue net income and earnings per share will approximate half of our full year guidance ranging. Our clear earnings per share guidance is based on our weighted average diluted share count of approximately 89 million. Cash flow from operations is expected to exceed $120 million in 2006 as cash payments from licensing contracts executed in prior years are collected.

Let me now turn the call back over to Peter to commence Q&A.

Peter Cuneo

Thanks Ken very much. Can we have the first question please?

Question and Answer Session

Operator

Our First question comes from the line of Michael Savner from Banc of America Securities. Please go ahead.

Michael Savner - Banc of America Securities

Hi good mornings thanks. Two questions, first given the strong performance in the first quarter, I think it was reasonably above where the street was looking, but you really only moved up your full year guidance nominally really with the share repurchases. Have you restarted your expectations for the second half of the year of certain areas maybe been weaker than expected or is it kind of just providing more cushion and then I’ll have a follow up, that’s all right.

Peter Cuneo

Yes, actually we always have the problem that the street’s expectations for any particular quarter maybe different from our own, and this results from the fact of course that we don’t give quarterly guidance. In fact for the first quarter, I think all of us around the table feel good about the first quarter, we slightly exceeded our expectation, but it is misleading when you read the headline that Marvel did $0.19 versus $0.12 on first call, which looks like we were way over expectation, we were not way over our expectations, but we were over the street’s expectations, but it is very difficult for analysts frankly to categorize those of forecast us by quarter. So, we are not taking the year up particularly high, because the first quarter was only slightly better than our internal expectations.

Michael Savner - Banc of America Securities

Got you, thanks, and then the second question if you could just tell us kind of strategically how you think about share repurchases, because it looks like from the release subsequent into the quarter you went into the borrowing for fund repurchases, without a lot of real earnings drivers over the next month, this year and probably, I would expect some increased cost associated with New Film Slate, are you comfortable dipping much deeper into your borrowings to fund the, the share repurchases or is this more about flexibility or you are going to comfortable just kind of going through the catch generated this year and funding it that way, just kind of at the high level how you think about it that would be great thanks.

Peter Cuneo

Well, between our internally generated cash and the credit line that we have with HSBC, we would have more than enough funds to cover additional purchases. Again, our repurchases are always opportunistic. So a part of this will depend on of course trends and stock prices and so on. But I have to reemphasize as we have, on lot of these calls that the Board is very optimistic about the long-term future from Marvel. And we haven’t buying the stock because we believe on a long-term basis; these purchases are highly accretive for shareholders.

Michael Savner - Banc of America Securities

Perfect thanks very much.

Operator

(Operator's Instructions). Our next question comes from the line of Barton Crockett from J.P. Morgan. Please go ahead.

Barton Crockett - J.P. Morgan

Okay great. I was wondering if you could first have a little bit more disruption this transition that you cited in your toy operations. First up, can you give us any general or even, maybe specific quantification of impact? What exactly happen versus your expectations, a little bit more color there would be good as well. And then secondly, if you look ahead you guys are flushing up more details about your Film Slate which is nice to see, as this develops what are you anticipate doing in terms of guidance, I mean do you expect that you guys would ever talk about how much money you might make or is that something that would be just so unknowable that that you never really want to go there, and just like the street kind of, making known desist. So, just some sense of how you would expect to guide us in the future I’d appreciate that?

Peter Cuneo

Barton that’s a very good question on the Film Slate and I think the answer is we don’t have any answer right now on that. We are still in the formative stages of our Slate, Avi put out a press release recently which really detailed what we are doing specifically by film with scripts and directors. But I think it’s a little early for us to commit any specific amount of detail we will know a lot more when we get closer to our own films. As far as, the impact on the toy businesses concerned, it might be a solicitant of two minutes on what exactly physically is happening in China. As we make the transition or we are the glue between Toy Biz Worldwide, and Hasbro as you know. We have literally thousands of tools of molds associated with all of the Marvel toys that we are moving from Toy Biz Worldwide in some cases to other factories. And those molds will eventually prior to next year find their way into Hasbro’s manufacturing locations as well. And they are literally, I think, I heard there were 100 truck loads required to move all of these tools. And that physical movement has simply changed, it just taking longer than we expected actually to get that transition done. And as a result, we have incurred a little more expense which Ken West talked about an additional charge of $2.6 million. We have also reduced our sales forecast for our toy business somewhat anticipating that to maybe some other disruptions and that we may not be able to fulfill all the orders that we get from retailers. So we hope we are being conservative in this area.

Barton Crockett - J.P. Morgan

Okay and when you say toy business sales forecast reduced somewhat I guess that’s really not something you had to quantify at this point?

Peter Cuneo

No we don’t think at this point that something that’s a major issue.

Barton Crockett - J.P. Morgan

Okay all right great I’ll leave it to others, thank you.

Operator

Our next question comes from the line of Eric Handler from Lehman Brothers. Please go ahead.

Eric Handler - Lehman Brothers

Thanks just as a clarification for the share buybacks you have made today and any of those been part of the $100 million authorization and then do you have any timeline for the completion of that $100 million repurchase authorization as well?

John Turitzin

Yeah this is John Turitzin, I’m the General Counsel. The repurchases have been made that going through the $100 million authorize repurchase. They were made under that authorization and that’s where we are increasing the amount now going forward. Eric?

Eric Handler - Lehman Brothers

Yes.

John Turitzin

We have authorized an additional $100 million we have spent today $8 million of that authorization there is $92 million still to be spent.

Eric Handler - Lehman Brothers

Okay that’s what I require, and these are timing as for as that completion date?

John Turitzin

I think we have authorized it through for about a year through the end of May 2007.

Eric Handler - Lehman Brothers

Thank you.

Operator

Our next question comes from the line of Alan Gould from Bleichroeder, please go ahead.

Alan Gould - Natexis Bleichroeder

Yes. I’ve got three questions. First, on the new buyback, is Mr. Perlmutter still prohibited from selling stock or the company is buying stock?

John Turitzin

Yes he is. He’s agreed, he has agreed not to stop the duration of the use of the new authorization.

Alan Gould - Natexis Bleichroeder

Okay. Secondly, calling from your guidance of roughly $15 million of net income to a $120 million of cash flow from operations, I’m still little bit at a loss to see, you get about $15 million of receivables $56 million right now, $57 million, what are the deltas that got you from the net income to that, that biggest jump in cash flow from operations?

Kenneth West

Alan this is Ken West. That’s a very good question and when you take a look at the Form 10-Q that we expect to file tomorrow or Monday, you’ll see the statement of cash flows which really does to take the detail associated with the cash flows. But as I mentioned in my prepared remarks, we do collect existing receivables which you’ll note on the balance sheet. But there are many other licenses that are also recognized on a cash basis, so they don’t necessarily hit our balance sheet until cash is collected and at that time, they’re recognized as revenue. So, based on that including the collection of the advance from the Hasbro deal, where income will be recognized starting late in ’06 or early in ’07, that will generate the nature of the cash flow at this connect from that income. Did that help?

Alan Gould - Natexis Bleichroeder

Yeah, okay. When you’re closing that Hasbro money?

Kenneth West

We have already in the first quarter collected the advance required under the license agreement of $100 million.

Alan Gould - Natexis Bleichroeder

Okay. Yeah, okay. And then lastly, are you going to breakout the film financing division a little bit more what the impact of that was, on net income or EPS and how much is in the balance sheet from that?

Kenneth West

Yes there is additional disclosure that is already dropped into our Form 10-Q. As I mentioned, it should be filed by tomorrow in the afternoon or Monday.

Alan Gould - Natexis Bleichroeder

Okay and one final thing, if Avi could comment, you’ve got 1, 2, you’ve got 6 pictures in production, how do you manage all of that?

Avi Arad

Well, as per the release date under, under studio movies like Spiderman, obviously the Spiderman team is being in place now. This is our third movie and we have planned to buy Sony which is quite a large studio, X-Men, is finally finished and being released this month. Ghost Rider is in posts, so everything is pacing along with various studios. As far as our Slate movies, the new movies that we are developing, we are now in scripting and very early stages of pre-production. It is move into pre-production, the hiring will begin and there will be qualified person on in production, in design, someone coming on Board. And each movie will have a Creative Producer, a Line Producer and a staff that is dedicated to that movie one at a time. And together we’ll, we’ll control for that as we’ve been doing it for long time now, I think X-Men is a 16’s movie and we feel that we know how pace it and how to control it.

Alan Gould - Natexis Bleichroeder

Okay, thank you.

Operator

Our next question comes from the line of Lowell Singer from Cowen & Company. Please go ahead.

Lowell Singer - Cowen & Company

Thanks, I have a few questions. First, Peter, can you talk about the kind of volume increases that you will need in the toy business given the lower percentage rates you’re making in Hasbro deal for you to sort of, get, breakeven with where you are on your previous master licensee deal. Second, I guess two questions really for Avi. First can you talk a little bit about Fantastic Four 2, obviously that seems to be in the early stage of development of the ’07 films; I’m wondering what the timeline looks like for that film. And when you look out to ’08, ’09 and 2010, how should we think about, the pace of releases, do you expect to put out one Marvel film each year plus whatever other films your licensees are putting out or do you think the pace of release slower or faster than that? Thanks.

Peter Cuneo

Why don’t we start with two questions Avi that I think, you’re obviously the best person to answer. One was on Fanstastic Four 2 and the second is the pace of movies in 2008?

Avi Arad

Fantastic Four 2 actually it’s on the boards today so we can speak to it. It is moving at the brisk pace, the movie is slated for 2007. Again, without addition with the studios same directors, same actors obviously would be a couple of new actors as we add characters to Fantastic Four 2, the movie was extremely well received first domestic and actually we did a better in international. So we have at this point a script, we started the production design a while ago. So we’ve been working on this movie for a while, some times on a announcement for principle photography can be miss leading because the pre-production for us the thinking about Fantastic Four 2 actually started after opening weekend that was so strong and we started planning towards it. So we feel very comfortable at this point and barring any unforeseen issues we tied up a director, we tied up the cast continuing into movie two, I don’t see any potential interference was getting the movie into ’07. As far as exact release date, it’s always subject to changes based on market conditions and competition and so on. But it will be summer 2007 as we know. How many movies do we go into the future? Well, let’s put it this way. At minimum there will be a Marvel produced, at least one Marvel produced movie in ’08, in ’09, in ’10. As far as our best studio movies, franchises will continue. I am sure that we will continue with the variations on the X-Men, the X-Men looking to be a pretty big movie, we all go find out slate this month but we are quite optimistic about it. So we are seeing this franchise one way or another will continue, obviously Spiderman will continue and I own Slate that the plans for the Slate which are pretty big movies that as far as we are concerned, I’m here to serve all areas of business, I think it will be minimum one some times, it will be more than one. And as we go in, the development will be able to figure out the basis perspective.

Peter Cuneo

But, I’ll, thanks Avi. I will talk a little bit about it, our switch from Toy Biz Worldwide to Hasbro. It is true that the overall royalty rates from Hasbro, a less then we had with Toy Biz Worldwide. It is also true that we expect overall toy volumes to be, be a Hasbro higher then we had with Toy Biz Worldwide and we have several reasons for that expectation. First of all, Hasbro has just tremendous worldwide reach as you know. Toy Biz Worldwide, a really only distributed directly in North America, all of the overseas markets were serviced primarily to distributors and that two step distribution of course, produce Marvels royalties in Hasbro’s case, generally speaking they do not use distributors. And so there’s additional margin that’s going to be captured there. Also there are certain promotional minimums that are required in our license fee over Hasbro that is, there is certain amount of advertising and so on that Hasbro must do due to support the Marvel brand in general. So we think overall, there is a lot of pad, I think the key number to focus on and we don’t know you’ll have to have Hasbro what they think they’re going to do in volumes. So this is what we do know and what you know. The minimums for this field are $205 million, over a 5-year period that is for Marvel in effect the floor, on our arrangement. And so the extent, we have all ridges above that, we will enjoy that additional revenue. Is that helpful?

Lowell Singer - Cowen & Company

Very helpful thanks Peter.

Peter Cuneo

Okay.

Operator

Our next question come from the line of Arvind Bhatia from Sterne Agee. Please go ahead.

Arvind Bhatia - Sterne, Agee & Leach

Good morning guys. A few questions, first of all, wanted to see what your expectations might be for the opening weekend for X-Men; I know the last one did about 85, what’s the good number for us to look for? Second, on the publishing side of your business, if you can comment on what we should expect in terms of growth for the balance of the year and third, I know we touched on this a little bit earlier but in terms of accounting for, under the new strategy, when do you think we will get some more color on how we will account for revenues from these, from these movies whether it will be on a gross basis, net basis, et cetera.

Peter Cuneo

Alright, I think on the first question, we can ask Avi but you know our policy, Arvind is not to comment on, on numbers from the motion pictures, this is really a question, in this case where I think Fox, if they are willing to offer a number for the opening weekend, as Avi said, we are all very optimistic about this, but I don’t think it would be appropriate for us to offer a guess. And on the second question, Avi you want to say something?

Avi Arad

No, no I agree.

Kenneth West

Arvind, with respect to the growth and the publishing aspect, we do anticipate moderate growth throughout the ’06 compared to ’05 in the range of 4% to 6%. With respect to your question on this studio accounting, associated films growth in net. That will be addressed most likely, similarly ’07. When we get closer to actually getting the production and all the model for establish all the licenses, everything secured we will properly make that disclosure known at that time.

Arvind Bhatia - Sterne, Agee & Leach

One final question, Peter I think you guys, you talked about getting some new content especially in the kids area in the past, any updates on when you guys are on that front, are you still looking for more content, you think you have enough on your plate internally?

Peter Cuneo

Well Aravind, we are always looking for acquisitions at new content, we said specifically we are interested not in super hero’s of course but, we are interested in, in property that are address demographic areas, we don’t fully address right now, such as pre-teen grows we are preschool. Now we have a number of movements, marketing movements internal to Marvel where we are attempting and I think with success to spread the demographic appeal of Marvel’s overall characters. One example I would offer, that is are the Marvel hero’s line which you haven’t heard too much about. This is really a line, that is addressed at younger people both male and female to-date we have signed up 300 licensees, 200 of which are overseas and this what’s exciting about this particular effort is that, this is not depending on, on being the graphical events. We are really here selling the entire Marvel Universe and this will have a positive effect on licensing revenue certainly and on toys and other parts of our business. So while we are always interested in acquisition, they are difficult for us because we are really only interested in acquisitions, with the rights both to media and to consumer products for those characters have not been previously encumbered. You know that Marvel strategy is to control and own our characters; we think that’s very important. So, it is difficult to find situations that get that requirement. So, we will continue to look, but in the mean time, we are really attacking this issue of the wider demographic internally as well.

Arvind Bhatia - Sterne, Agee & Leach

Thank you.

Operator

(Operator instructions). Our next question comes from the line of Gordon Hodge from Thomas Weisel Partner. Please go ahead sir.

Gordon Hodge - Thomas Weisel Partner

Yes thanks good morning. On the licensing revenue in the quarter, I just wonder if you could breakdown a bit more what categories contributed or perhaps what entertainment properties contributed to that number whether that was just classic licensing, merchandise licensing or whether contribution from Fantastic Four DVD perhaps or video games over just and then if you could talk about just a Curious George to why contribution in the quarter and if I miss that, I apologize.

Peter Cuneo

Okay. First let me address that in a few different components. The first quarter revenue results associated with the licensing segment include a broader way associated with our classic merchandising, also included our, a little bit more than $2 million and revenues associated with Activsion’s exploitation of the Spiderman movie interactive game. So that came through as revenue to us and through specifically the Sony merchandising joint venture, we have are other elements of all that just included in the results which we are very pleased with, which as you know are to find this amount in excess of minimum guarantees were longer term contracts, but principally there are no real driving forces associated with that Q1 licensing result, it was a mix of all broad classic Marvel character.

Gordon Hodge - Thomas Weisel Partners

That’s sounds good. And then on Curious George inventory area remember that quite well so I am just curious if you…

Kenneth West

Yeah, and we are pleased with the results by Curious George to-date, I have to tell you though that our forecast is end loaded closer to the Christmas season, primarily because we are particularly excited about the television introduction, on public television throughout the United States. And I believe that premiers in September, that animated show, so our really our toy sales would be heavily loaded, more heavily loaded into the third quarter and a little bit into the fourth quarter.

Gordon Hodge - Thomas Weisel Partners

And then lastly you mentioned at $205 million minimum on Hasbro, my understanding as to that would be, that will be booked to revenues differently to another seasons are all coming at lump some, in the income statement it would, because don’t you have deliveries that you need to meet, so it will be more staged as you, as the toys are sold, or is that incorrect, with that all potentially come in ’07, ’08?

Kenneth West

Excellent question, with respect to this new large licensing arrangement with Hasbro for toys, the revenue recognition with this will be specifically as toys are sold, so in that things on an earned royalty basis, there will be spin-out as sales are made.

Gordon Hodge - Thomas Weisel Partners

Terrific thanks.

Operator

Our next question comes from the line of Robert Routh from Jefferies. Please go ahead.

Robert Routh - Jefferies

Yeah good mornings guys, just a 3 quick questions, first to follow up on the last question, I noticed that obviously your deferred revenue account has got an incredibly large as a result of the Hasbro payment et cetera. and you got no products have been ship so revenue can’t be recognized. The question I have is although, ’07 is obviously looking to be the best year you guys have ever had, because everything has been pushed into it. Do you at this point think that your actual free cash flow could be materially different from your reported earnings as a result of the deferred revenues accounts that you have?

Kenneth West

Robert which specific year are you referring to it, as far as the difference between cash flows and earnings?

Robert Routh - Jefferies

I am looking at the difference in the deferred revenue accounts, as you have in your balance sheet now and whether or not you’ll have a material difference in ’07, what your free cash flow is and then what it would normally people would assume it was based on the income statement?

Peter Cuneo

Right, clearly we are getting the benefit of collecting receivables as we’ve mentioned in prior discussions and questions and answers, the deferred revenue balance is growing as you have mentioned and that’s the benefit of Hasbro. But also associated with small advances on the Spiderman joint venture licensing program we have for Spiderman III that is starting to ramp up for the ’07 movie. So, more collections will be significant in ’07 and some portions to be repeat for the remainder of ’06.

Robert Routh - Jefferies

So it’s safe to say that even though the deferred revenue accounts are building that this the trend that in series some of the business model continues to work as well it has, it will it will continue.

Peter Cuneo

Correct. And in fact just by looking at the one Hasbro license agreement upon the release of Spiderman III there is one more, large advance of approximately $50 million due to Marvel at that time.

Robert Routh - Jefferies

Okay great, and just one follow-up after that, you mentioned that as we all know you are looking at other properties always looking at acquisitions that are unencumbered and you mentioned girls, specifically with respect to that I’m curious as to, are you looking for more new properties such as, The Wings from Italy that kids has properties like that. Or you looking more towards older properties that have already been released but have been out of use for years that you can be acquire on the cheap like Hello Kiddy or Strawberry short cake.

Peter Cuneo

Rob we look at all of the above. We don’t really limit ourselves in that regard we are just looking for intellectual property that we think can be putting to Marvel’s organization our machine if you will and turned into something very exciting to shareholders. But we don’t limit it per se.

Robert Routh - Jefferies

Okay great and just one last question in your international expansion and the opportunity there obviously you have done that. How much bigger do you think that can get going forward lot of areas where Marvel has cut on yet as much that probably could?

Peter Cuneo

Well, we continued to be extremely optimistic about international. We are, last year we did $37 million in licensing revenue. This year we are forecasting about $35 million $40 million. The reason outlook would look flat to you, as suppose to office because the international organization is spending a great proportion of its time this year, of course signing up Spiderman III licenses. And in fact are, are minimum supported data substantially above, the minimum Spiderman III as substantially above what we had for Spiderman II. So those efforts are very proved but the revenue of course from those deals won’t be booked until 2007. So we continue to be extremely happy about the progress we are making internationally.

Robert Routh - Jefferies

Great, thank you very much.

Peter Cuneo

Can we have one more question please?

Operator

From the line of Joe Hovorka from Raymond James. Please go ahead.

Joe Hovorka - Raymond James

Thanks couple of questions. One Iron Man and Hulk are both, they were not originally in the Marvel Film Slate, have even added in there or how will they be financed, when you’re doing it yourselves?

Peter Cuneo

Avi.

Avi Arad

Well, we should hope to put them into the Slate that two prime properties that are now in our position and the expectation this vast to add them into the Slate.

Joe Hovorka - Raymond James

Okay and when do you expect that you’ll start to draw down significantly on the, the Movie Slate financing?

Avi Arad

We hope to start production early next year, at least on one movie and that’s the time when we start drawing on the Slate.

Joe Hovorka - Raymond James

Early next year are you saying?

Avi Arad

Yes.

Joe Hovorka - Raymond James

Great, thank you.

Avi Arad

As you know now that we have a director on Iron Man, we are ready to just going, so we hope in the beginning of next year.

Joe Hovorka - Raymond James

So that’s likely to be the first film to production.

Avi Arad

At this point that looks like the first one, yes.

Joe Hovorka - Raymond James

Okay and then when would we expect to hear whether are not Iron Man is going to be included into Slate, is that a decision when used to be made before production I am assuming?

Avi Arad

That’s correct and we have time until we start drawing upon the Slate to make this decision.

Joe Hovorka - Raymond James

Okay great thanks.

Peter Cuneo

Thank you all very much for attending our conference call today. We really appreciate and we look forward to talking with you after next quarter.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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