Marvel Entertainment Q1 2007 Earnings Call Transcript

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Marvel Entertainment, Inc. (MVL)
Q1 2007 Earnings Call
May 8, 2007 9:00 am ET

Executives

F. Peter Cuneo - Vice-Chairman of the Board
Kenneth West - Executive Vice President, Chief Financial Officer
David Maisel - Executive Vice President, Office of the Chief Executive
John Turitzin - Executive Vice President, Office of the Chief Executive
Dan Buckley - President, Publishing Division

Analysts

Mike Savner - Banc of America
Barton Crockett - J.P. Morgan
Gordon Hodge - Thomas Weisel Partners
David Miller - SMH Capital
Eric Handler - Lehman Brothers
Drew Crum - Stifel Nicolaus
Joseph Hovorka - Raymond James & Associates
Alan Gould - Natexis Bleichroder Inc.
David Kestenbaum - Morgan Joseph

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to Marvel Entertainment’s first quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Peter Cuneo, Vice Chairman of Marvel Entertainment. Please go ahead.

F. Peter Cuneo

Thank you, Operator, very much and good morning to everyone. Welcome to Marvel's first quarter conference call. My name is Peter Cuneo from the Marvel Entertainment Board, Vice Chairman. With us today, first in California, we have David Maisel, who is the Chairman of Marvel Studios and is a member of the Office of the Chief Executive Officer of Marvel. Here in New York, we have John Turitzin, Executive Vice President, also a member of the Office of the CEO; we have Ken West, our Chief Financial Officer; and we have today Dan Buckley, the President of our Publishing Division.

We will start with the reading of our Safe Harbor announcement, and then Ken West will have some prepared comments, and then as usual, we will open the floor to Q&A. So let’s start with the 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. While 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.

Ken West.

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Kenneth West

Thank you, Peter and good morning, everyone. As you should already have received our earnings announcement and financial statements this morning, I will briefly highlight a few key points.

In line with our expectations, Marvel experienced a very strong quarter, achieving close to an historic high in quarterly earnings per share. We mentioned during our last earnings call we forecast more than half of this year’s earnings would be generated during the first half of this year, and now for a few Q1 divisional highlights.

Much of the strength in our Q1 licensing results reflected the recognition of previously deferred revenue relating to our Spider-Man merchandising joint venture with Sony. Revenue from Spider-Man 3 licensing contracts, executed primarily during 2006, were deferred until the on-shelf date passed for the licensed products. Nearly all of the previously deferred revenue related to the Spider-Man joint venture was recognized in the first quarter and we anticipate recognizing additional revenues during the balance of the year from this source.

Operating margins in the licensing division were 82% this quarter, compared to 64% in the year-ago period, reflecting the benefit from a comparable level of fixed expenses on higher revenue. Operating margins in Marvel's publishing division were 42% this quarter, compared to 37% in the year-ago period, reflecting increased unit sales combined with higher pricing.

As we have mentioned, Marvel's Q1 toy segment net sales principally reflects royalty and service fees for toys sold under license by Hasbro under our five-year license agreement. Our prior year Q1 revenues reflected toys manufactured and sold by Marvel. Accordingly, toy segment operating margins in Q1 2007 rose to 61%, reflecting the high concentration of royalty related revenue now recorded in the segment pursuant to our license agreement with Hasbro.

I will now turn to cash flow. With respect to the matching of cash flow from operations to net income during 2007, we have indicated that we expect our cash generation in 2007 of approximately $100 million to be below that generated in 2006, principally due to several items.

The first item is the $105 million non-refundable advance cash guarantee we received in 2006 related to our master toy license agreement with Hasbro, as compared to the $70 million advance from Hasbro received last week for 2007. Throughout this year and next year, we will be earning out these minimum guarantee advanced payments based upon Hasbro’s sales performance. These two payments represent a substantial in-flow of cash to the company but a net $35 million decrease in cash contributions comparing 2006 to 2007.

The second item is the recognition of minimum guarantees under our Spider-Man 3 merchandising joint venture with Sony. Starting late 2005 and throughout 2006, we executed numerous license agreements and collected substantial minimum guarantee advance payments related to the Spider-Man 3 feature film, which was substantially recognized into income during Q1 2007. Although recognized as revenue in 2007, much of the underlying cash was received in 2006. Once these licenses have recouped their minimum, if sales performance allows, Marvel will be in a position to recognize overages and thus additional cash.

As we continue to self-produce films, generally accepted accounting principles requires that cash flows from operating activities be reduced for film spending with the offsetting film borrowings being presented in cash flows from financing activities. As a result of this mismatch of slate spending and borrowing on the statement of cash flows, cash flows from operating activities will decline despite positive cash generation by our other various business lines.

Now for 2007 guidance update. The primary drivers behind the reiteration of our 2007 financial guidance are detailed in this morning’s press release. Guidance for 2007 also includes the anticipated effect of adopting the provisions of FIN-48, the new income tax accounting rule effective January 1, 2007. We continue to assess the impact of this complex rule and now expect to generate an effective tax rate in the range of approximately 38% to 40% for the year. Our effective tax rate was approximately 39% for this quarter.

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

F. Peter Cuneo

Thanks, Ken, very much. Operator, we would like to start Q&A.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from the line of Michael Savner from Banc of America Securities. Please proceed.

Mike Savner - Banc of America

Good morning. Thanks for taking the question. Two unrelated questions; first, I guess this is an obvious question, I think some of us would have thought that full year guidance would have gone up substantially, given the strong results in the first quarter, and I think we had been thinking a little bit more linear results for the remainder of the year -- certainly front-end loaded, but not this front-end loaded. So can you talk about, I think you did a good job of explaining the cash receipts differing from recorded revenue, but could you maybe talk a little bit more about the fall-off in revenue in the back-half of the year? I guess it’s relying on overages then to get to a bigger number, so maybe just more about timing would be helpful.

The second question, unrelated, maybe just a little bit more comment on your decision to go with Sega for these games for the next couple of movies that you are doing on your own. Obviously you have had a lot of success with some previous partners that have done very good jobs on games, and I’m guessing this was somewhat of an economic decision but I would be curious to hear your response in terms of what Sega brings to the table and your confidence that their development ability will meet your expectations and meet gamers’ expectations.

F. Peter Cuneo

Thanks, Michael. I’ll take the question first on guidance and then I think David Maisel can comment on Sega. I think that the biggest disconnect between analysts’ expectations for our first quarter and our own has to do with how we account for Spider-Man licensing, movie licensing revenues. Actually, from an internal basis, all of our businesses performed well but they essentially performed against our internal budgets. They were more or less on target for our internal budgets, which were always at this level.

But I think the biggest difference is that probably most analysts assume that since the film, Spider-Man 3, was debuting in the second quarter of the year that we would record most of those Spider-Man JV related and other revenues associated with the movie in that second quarter. In reality, we record the great bulk of those revenues in the first quarter, and this is related to the on-shelf revenue recognition rule that we use. Obviously if a licensee has their products on retail shelves prior to the movie release, and most of them of course do, then we actually record the revenue associated with those products and those licenses when those products hit retail shelves, and most of the products hit the retail shelf in the first quarter.

So actually, we feel that the first quarter was solid and equal to our expectations, but the difference with the street’s consensus may be that the revenue recognition that I described.

David, would you like to talk about Sega?

David Maisel

Sure. We are obviously very excited about the Sega announcement we made a few weeks ago, which expanded the Iron Man game to cover three other games; Hulk, Captain America, and Thor. The reason why we chose Sega was really driven by three factors. One was economics -- a very attractive deal and recognizing the profile that Marvel has now and our success in the videogame sector.

The second was real confidence in Sega’s ability to perform and develop these games in an extraordinary way. We are very involved with our companies that we work with in reviewing and helping to select the developers that are on games, and the companies that Sega had identified for our games and the work that they had done gave us a lot of confidence. In fact, before we expanded this to Hulk, Captain America and Thor -- we announced Iron Man late last year -- we had worked for a series of months on Iron Man and we saw in action the abilities of Sega in developing our games.

And the third reason to go with Sega was the efficiency and the economics of going with one company for four games and the ability to closely coordinate, especially with those games that are being made into movies with our studio operations and have the kind of integration that is so required now between the movies and the videogames to deliver what the gamers want. We found it very advantageous to have all four of these games with one company.

Mike Savner - Banc of America

Terrific. Thanks, David. Thanks, Peter.

Operator

Our next question comes from the line of Barton Crockett from J.P. Morgan. Please proceed.

Barton Crockett - J.P. Morgan

First, looking at the Spider-Man JV, we have this very big number in licensing, the $57 million number here in the first quarter, could you give us some sense of what the slope of that line or the size of it might be over the next three quarters and how much of it would be overages in at least what’s implicit in your guidance versus up-front minimum? That would be the first question.

The second thing is, turning to the share repurchase, I was just wondering if you could remind us; I believe that that line’s up at the end of this month and at the end of that, Perlmutter, who has been restricted, will become unrestricted. I was just wondering if you could just refresh our memories and make sure that that’s correct. So that would be a second question there. Thank you.

F. Peter Cuneo

Thanks, Barton. I think Ken West will do the Spider-Man JV and then John Turitzin will comment on our repurchase program.

Kenneth West

Good morning, Barton. With respect to the joint venture revenues that have been recognized for Q1, there actually is a small component of that number that does include overages already for some select licensees that have already shipped in that much more than their minimum guarantee. We anticipate that throughout the balance of the year for the remaining three quarters, that additional overages will be recognized. It is built into our guidance and there are some additional minimum guarantees to be recognized in Q2 and Q3 for those licenses that happen to be accounted for based on their peculiar elements on a cash basis. So we do anticipate continued revenues throughout the remainder of the year associated with the joint venture with Sony.

Barton Crockett - J.P. Morgan

Could you give us some sense, are the revenues likely to match what we’ve seen in the up-fronts here in the first quarter over the balance of the three quarters?

Kenneth West

For the year, the first quarter is the strongest associated with the joint venture for revenue recognition. Therefore, looking at the balance of the year, there will be lesser amounts but each quarter will include joint venture revenue.

Barton Crockett - J.P. Morgan

But will cumulatively the three quarters match what we saw in the first quarter?

Kenneth West

Not exactly. Not up to that high level.

Barton Crockett - J.P. Morgan

Okay, so the three quarters cumulatively will be less than what we saw in the first quarter.

Kenneth West

Slightly, that’s correct.

Barton Crockett - J.P. Morgan

Slightly. Okay, thank you.

John Turitzin

On the share repurchase question, you are correct. The current share authorization will expire at the end of the month. There is money left in that program. It will expire at the end of this month and Mr. Perlmutter’s agreement not to sell endures as long as the share repurchase is in place. I would expect that the company, the Board will consider and look at the possibility of whether or not to extend the program or to let it terminate at the end of the month. If it does, I am sure they would talk to Mr. Perlmutter about his commitment. But right now, there are no plans in that respect.

Barton Crockett - J.P. Morgan

Okay, great, and then one other question I had just about the statement of cash flows, Ken. There was a big benefit there from $41 million from income tax receivable. What is behind that?

Kenneth West

Barton, to the extent -- if you’ll recall, there were significant stock option exercises that generated tax deductions in 2006. As a result, that created a net operating loss refund opportunity that we have as a receivable during the current year and expect to collect in Q3. We did have a refund that we did collect as a portion, and that’s a refund of a quarterly estimated payment that came back of approximately $19 million in Q1 but more money is expected to be collected for the balance of the year and that’s built into our cash flow forecast for the full year.

Barton Crockett - J.P. Morgan

Okay. All right, I’ll leave it there. Thank you.

Operator

Our next question comes from the line of Gordon Hodge from Thomas Weisel Partners. Please proceed.

Gordon Hodge - Thomas Weisel Partners

Good morning. Just a couple of questions; one on the film slate. I’m wondering, I think the notion was that when the films were greenlit, you’d be in a position to record international sales or at least pursue international sales. I’m just wondering what the status of that is.

Also, on the Sega licensing expansion and the park deal, as well as the Broadway deal, I’m just wondering if there were meaningful up-front payments associated with that, or revenue recognized for that. Thanks.

F. Peter Cuneo

David, would you like to address the international sales?

David Maisel

Sure. Gordon, we for both movies have sold the five territories. We are very happy with the partners that we have and the sales. We are not, as with other costs and specific revenue items, making those numbers public for competitive reasons, but we have said publicly who our partners are overseas; Paramount bought the region of Australia and New Zealand. Sony Pictures bought Japan and Spain. Tele Muenchen bought Germany and M6 bought France.

Gordon Hodge - Thomas Weisel Partners

For both films?

David Maisel

Excuse me?

Gordon Hodge - Thomas Weisel Partners

For both films?

David Maisel

That’s for Iron Man and Hulk, correct.

Gordon Hodge - Thomas Weisel Partners

Okay, terrific.

David Maisel

And regarding -- I think you asked about Broadway and Dubai, we are obviously excited about those announcements. They are projects that would be executed in a few years. The theme park is projected for the end of 2010, 2011. Broadway perhaps for 2009 or beyond, depending upon the development of the show. Both of those projects bring us into significant new areas of revenue growth and of income growth. Consistent with what we’ve done so far, where there’s no capital risk on behalf of Marvel but we have significant percentages of all the revenues that come in to those projects.

We did receive advances on both of those projects so far and we will receive some more advances next year, but they are not material compared to the amount of money we can make from those projects when they start up.

Gordon Hodge - Thomas Weisel Partners

Great. Thank you.

Operator

Our next question comes from the line of David Miller from SMH Capital. Please proceed.

David Miller - SMH Capital

Good morning. Congratulations on the stellar results. A question for David; every studio here in town handles release dates differently. Obviously, as you know, some like to plant a battle flag in the ground and occupy that real estate immediately, some wait to see how the competitive landscape evolves and then move based on that. How are you guys going to handle release dates next year with the owned films? Thanks very much.

David Maisel

Sure. As you know, we have two release dates set up, May 2, 2008 for Iron Man and June 13, 2008 for The Incredible Hulk. We have somewhat of an advantage in owning our intellectual property and knowing further in advance which movies we are going to actually be introducing into the marketplace, not just developing. So we do plan to do what we did with Iron Man and Hulk, which is plant our flags early. We are very happy with our release dates. We have the same weekend for Iron Man in the calendar that we just had for Spider-Man, the first weekend of the summer. And we have a very attractive time in mid-June for The Incredible Hulk, and we will try to continue that trend and announce our release dates relatively earlier, perhaps than others.

David Miller - SMH Capital

Thank you.

Operator

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

Eric Handler - Lehman Brothers

Thank you. As I look through your cash flow statement, your film production costs in the quarter were about $32.5 million, and your borrowings from the film facility were $16 million. Can you just help us reconcile how much of the film production costs were for Iron Man that you’ve been allowed to recoup, what hasn’t been allowed to be recouped as of yet, and how you think those two accounts pan out over the course of the year?

Secondly, with regard to films 3 and 4, since you have a deal with Sega in place for Captain America and Thor, should we assume that those are the films that you are thinking about for 2009? Thanks.

Kenneth West

With respect to the film spending and the cash activities associated with that, as you know, as we develop films and scripts associated with the other characters in the slate, those are being monies spent directly by Marvel and to the extent when they are greenlit in the future, then borrowings would be made against those.

With respect to Iron Man and Hulk, Iron Man was greenlit for that process and therefore funding started and borrowings occurred during the beginning of Q2, so therefore Marvel spending was up-front and then reimbursed later in Q2.

And with respect to the Hulk, we anticipate that we will greenlight that program probably most likely in the end of this quarter, near the end of this quarter and therefore, there will be financings borrowed against that facility to reimburse ourselves for up-front spending on the Hulk project to date.

David Maisel

Regarding the ’09 movies, obviously we haven’t yet announced those. We will as soon as we are sure which films they will be. We are developing five projects. In addition to Captain America and Thor, we are developing actively Ant-Man, Nick Fury, and Avengers, and it will likely be two of those five for ’09.

Eric Handler - Lehman Brothers

Just one quick follow-up; should we assume that free cash flow for 2007 will be negative?

Kenneth West

We expect to generate positive cash throughout 2007, but as I mentioned in my prepared remarks, when you look at a statement of cash flows, the caption “cash flows from operating activities” is anticipated to be negative but that’s just a GAAP term. What’s most important is that we will be continuing to generate positive cash flows throughout the year.

Eric Handler - Lehman Brothers

Thank you.

Operator

Our next question comes from the line of Drew Crum from Stifel Nicolaus. Please proceed.

Drew Crum - Stifel Nicolaus

Good morning, everyone. I wonder if you could update us on your expectations for the Fantastic Four toy line. You had mentioned that you thought it would be below what you achieved in 2005. I just wondered, based on your experience with Hasbro to date and what you are seeing in the second quarter if there is any update there. And if you could update us on your expectation for contributions from toys operating income. I think you mentioned that you thought about a third of that would come from toys in 2007.

And then my second question relates to publishing. Obviously impressive margin gains again. Just give us a sense as to what level of upside you have going forward with that division. What are some of the drivers contributing to that performance? Thanks.

F. Peter Cuneo

Thanks. First of all, with regard to Fantastic Four toys and so on, as we’ve said previously, we in our guidance are projecting The Fantastic Four toy line to do less business on Fantastic Four 2, which is coming out in a month, than we did on the previous Fantastic Four film, simply because of the log jam of major films that we are seeing over the next eight weeks. I think there are six major films coming and all of them compete for retail space, particularly in the toy area and other licensed products as well.

So it is just unrealistic for us to believe that with that pressure on retailers to pick really two or three different properties, they will not feature all six or seven properties, that Fantastic Four wouldn’t be affected. So we continue to believe that Fantastic Four is excellent toy line and a good franchise, but it will suffer because of the situation in the marketplace.

With regard to toys, I think your question was what is the toy business going to do for 2007, as a piece of our total business, if I understood that correctly.

Drew Crum - Stifel Nicolaus

That’s correct.

F. Peter Cuneo

We don’t typically give guidance -- in fact, I don’t think we’ve ever given guidance by business segment in the past because these are somewhat fluid and as you know, our businesses are chunky by nature. We feel pretty good about our overall guidance for the year but we don’t generally talk to specific segments.

With regard to publishing, Dan Buckley is here and he can talk a little bit about profit margins and what else is happening in publishing.

Dan Buckley

Drew, we’ve had a lot of benefit from the standpoint of Civil War came out at the tail-end of this year, along with Dark Tower launching, and then we also had The Death of Captain America comic book, which did tremendous volumes for us, which probably put us on the topside of our margin because obviously with printing, there’s a lot of fixed costs associated with staffing and how you set up presses.

So from a margin standpoint, I don’t know if there is much more upside that we can squeeze out of there. I do see that we will probably be fairly consistent with the margins that we have reported for the last couple of -- what we’ve been doing over the last couple of years, but with what we have planned out for the next year, I think we can cycle well against what we had happen with Civil War and other programs that we did.

Drew Crum - Stifel Nicolaus

Okay, thanks, guys.

Operator

Our next question comes from the line of Joe Hovorka from Raymond James. Please proceed.

Joseph Hovorka - Raymond James & Associates

Thanks, guys. A couple of questions; first, the five territories that you sell for Iron Man and Hulk, when do you receive those monies?

David Maisel

Those monies are received in a combination of ways. There’s sometimes deposits and there’s also payments of the rest of the amounts when the actual film is delivered. However, as most other studios do, we enter into banking arrangements which allow us to essentially use those funds earlier to pay for the production.

Joseph Hovorka - Raymond James & Associates

So have you received payments yet from those territories or no?

David Maisel

Yes, we have.

Joseph Hovorka - Raymond James & Associates

Where do those show up on the balance sheet? Or income -- how do you record that?

Kenneth West

Those are not income statement elements. Those are just cash borrowings, cash receipts. They are on the balance sheet to the extent monies are spent to develop the films, they are in the film inventory. And to the extent monies are collected, they are put into borrowings of film debt outstanding.

Joseph Hovorka - Raymond James & Associates

So it’s in that $16.3 million, is what you’re saying, on the cash flow statement? It says film facility borrowings.

Kenneth West

Correct.

F. Peter Cuneo

That’s correct, Joe.

Joseph Hovorka - Raymond James & Associates

Okay. Secondly, you’ve typically provided a breakout of toy revenue for royalties, overages and other. Can you give that for the first quarter?

Kenneth West

Included in our toy revenue, from our press release, earnings press release this morning, approximately $21 million of the toy revenue relates to the royalty and service fee income recognized from our license agreement with Hasbro for Q107.

Joseph Hovorka - Raymond James & Associates

Okay, can you break that out? You usually do service fee and royalty separately.

Kenneth West

No.

Joseph Hovorka - Raymond James & Associates

Okay. You won’t be providing that in the Q any longer?

Kenneth West

It will continue to be on a combined basis of service fee and royalties.

Joseph Hovorka - Raymond James & Associates

Okay. And then, third, would you want to disclose the overages that you recorded in the first quarter related to Spider-Man, total overages?

Kenneth West

Total overages for the quarter --

F. Peter Cuneo

For Spider-Man LP, there were some but it was very minor, Joe.

Joseph Hovorka - Raymond James & Associates

And are you going to disclose the total, or no?

Kenneth West

The total overages for all programs, both domestic, international and for the Spider-Man joint venture, were approximately $20 million.

Joseph Hovorka - Raymond James & Associates

Okay, and then going back to Spider-Man 2, can you just give us an idea what the magnitude of overages relative to minimum guarantees? And that’s the last question.

Kenneth West

Joe, could you define that a little?

Joseph Hovorka - Raymond James & Associates

For Spider-Man 2, for instance, overages versus minimums; were overages 1X, 2X, times what you had in minimum guarantees for Spider-Man 2, the movie? Just to give us a sense.

F. Peter Cuneo

Sure. We can give you a little history on Spider-Man 2. The minimums were approximately $35 million, and the actual total earned royalties, and earned royalties is what we really manage towards here, was about $105 million. So the difference from $35 million to $105 million was overages of $70 million.

Joseph Hovorka - Raymond James & Associates

Thank you.

Operator

Our next question comes from the line of Alan Gould from Bleichroder. Please proceed with your question.

Alan Gould - Natexis Bleichroder Inc.

Thank you. Two questions; first, Ken, if you can walk us through the deferred revenue account a little bit. It looks like deferred revenue went down by $67 million. I know you recognized that $57 million of licensing. I realize it’s a fluid account with stuff coming in, stuff coming out, but the number is still $109 million at the end of the quarter. I realize it will go up by 70 with the June quarter with the Hasbro payment. Was there any tie-in to this deferred revenue to the revenue, as a leading indicator of the revenue you are going to recognize from Spidey 3?

Kenneth West

Thank you. Alan, you have the basic components, as you just mentioned, in the framing of your question. The deferred revenue does include those large advances from Hasbro. Every quarter, as we recognize income from the Hasbro license, it is eating away against that deferred revenue element. Also, the monies collected in 2006 associated with the Spider-Man joint venture, that deferred revenue element and we did take a lot, a great portion down as we recognized it into Q107.

So as we enter into new licenses, depending upon the actual contractual terms negotiated with each licensee, each license is evaluated independently one by one, and to the extent if revenue has to be deferred for some elements of the license agreement pursuant to the accounting rules, again that will be another increase to deferred revenue. So the elements in deferred revenue do represent amounts to be recognized in the future but without any indication as to which period.

Does that help, Alan?

Alan Gould - Natexis Bleichroder Inc.

A bit. Okay, and Peter, one question for you regarding the guidance; I believe the 10-K said licensing revenue in ’07 should be larger than either ’05 or ’06, which you have put at over $230 million that you had in ’05. Publishing is up a little bit. Some reasonable numbers on toy sales, even looking versus ’05 and figuring it is up from there, still wondering how you don’t exceed the top end of your revenue guidance.

F. Peter Cuneo

Well again, I don’t have the specific details here, Alan. Again, we look at guidance every quarter to basically see where we think we are going to come out for the year. I think that licensing is going to be a big part of ’07 because of Spider-Man and because of the new Hasbro relationship, so I think that you are right that ‘07’s overall licensing revenue should be higher than ’06 and ’05.

But as far as the balance is concerned, I don’t have the statistics in front of me, I’m afraid.

Alan Gould - Natexis Bleichroder Inc.

Okay, thank you.

Operator

Our next question is a follow-up question from the line of Michael Savner from Banc of America Securities. Please proceed.

Mike Savner - Banc of America

Thanks very much. I just wanted to try to re-ask a question that a couple of people have asked, just to get some clarity. Can you quantify at an aggregate level, not specifically by product line but what the incremental revenue was in the quarter from one-time items excluding Spider-Man? Meaning anything that came in that was recorded on the P&L from advances from whether it’s the Sega contract or the Dubai agreement, just so we can try to do an apples-to-apples versus what was expected during the quarter in our estimates and what came in that was subsequent to the last call, so we wouldn’t have known to necessarily or thought to necessarily model in?

Kenneth West

With respect to the contracts specifically for the Broadway project and Sega, although we have collected advances from both, there’s been no revenue recognized associated with either of those projects, just specific to the peculiar element included in both of those licenses. So those are to be recognized in the future.

With respect to the Dubai contract, a very small portion of the minimum guarantee was recognized in this first quarter. There is more to be recognized for the balance of the contract, but the real money associated with that opportunity, as David mentioned before, is really in the royalties to be earned once that park opens in 2010 or 2011. So the minimum guarantees are just a small portion of that which we anticipate to be earned associated with this new relationship, and that’s in the future too.

Mike Savner - Banc of America

Perfect. Thanks for clearing that up.

F. Peter Cuneo

Operator, we’ll take one more question.

Operator

Certainly. Our next question comes from the line of David Kestenbaum from Morgan Joseph. Please proceed.

David Kestenbaum - Morgan Joseph

Thanks. Can you just give us some color on what your plans are for Spider-Man 4 now that Spider-Man 3 has proven to be such a success?

David Maisel

Our partner, Sony, is obviously going through, along with us, the plans for the Spider-Man franchise going forward. There’s been no specific plans mentioned, though I think some senior executives at Sony expressed their obvious excitement about the weekend, the record-setting weekend on Spider-Man 3, and there’s every reason to believe that there will be more and more Spider-Man films for all of us going forward, but no specific announcements or dates or ideas have been talked about yet.

David Kestenbaum - Morgan Joseph

Thanks.

F. Peter Cuneo

Thank you all very much for attending the call today. We appreciate it and I hope that we can chat with all of you at the end of next quarter. Thank you.

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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