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DreamWorks Animation Reports First Quarter 2011 Financial Results


News provided by

DreamWorks Animation SKG, Inc.

Apr 26, 2011, 04:02 ET

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GLENDALE, Calif., April 26, 2011 /PRNewswire/ -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its first quarter ended March 31, 2011. For the quarter, the Company reported total revenue of $108.0 million and net income of $8.8 million, or $0.10 per share on a fully diluted basis.

"DreamWorks Animation's first quarter of 2011 was driven primarily by our 2010 films, including Megamind, which had a solid performance following its February 25th release into the home entertainment market," said Jeffrey Katzenberg, CEO of DreamWorks Animation. "We now look forward to kick-starting the summer movie-going season with Kung Fu Panda 2 on May 26th, as family entertainment – and CG animation in particular – has performed at the top of the box office charts so far this year."

Megamind, which was released on November 5, 2010, contributed $18.1 million of revenue in the quarter, driven primarily by its domestic home video release. The film reached an estimated 2.9 million home entertainment units sold worldwide through the end of the quarter, net of actual and estimated future returns.

Shrek Forever After, which was released on May 21, 2010, contributed $19.9 million of revenue in the quarter, driven primarily by home entertainment. The film reached an estimated 8.2 million home entertainment units sold worldwide through the end of the quarter, net of actual and estimated future returns.

How to Train Your Dragon, which was released on March 26, 2010, contributed $8.7 million of revenue in the quarter, driven primarily by home entertainment. The film reached an estimated 8.3 million home entertainment units sold worldwide through the end of the quarter, net of actual and estimated future returns.

Kung Fu Panda contributed $12.1 million of revenue to the quarter, primarily from international free television, and Madagascar 2 contributed revenue of $19.1 million, primarily from domestic and international free television.

Library and other items, including non-film businesses, contributed approximately $30.1 million of revenue to the quarter.  

Costs of revenue for the quarter equaled $72.0 million. Selling, general and administrative expenses totaled $30.1 million, including approximately $6.7 million of stock-based compensation expense.

The Company's determination during the current quarter of its ability to claim certain tax deductions related to prior years resulted in a benefit of $4.6 million recorded in our first quarter income statement as a decrease in income tax benefit payable to former stockholder. Combining this benefit with the Company's income tax provision of $3.7 million resulted in a first quarter net tax benefit of approximately $0.9 million. The Company currently expects that its 2011 combined effective tax rate (its actual tax rate coupled with the effect of our tax sharing agreement with a former stockholder) will be approximately 30%.

The Company also provided an update to its share repurchase program. Year to date, the Company has repurchased approximately 0.9 million shares for $25 million. The Company has $125 million remaining under its current authorization.

The Company's second quarter and full year results are expected to be driven by Kung Fu Panda 2, which is scheduled to be released on May 26, 2011. Television revenue for Madagascar 2, How to Train Your Dragon and Shrek Forever After is also expected to contribute to the Company's second quarter results.

Items related to the earnings press release for the first quarter of 2011 will be discussed in more detail on the Company's earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, April 26, 2011, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1074 in the U.S. and (612) 288-0340 internationally and identifying "DreamWorks Animation Earnings" to the operator. The call will also be available via live webcast at www.dreamworksanimation.com.

A replay of the conference call will be available shortly after the call ends on Tuesday, April 26, 2011. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 198739 as the conference ID number. Both the earnings release and archived webcast will be available on the Company's website at www.dreamworksanimation.com.

About DreamWorks Animation

DreamWorks Animation creates high-quality entertainment, including CG animated feature films, television specials and series, live entertainment properties and online virtual worlds, meant for audiences around the world. The Company has world-class creative talent, a strong and experienced management team and advanced filmmaking technology and techniques. DreamWorks Animation has been named one of the "100 Best Companies to Work For" by FORTUNE® Magazine for two consecutive years. In 2010, DreamWorks Animation ranks #6 on the list. All of DreamWorks Animation's feature films are now being produced in 3D. The Company has theatrically released a total of 21 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon.

Caution Concerning Forward-Looking Statements

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company's plans, prospects, strategies, proposals and our beliefs and expectations concerning performance of our current and future releases and anticipated talent, directors and storyline for our upcoming films and other projects, constitute forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict.  Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of DreamWorks Animation SKG, Inc. These risks and uncertainties include: audience acceptance of our films, our dependence on the success of a limited number of releases each year, the increasing cost of producing and marketing feature films, piracy of motion pictures, the effect of rapid technological change or alternative forms of entertainment and our need to protect our proprietary technology and enhance or develop new technology. In addition, due to the uncertainties and risks involved in the development and production of animated feature projects, the release dates for the projects described in this document may be delayed. For a further list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our most recent quarterly reports on Form 10-Q. DreamWorks Animation is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

** FINANCIAL TABLES ATTACHED**

CONSOLIDATED BALANCE SHEETS

(Unaudited)





March 31,
2011


December 31,
2010



(in thousands,

except par value and share

amounts)

Assets



Cash and cash equivalents                                                                    

$  86,108

$  163,819

Trade accounts receivable, net of allowance for doubtful accounts                                    

28,345

40,136

Income taxes receivable                                                                       

4,446

310

Receivable from Paramount, net of allowance for doubtful accounts                                   

236,106

242,629

Film and other inventory costs, net                                                               

839,842

772,668

Prepaid expenses                                                                           

29,535

21,795

Other assets                                                                               

9,832

9,889

Property, plant and equipment, net of accumulated depreciation and amortization                          

172,116

174,803

Deferred taxes, net                                                                           

287,500

295,602

Goodwill                                                                                   

34,216

34,216




Total assets                                                                                

$  1,728,046

$  1,755,867




Liabilities and Equity



Liabilities:



Accounts payable                                                                      

$  5,183

$  3,515

Accrued liabilities                                                                       

101,454

143,098

Payable to former stockholder                                                             

297,100

329,590

Deferred revenue and other advances                                                     

70,873

20,793




Total liabilities                                                                               

474,610

496,996

Commitments and contingencies



Stockholders' equity:



Class A common stock, par value $.01 per share, 350,000,000 shares authorized, 97,453,929 and 97,436,947 shares issued, as of March 31, 2011 and December 31, 2010, respectively

975

975

Class B common stock, par value $.01 per share, 150,000,000 shares authorized, 10,838,731 shares issued and outstanding, as of March 31, 2011 and December 31, 2010, respectively

108

108

Additional paid-in capital                                                                 

990,400

979,177

Retained earnings                                                                       

975,729

966,935

Less: Class A Treasury common stock, at cost, 24,789,801 and 23,834,081 shares, as of March 31, 2011 and December 31, 2010, respectively

(713,776)

(688,324)




Total stockholders' equity                                                                     

1,253,436

1,258,871




Total liabilities and stockholders' equity                                                           

$  1,728,046

$  1,755,867





CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)





Three Months Ended
March 31,



2011


2010



(in thousands, except
per share amounts)

Revenues                                                      

$  108,037

$  162,143

Costs of revenues                                               

72,027

106,183




Gross profit                                                     

36,010

55,960

Product development                                             

168

185

Selling, general and administrative expenses                           

30,129

23,510




Operating income                                                

5,713

32,265

Interest income, net                                               

216

59

Other income, net                                                

2,000

2,093

Decrease (increase) in income tax benefit payable to former stockholder    

4,589

(8,188)




Income before income taxes                                       

12,518

26,229

Provision for income taxes                                         

3,724

4,560




Net income                                                     

$  8,794

$  21,669




Basic net income per share                                        

$  0.10

$  0.25

Diluted net income per share                                       

$  0.10

$  0.24

Shares used in computing net income per share



Basic                                                    

84,138

86,838

Diluted                                                   

85,157

88,709


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)





Three Months Ended
March 31,



2011


2010



(in thousands)

Operating activities



Net income                                                                                 

$  8,794

$  21,669

Adjustments to reconcile net income to net cash used in operating activities:



Amortization and write-off of film and other inventory costs                                    

54,911

96,875

Stock-based compensation expense                                                       

7,021

6,674

Depreciation and amortization                                                            

726

629

Revenue earned against deferred revenue and other advances                                 

(3,128  )

(29,898)

Deferred taxes, net                                                                    

8,102

(538)

Changes in operating assets and liabilities:



Trade accounts receivable                                                         

11,791

(11,472)

Receivable from Paramount                                                         

6,523

36,773

Film and other inventory costs                                                       

(111,901)

(116,670)

Prepaid expenses and other assets                                                  

(8,470)

(8,963)

Accounts payable and accrued liabilities                                              

(39,876)

(10,597)

Payable to former stockholder                                                       

(32,490)

(13,511)

Income taxes payable/receivable, net                                                 

(4,136)

4,345

Deferred revenue and other advances                                               

57,941

19,889




Net cash used in operating activities                                                            

(44,192)

(4,795)




Investing activities



Purchases of property, plant and equipment                                                      

(8,075)

(13,928)




Net cash used in investing activities                                                             

(8,075)

(13,928)




Financing activities



Receipts from exercise of stock options                                                         

7

7,964

Excess tax benefits from employee equity awards                                                 

—

171

Purchase of treasury stock                                                                   

(25,451)

(2,270)




Net cash (used in) provided by financing activities                                                 

(25,444)

5,865




Decrease in cash and cash equivalents                                                         

(77,711)

(12,858)

Cash and cash equivalents at beginning of period                                                 

163,819

231,245




Cash and cash equivalents at end of period                                                      

$  86,108

$  218,387




Supplemental disclosure of cash flow information:



Cash paid during the period for income taxes, net                                             

$  455

$  563




Cash paid during the period for interest, net of amounts capitalized                               

$  120

$  149





dwa-e

SOURCE DreamWorks Animation SKG, Inc.

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