DreamWorks Animation Reports Third Quarter 2010 Financial Results

Shrek Forever After Becomes Company's Highest Grossing International Release of All Time

Oct 26, 2010, 16:01 ET from DreamWorks Animation SKG, Inc.

GLENDALE, Calif., Oct. 26 /PRNewswire-FirstCall/ -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its third quarter ended September 30, 2010. In the quarter, the Company reported total revenue of $188.9 million and net income of $39.8 million, or $0.47 per share on a fully diluted basis. This compares to revenue of $135.4 million and net income of $19.6 million, or $0.23 per share on a fully diluted basis, for the same period in 2009.

"Our strong third quarter was driven primarily by the international box office success of Shrek Forever After, which has become DreamWorks Animation's highest grossing international release of all time," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "2010 has already been a historic year for the Company and we are still looking forward to the theatrical release of Megamind on November 5th as well as home entertainment results from both How to Train Your Dragon and Shrek Forever After yet to come this year."

Shrek Forever After, which was released on May 21, 2010, contributed $120.4 million of revenue in the quarter, driven by its continued performance at the worldwide box office. The film has reached $238 million in domestic box office and $497 million in international box office for a worldwide total of $735 million to date.

How to Train Your Dragon, which was released on March 26, 2010, contributed $0.8 million of revenue to the quarter.  It has reached approximately $493 million in worldwide box office and was released into the home entertainment market on October 15, 2010.

The Company's 2009 release, Monsters vs. Aliens, contributed $11.0 million of revenue to the quarter, driven by international pay television and home entertainment. Through the end of the third quarter, it reached an estimated 8.4 million home entertainment units sold, net of actual and estimated future returns.

The Company's 2008 releases, Madagascar: Escape 2 Africa and Kung Fu Panda, contributed $2.6 million and $9.8 million of revenue to the quarter, respectively.

Library and other items contributed approximately $44.3 million of revenue to the quarter.  

Costs of revenue for the quarter equaled $107.7 million. Selling, general and administrative expenses totaled $26.5 million, including approximately $6.4 million of stock compensation expense.

Additionally, the Company recorded an expense of approximately $18.0 million related to its tax sharing agreement with a former stockholder. Combining the amount due to the former stockholder with the Company's income tax benefit of approximately $2.0 million resulted in an overall equivalent tax rate of 28.8% for the third quarter.

Looking ahead to the remainder of the year, the Company's fourth quarter results are expected to be driven primarily by the home entertainment performance of How To Train Your Dragon and Shrek Forever After. Shrek Forever After and Shrek: The Whole Story will be released into the home entertainment market on December 7, 2010.  Consumer product revenue associated with the theatrical release of Megamind and domestic network television revenue for Kung Fu Panda are also expected to contribute revenue to the Company in the fourth quarter.

Items related to the earnings press release for the third quarter of 2010 will be discussed in more detail on the Company's third quarter 2010 earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, October 26, 2010, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1951 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, October 26, 2010. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 172586 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 20 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon. DreamWorks Animation's next feature film is Megamind, scheduled to be released in 3D on November 5, 2010.

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

September 30, 2010

December 31, 2009

(unaudited)

(in thousands,

except par value and share

amounts)

Assets

Cash and cash equivalents                                                                   

$  169,600

$  231,245

Trade accounts receivable, net of allowance for doubtful accounts                                   

43,303

42,175

Income taxes receivable                                                                      

10,852

9,016

Receivable from Paramount, net of reserve for returns and allowance for doubtful accounts               

119,999

171,292

Film and other inventory costs, net                                                             

794,077

695,963

Prepaid expenses                                                                           

31,893

25,505

Other assets                                                                               

22,662

15,958

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

172,899

161,558

Deferred taxes, net                                                                         

8,905

7,669

Goodwill                                                                                   

34,216

34,216

Total assets                                                                               

$  1,408,406

$  1,394,597

Liabilities and Equity

Liabilities:

Accounts payable                                                                     

$  3,854

$  2,400

Accrued liabilities                                                                      

118,987

111,281

Payable to former stockholder                                                            

79,755

67,456

Deferred revenue and other advances                                                     

40,602

60,870

Total liabilities                                                                               

243,198

242,007

Commitments and contingencies

Stockholders' equity:

Class A common stock, par value $.01 per share, 350,000,000 shares authorized, 97,055,131 and 95,967,515 shares issued as of September 30, 2010 and December 31, 2009, respectively

971

960

Class B common stock, par value $.01 per share, 150,000,000 shares authorized, 10,838,731 and 11,419,461 shares issued and outstanding, as of September 30, 2010 and December 31, 2009, respectively

108

114

Additional paid-in capital                                                                 

963,843

922,681

Retained earnings                                                                      

881,701

796,296

Less: Class A Treasury common stock, at cost, 23,634,770 and 20,430,031 shares as of September 30, 2010 and December 31, 2009, respectively

(681,415)

(567,461)

Total  stockholders' equity                                                                     

1,165,208

1,152,590

Total liabilities and stockholders' equity                                                           

$  1,408,406

$  1,394,597

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2010

2009

2010

2009

(in thousands, except per share amounts)

Revenues                                                       

$  188,882

$  135,448

$  509,120

$  530,962

Costs of revenues                                                 

107,664

89,066

312,581

319,494

Gross profit                                                      

81,218

46,382

196,539

211,468

Product development                                               

1,450

155

2,057

2,616

Selling, general and administrative expenses                            

26,478

24,687

77,739

70,209

Operating income                                                 

53,290

21,540

116,743

138,643

Interest income, net                                                

160

237

390

1,755

Other income, net                                                 

2,343

2,191

6,440

5,256

Increase in income tax benefit payable to former stockholder               

(18,012)

(2,130)

(34,868)

(29,160)

Income before income taxes                                         

37,781

21,838

88,705

116,494

(Benefit) provision for income taxes                                   

(1,980)

2,230

3,300

9,020

Net income                                                       

$  39,761

$  19,608

$  85,405

$  107,474

Basic net income per share                                         

$  0.47

$  0.23

$  1.00

$  1.24

Diluted net income per share                                         

$  0.47

$  0.23

$  0.98

$  1.23

Shares used in computing net income per share:

Basic                                                      

83,946

85,882

85,491

86,402

Diluted                                                     

85,496

87,129

87,503

87,355

DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

2010

2009

(in thousands)

Operating activities

Net income                                                                                   

$  85,405

$  107,474

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization and write off of film and other inventory costs                                       

269,840

266,024

Stock compensation expense                                                              

22,403

22,478

Depreciation and amortization                                                              

4,693

2,497

Revenue earned against deferred revenue and other advances                                   

(56,699)

(69,146)

Deferred taxes, net                                                                      

(1,236)

23,345

Change in operating assets and liabilities:

Trade accounts receivable                                                           

(1,128)

3,238

Receivable from Paramount                                                           

51,293

75,490

Film and other inventory costs                                                         

(342,498)

(269,011)

Prepaid expenses and other assets                                                    

(17,134)

(13,710)

Accounts payable and accrued liabilities                                                

9,312

(25,157)

Payable to former stockholder                                                         

12,299

664

Income taxes payable/receivable, net                                                   

(2,140)

(17,317)

Deferred revenue and other advances                                                 

45,736

84,964

Net cash provided by operating activities                                                           

80,146

191,833

Investing activities

Purchases of property, plant and equipment                                                        

(37,777)

(55,030)

Net cash used in investing activities                                                               

(37,777)

(55,030)

Financing Activities

Receipts from exercise of stock options                                                           

8,801

936

Excess tax benefits from employee equity awards                                                   

1,139

(356)

Purchase of treasury stock                                                                     

(113,954)

(52,797)

Net cash used in financing activities                                                               

(104,014)

(52,217)

(Decrease) increase in cash and cash equivalents                                                   

(61,645)

84,586

Cash and cash equivalents at beginning of period                                                   

231,245

262,644

Cash and cash equivalents at end of period                                                        

$  169,600

$  347,230

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes, net                                               

$  5,513

$  3,347

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

$  404

$  506

SOURCE DreamWorks Animation SKG, Inc.



RELATED LINKS

http://www.dreamworksanimation.com