DreamWorks Animation Reports Third Quarter 2008 Financial Results
GLENDALE, Calif., Oct. 28 /PRNewswire-FirstCall/ — For the quarter ended September 30, 2008, DreamWorks Animation SKG, Inc. reported total revenue of $151.5 million and net income of $37.4 million, or $0.41 per share on a fully diluted basis. This compares to revenue of $160.8 million and net income of $47.0 million, or $0.47 per share on a fully diluted basis, for the same period in 2007.
To date, Kung Fu Panda has reached approximately $415 million in international box office and over $630 million worldwide, making it DreamWorks Animation’s most successful original film of all time.
“Driven by the film’s exceptional theatrical performance on a worldwide basis, the Company has found in Kung Fu Panda its third franchise,” said Jeffrey Katzenberg, CEO of DreamWorks Animation. “We look forward to continuing our 2008 success with our next theatrical release, Madagascar: Escape 2 Africa, which comes to theaters in the U.S. on November 7th and across the globe this holiday season.”
For the quarter, Kung Fu Panda contributed approximately $63.3 million in revenue, primarily from international box office receipts in the period.
The Company’s 2007 summer blockbuster, Shrek the Third, contributed approximately $32.5 million of revenue to the quarter, driven primarily by international pay television. Through the third quarter, the film reached an estimated 20.5 million home entertainment units shipped worldwide, net of actual and estimated future returns.
Bee Movie, the Company’s 2007 fall release, contributed approximately $27.3 million of revenue to the quarter, driven primarily by domestic pay television. The film reached an estimated 7.5 million units shipped worldwide through the third quarter, net of actual and estimated future returns.
Flushed Away, the Company’s 2006 fall release, and Over the Hedge, the Company’s 2006 summer release, delivered $2.6 million and $2.4 million of revenue, respectively, primarily from international pay and free television.
Library and other revenue contributed approximately $23.4 million to the third quarter, driven by continued catalogue home entertainment performance and international free television.
Cost of revenue for the quarter equaled $75.5 million. Selling, general and administrative expenses totaled $29.9 million (including approximately $10.0 million of stock compensation expense) as compared to $23.8 million (including $6.3 million of stock compensation expense) for the comparable period of 2007. Selling, general and administrative expenses were higher in the third quarter of 2008 as compared to the third quarter of 2007 due to the ongoing cost of new business initiatives and continued growth of the Company’s annual equity grant program. SG&A for the quarter also included non-cash items of approximately $2.0 million resulting from Roger Enrico’s transition to non-Executive Chairman and the acceleration of depreciation related to the remodeling of the Company’s Glendale campus.
Results for the quarter also included a tax benefit of $0.03 per share on a fully diluted basis, attributable to the combination of the Company’s tax sharing agreement with a stockholder and finalization of prior year tax returns.
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 Kung Fu Panda, which will be released on DVD and Blu-ray domestically on November 9, 2008.
The Company’s next theatrical release, Madagascar: Escape 2 Africa, is scheduled to open domestically on November 7, 2008. The Company does not expect to generate significant revenue in the fourth quarter from the distribution of this title, as its distributor may not have recouped its upfront marketing and distribution costs.
In addition to results for the quarter, the Company provided an update to its share repurchase program. Year to date, the Company has purchased approximately $185 million, or 6.8 million shares, at an average per-share price of approximately $27.20. The Company has approximately $53 million remaining under its current program.
Items related to the earnings press release for the third quarter of 2008 will be discussed in more detail on the Company’s third quarter 2008 earnings conference call later today.
Conference Call Information
DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, October 28, 2008, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1093 in the U.S. and (612) 332-0228 internationally and identifying “DreamWorks Animation Earnings” to the operator. The call will also be available via live webcast at http://www.dreamworksanimation.com/.
A replay of the conference call will be available shortly after the call ends on Tuesday, October 28, 2008. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 961531 as the conference ID number. Both the earnings press release and archived webcast will be available on the Company’s website at http://www.dreamworksanimation.com/.
About DreamWorks Animation SKG
DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films. With world-class creative talent, a strong and experienced management team and advanced CG filmmaking technology and techniques, DreamWorks Animation makes high quality CG animated films meant for a broad movie-going audience. The Company anticipates releasing its feature films into both conventional and IMAX(R) theatres worldwide. The Company has theatrically released a total of sixteen animated feature films, including Shrek, Shrek 2, Shark Tale, Madagascar, Over the Hedge, Shrek the Third, Bee Movie and Kung Fu Panda. Madagascar: Escape 2 Africa opens in theaters on November 7, 2008 and Monsters vs. Aliens on March 27, 2009. Beginning in 2009, all of the Company’s feature films will be produced in stereoscopic 3D technology.
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** DREAMWORKS ANIMATION SKG, INC. CONSOLIDATED BALANCE SHEETS September 30, December 31, 2008 2007 (unaudited) (in thousands, except par value and share amounts) Assets Cash and cash equivalents $337,905 $292,489 Trade accounts receivable, net of allowance for doubtful accounts 14,967 3,470 Receivable from Paramount, net of reserve for returns and allowance for doubtful accounts 71,967 272,647 Film costs, net 622,970 541,917 Prepaid expenses and other assets 37,030 47,609 Property, plant, and equipment, net of accumulated depreciation and amortization 103,951 86,772 Deferred taxes, net 48,073 48,664 Goodwill 34,216 34,216 Total assets $1,271,079 $1,327,784 Liabilities and Stockholders' Equity Liabilities: Accounts payable $6,162 $3,169 Accrued liabilities 108,496 108,457 Payable to stockholder 55,927 68,371 Income taxes payable 14,832 31,651 Deferred revenue and other advances 46,985 24,561 Borrowings and other debt 70,059 70,059 Total liabilities 302,461 306,268 Commitments and contingencies Minority interest 2,941 2,941 Stockholders' equity: Class A common stock, par value $.01 per share, 350,000,000 shares authorized, 95,211,372 and 93,547,321 shares issued, as of September 30, 2008 and December 31, 2007, respectively 952 935 Class B common stock, par value $.01 per share, 150,000,000 shares authorized, 11,419,461 and 12,984,461 shares issued and outstanding, as of September 30, 2008 and December 31, 2007, respectively 114 130 Additional paid-in capital 865,113 831,115 Retained earnings 593,706 502,763 Less: Class A Treasury common stock, at cost, 17,027,042 and 10,445,278 shares, as of September 30, 2008 and December 31, 2007, respectively (494,208) (316,368) Total stockholders' equity 965,677 1,018,575 Total liabilities and stockholders' equity $1,271,079 $1,327,784 DREAMWORKS ANIMATION SKG, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (in thousands, except per share amounts) Revenues $151,525 $160,751 $450,227 $476,950 Costs of revenues 75,518 70,028 248,101 234,152 Gross profit 76,007 90,723 202,126 242,798 Selling, general and administrative expenses 29,872 23,826 84,043 77,062 Operating income 46,135 66,897 118,083 165,736 Interest income, net 2,312 6,571 7,769 19,224 Other income, net 1,444 1,478 3,301 4,361 Increase in income tax benefit payable to stockholder (7,760) (21,968) (25,200) (51,694) Income before income taxes 42,131 52,978 103,953 137,627 Provision for income taxes 4,780 5,936 13,010 13,407 Net income $37,351 $47,042 $90,943 $124,220 Basic net income per share $0.42 $0.47 $1.00 $1.22 Diluted net income per share $0.41 $0.47 $0.99 $1.22 Shares used in computing net income per share Basic 89,281 99,367 90,667 101,593 Diluted 90,665 99,891 91,755 102,043 DREAMWORKS ANIMATION SKG, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2008 2007 (in thousands) Operating activities Net income $90,943 $124,220 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and write off of film costs 225,884 219,949 Stock compensation expense 28,533 25,467 Depreciation and amortization 10,381 6,829 Revenue earned against deferred revenue and other advances (58,419) (65,478) Deferred taxes, net 591 (26,953) Change in operating assets and liabilities: Trade accounts receivable (11,497) (3,049) Receivable from Paramount 200,680 105,307 Film costs (303,704) (289,035) Prepaid expenses and other assets 11,120 (29,999) Accounts payable and accrued liabilities 2,910 52,714 Payable to stockholder (12,444) 29,852 Income taxes payable, net (16,991) 25,249 Deferred revenue and other advances 88,877 60,512 Net cash provided by operating activities 256,864 235,585 Investing activities Purchases of property, plant and equipment (34,088) (5,466) Net cash used in investing activities (34,088) (5,466) Financing Activities Purchase of treasury stock (177,840) (194,356) Other 480 1,617 Net cash used in financing activities (177,360) (192,739) Increase in cash and cash equivalents 45,416 37,380 Cash and cash equivalents at beginning of period 292,489 506,304 Cash and cash equivalents at end of period $337,905 $543,684 Supplemental disclosure of cash flow information: Cash paid during the period for income taxes, net $29,271 $14,835 Cash paid during the period for interest, net of amounts capitalized $719 $-
DreamWorks Animation SKG, Inc.
CONTACT: DreamWorks Animation Investor Relations, +1-818-695-3900,email@example.com
Web site: http://www.dreamworksanimation.com/