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DreamWorks Animation Reports First Quarter 2011 Financial Results

April 26, 2011

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
                                                                     ----

                                                        (in thousands,
                                                     except par value and
                                                             share
                                                           amounts)
    Assets
    Cash and cash equivalents                                     $86,108
    Trade accounts receivable, net of allowance
     for doubtful accounts                                         28,345
    Income taxes receivable                                         4,446
    Receivable from Paramount, net of allowance
     for doubtful accounts                                        236,106
    Film and other inventory costs, net                           839,842
    Prepaid expenses                                               29,535
    Other assets                                                    9,832
    Property, plant and equipment, net of
     accumulated depreciation and amortization                    172,116
    Deferred taxes, net                                           287,500
    Goodwill                                                       34,216
                                                                   ------

    Total assets                                               $1,728,046
                                                               ==========

    Liabilities and Equity
    Liabilities:
        Accounts payable                                           $5,183
        Accrued liabilities                                       101,454
        Payable to former stockholder                             297,100
        Deferred revenue and other advances                        70,873
                                                                   ------

    Total liabilities                                             474,610
    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
        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
        Additional paid-in capital                                990,400
        Retained earnings                                         975,729
        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)
                                                                 --------

    Total stockholders' equity                                  1,253,436
                                                                ---------

    Total liabilities and stockholders' equity                 $1,728,046
                                                               ==========


                                                        December 31,
                                                                     2010
                                                                     ----

                                                        (in thousands,
                                                     except par value and
                                                             share
                                                           amounts)
    Assets
    Cash and cash equivalents                                    $163,819
    Trade accounts receivable, net of allowance
     for doubtful accounts                                         40,136
    Income taxes receivable                                           310
    Receivable from Paramount, net of allowance
     for doubtful accounts                                        242,629
    Film and other inventory costs, net                           772,668
    Prepaid expenses                                               21,795
    Other assets                                                    9,889
    Property, plant and equipment, net of
     accumulated depreciation and amortization                    174,803
    Deferred taxes, net                                           295,602
    Goodwill                                                       34,216
                                                                   ------

    Total assets                                               $1,755,867
                                                               ==========

    Liabilities and Equity
    Liabilities:
        Accounts payable                                           $3,515
        Accrued liabilities                                       143,098
        Payable to former stockholder                             329,590
        Deferred revenue and other advances                        20,793
                                                                   ------

    Total liabilities                                             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
        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
        Additional paid-in capital                                979,177
        Retained earnings                                         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                                            (688,324)
                                                                 --------

    Total stockholders' equity                                  1,258,871
                                                                ---------

    Total liabilities and stockholders' equity                 $1,755,867
                                                               ==========

                      CONSOLIDATED STATEMENTS OF INCOME
                                 (Unaudited)

                                                       Three Months Ended
                                                           March 31,
                                                           ---------

                                                                      2011
                                                                      ----

                                                     (in thousands, except
                                                       per share amounts)
    Revenues                                                      $108,037
    Costs of revenues                                               72,027
                                                                    ------

    Gross profit                                                    36,010
    Product development                                                168
    Selling, general and administrative expenses                    30,129
                                                                    ------

    Operating income                                                 5,713
    Interest income, net                                               216
    Other income, net                                                2,000
    Decrease (increase) in income tax benefit
     payable to former stockholder                                   4,589
                                                                     -----

    Income before income taxes                                      12,518
    Provision for income taxes                                       3,724
                                                                     -----

    Net income                                                      $8,794
                                                                    ======

    Basic net income per share                                       $0.10
    Diluted net income per share                                     $0.10
    Shares used in computing net income per share
        Basic                                                       84,138
        Diluted                                                     85,157


                                                       Three Months Ended
                                                           March 31,
                                                           ---------

                                                                      2010
                                                                      ----

                                                     (in thousands, except
                                                       per share amounts)
    Revenues                                                      $162,143
    Costs of revenues                                              106,183
                                                                   -------

    Gross profit                                                    55,960
    Product development                                                185
    Selling, general and administrative expenses                    23,510
                                                                    ------

    Operating income                                                32,265
    Interest income, net                                                59
    Other income, net                                                2,093
    Decrease (increase) in income tax benefit
     payable to former stockholder                                  (8,188)
                                                                    ------

    Income before income taxes                                      26,229
    Provision for income taxes                                       4,560
                                                                     -----

    Net income                                                     $21,669
                                                                   =======

    Basic net income per share                                       $0.25
    Diluted net income per share                                     $0.24
    Shares used in computing net income per share
        Basic                                                       86,838
        Diluted                                                     88,709

                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)

                                                          Three Months Ended
                                                               March 31,
                                                               ---------

                                                                        2011
                                                                        ----

                                                            (in thousands)
    Operating activities
    Net income                                                        $8,794
    Adjustments to reconcile net income to net cash
     used in operating activities:
        Amortization and write-off of film and other
         inventory costs                                              54,911
        Stock-based compensation expense                               7,021
        Depreciation and amortization                                    726
        Revenue earned against deferred revenue and other
         advances                                                   (3,128  )
        Deferred taxes, net                                            8,102
        Changes in operating assets and liabilities:
            Trade accounts receivable                                 11,791
            Receivable from Paramount                                  6,523
            Film and other inventory costs                          (111,901)
            Prepaid expenses and other assets                         (8,470)
            Accounts payable and accrued liabilities                 (39,876)
            Payable to former stockholder                            (32,490)
            Income taxes payable/receivable, net                      (4,136)
            Deferred revenue and other advances                       57,941
                                                                      ------

    Net cash used in operating activities                            (44,192)
                                                                     -------

    Investing activities
    Purchases of property, plant and equipment                        (8,075)
                                                                      ------

    Net cash used in investing activities                             (8,075)
                                                                      ------

    Financing activities
    Receipts from exercise of stock options                                7
    Excess tax benefits from employee equity awards                        -
    Purchase of treasury stock                                       (25,451)
                                                                     -------

    Net cash (used in) provided by financing activities              (25,444)
                                                                     -------

    Decrease in cash and cash equivalents                            (77,711)
    Cash and cash equivalents at beginning of period                 163,819
                                                                     -------

    Cash and cash equivalents at end of period                       $86,108
                                                                     =======

    Supplemental disclosure of cash flow information:
        Cash paid during the period for income taxes, net               $455
                                                                        ====

        Cash paid during the period for interest, net of
         amounts capitalized                                            $120
                                                                        ====


                                                          Three Months Ended
                                                               March 31,
                                                               ---------

                                                                        2010
                                                                        ----

                                                            (in thousands)
    Operating activities
    Net income                                                       $21,669
    Adjustments to reconcile net income to net cash
     used in operating activities:
        Amortization and write-off of film and other
         inventory costs                                              96,875
        Stock-based compensation expense                               6,674
        Depreciation and amortization                                    629
        Revenue earned against deferred revenue and other
         advances                                                    (29,898)
        Deferred taxes, net                                             (538)
        Changes in operating assets and liabilities:
            Trade accounts receivable                                (11,472)
            Receivable from Paramount                                 36,773
            Film and other inventory costs                          (116,670)
            Prepaid expenses and other assets                         (8,963)
            Accounts payable and accrued liabilities                 (10,597)
            Payable to former stockholder                            (13,511)
            Income taxes payable/receivable, net                       4,345
            Deferred revenue and other advances                       19,889
                                                                      ------

    Net cash used in operating activities                             (4,795)
                                                                      ------

    Investing activities
    Purchases of property, plant and equipment                       (13,928)
                                                                     -------

    Net cash used in investing activities                            (13,928)
                                                                     -------

    Financing activities
    Receipts from exercise of stock options                            7,964
    Excess tax benefits from employee equity awards                      171
    Purchase of treasury stock                                        (2,270)
                                                                      ------

    Net cash (used in) provided by financing activities                5,865
                                                                       -----

    Decrease in cash and cash equivalents                            (12,858)
    Cash and cash equivalents at beginning of period                 231,245
                                                                     -------

    Cash and cash equivalents at end of period                      $218,387
                                                                    ========

    Supplemental disclosure of cash flow information:
        Cash paid during the period for income taxes, net               $563
                                                                        ====

        Cash paid during the period for interest, net of
         amounts capitalized                                            $149
                                                                        ====

dwa-e

SOURCE DreamWorks Animation SKG, Inc.


Source: newswire



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