DreamWorks Animation Reports First Quarter 2014 Financial Results - WBOC-TV 16, Delmarvas News Leader, FOX 21 -

DreamWorks Animation Reports First Quarter 2014 Financial Results

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SOURCE DreamWorks Animation SKG, Inc.

GLENDALE, Calif., April 29, 2014 /PRNewswire/ -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its first quarter ended March 31, 2014. For the quarter, the Company reported total revenue of $147.2 million, a net loss attributable to the Company of $42.9 million, or a loss of $0.51 per share.

The Company's first quarter 2014 results included an impairment charge of $57 million related to the performance of Mr. Peabody & Sherman in the worldwide theatrical market.

"The box office shortfall of Mr. Peabody & Sherman is evidence of the current challenges we face within our feature film segment, and restoring the strength in our core business is my number one priority today," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "Our next film is How to Train Your Dragon 2 on June 13, 2014, and I am confident that its performance will put us back on-track to once again reach the levels of box office success that we've achieved historically."

The feature film segment contributed revenue of $110.1 million and a gross loss of $25.4 million to the first quarter.

Mr. Peabody & Sherman, which was released theatrically on March 7, 2014, has grossed $261 million at the worldwide box office to date. It contributed feature film revenue of $3.0 million to the first quarter and remains in an un-recouped position with the Company's main distributor.

Turbo contributed feature film revenue of $22.3 million to the first quarter, primarily from domestic pay television. The film reached an estimated 4.8 million home entertainment units sold worldwide through the end of the first quarter, net of actual and estimated future returns.

The Croods contributed feature film revenue of $41.7 million to the first quarter, primarily from domestic pay television and home entertainment. The film reached an estimated 7.1 million home entertainment units sold worldwide through the end of the first quarter, net of actual and estimated future returns.

Rise of the Guardians and Madagascar 3: Europe's Most Wanted contributed feature film revenue of $3.4 million and $1.8 million to the first quarter, respectively, primarily from home entertainment. Rise of the Guardians reached an estimated 5.5 million and Madagascar 3: Europe's Most Wanted reached an estimated 9.1 million home entertainment units sold worldwide through the end of the first quarter, net of actual and estimated future returns.

Library titles contributed feature film revenue of $37.9 million to the first quarter.

The Television segment contributed revenue of $17.9 million and gross profit of $5.8 million to the first quarter, primarily from Classic Media content and DreamWorks Dragons: Riders of Berk on Cartoon Network.

The Consumer Products segment contributed revenue of $12.1 million and gross profit of $6.0 million to the first quarter.

The segment consisting of all other items contributed revenue of $7.1 million and gross profit of approximately $200 thousand to the first quarter. As a part of the segment, AwesomenessTV contributed revenue of $4.1 million and a gross loss of $80 thousand to the first quarter.

Costs of revenue for the first quarter equaled $160.7 million. Selling, general and administrative expenses totaled $49.7 million, including $5.1 million of stock-based compensation expense.

The Company's income tax benefit for the first quarter was $22.5 million. The Company's combined effective tax rate, its actual tax rate coupled with the effect of a tax sharing agreement with a former stockholder, was approximately 35.5% for the first quarter. 

Significant second quarter 2014 events include the theatrical release of How to Train Your Dragon 2 and the release of The Croods into international pay television markets.

Items related to the earnings press release for the first quarter of 2014 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 29, 2014, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1085 in the U.S. and (612) 332-0107 internationally and identifying "DreamWorks Animation Earnings" to the operator. The call will also be available via live webcast at ir.dreamworksanimation.com. 

A replay of the conference call will be available shortly after the call ends on Tuesday, April 29, 2014. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 323099 as the conference ID number. Both the earnings release and archived webcast will be available on the Company's website at ir.dreamworksanimation.com.

About DreamWorks Animation
DreamWorks Animation creates high-quality entertainment, including CG animated feature films, television specials and series and live entertainment properties, 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 five consecutive years. In 2013, DreamWorks Animation ranks #12 on the list.  All of DreamWorks Animation's feature films are produced in 3D. The Company has theatrically released a total of 28 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda, How to Train Your Dragon, Puss In Boots, and The Croods.

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.

 

 

DREAMWORKS ANIMATION SKG, INC.





CONSOLIDATED BALANCE SHEETS 





(Unaudited)














 March 31, 


 December 31, 


2014


2013


(in thousands, except par value

and share amounts)

Assets




Cash and cash equivalents 

$      69,648


$              95,467

Trade accounts receivable, net of allowance for doubtful accounts 

148,922


130,744

Receivables from distributors, net of allowance for doubtful accounts 

203,934


283,226

Film and other inventory costs, net 

914,634


943,486

Prepaid expenses

20,236


20,555

Other assets

28,505


23,385

Investments in unconsolidated entities

44,290


38,542

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

183,152


186,670

Deferred taxes, net 

244,664


221,920

Intangible assets, net of accumulated amortization

147,605


150,511

Goodwill

179,294


179,722

Total assets 

$ 2,184,884


$         2,274,228





Liabilities and Equity




Liabilities:




Accounts payable 

$        5,684


$                5,807

Accrued liabilities 

214,861


263,668

Payable to former stockholder 

263,390


262,309

Deferred revenue and other advances 

29,131


36,425

Senior unsecured notes

300,000


300,000

Total liabilities 

813,066


868,209

Commitments and contingencies




Equity:




DreamWorks Animation SKG, Inc. Stockholders' Equity:




Class A common stock, par value $0.01 per share, 350,000,000 shares authorized, 104,279,149
    and 104,155,993 shares issued, as of March 31, 2014 and December 31, 2013, respectively 

1,043


1,042

Class B common stock, par value $0.01 per share, 150,000,000 shares authorized, 7,838,731
    shares issued and outstanding, as of March 31, 2014 and December 31, 2013

78


78

Additional paid-in capital 

1,109,461


1,100,101

Accumulated other comprehensive loss

(468)


(600)

Retained earnings 

1,029,462


1,072,398

Less: Class A Treasury common stock, at cost, 27,482,030 and 27,439,119 shares, as of
    March 31, 2014 and December 31, 2013, respectively 

(769,502)


(768,224)

Total DreamWorks Animation SKG, Inc. stockholders' equity 

1,370,074


1,404,795

Non-controlling interests

1,744


1,224

Total equity

1,371,818


1,406,019

Total liabilities and equity 

$ 2,184,884


$         2,274,228

 

 

 

DREAMWORKS ANIMATION SKG, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS





(Unaudited)














 Three Months Ended 

March 31, 


2014


2013


 (in thousands, except per
share amounts) 

Revenues

$ 147,241


$ 134,648

Costs of revenues 

160,689


85,521

Gross (loss) profit 

(13,448)


49,127

Product development 

540


963

Selling, general and administrative expenses 

49,679


42,789

Other operating income

(1,672)


-

Operating (loss) income 

(61,995)


5,375





Non-operating income (expense):




Interest (expense) income, net 

(1,773)


863

Other income, net 

1,218


992

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

927


(698)

(Loss) income before loss from equity method investees and income taxes

(61,623)


6,532





Loss from equity method investees

3,260


-

(Loss) income before income taxes 

(64,883)


6,532

(Benefit) provision for income taxes 

(22,467)


418

Net (loss) income

(42,416)


6,114

Less: Net income attributable to non-controlling interests

520


537

Net (loss) income attributable to DreamWorks Animation SKG, Inc.

$ (42,936)


$     5,577





Net (loss) income per share of common stock attributable to
      DreamWorks Animation SKG, Inc.




Basic net (loss) income per share 

$     (0.51)


$       0.07

Diluted net (loss) income per share 

$     (0.51)


$       0.07

Shares used in computing net (loss) income per share




Basic 

84,484


84,671

Diluted 

84,484


85,265

 

 

 


DREAMWORKS ANIMATION SKG, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS 





(Unaudited)














 Three Months Ended 


March 31, 


2014


2013


 (in thousands) 

Operating activities




Net (loss) income 

$ (42,416)


$    6,114

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:




Amortization and write-off of film and other inventory costs(1)

145,412


60,042

Amortization of intangible assets

3,154


1,686

Stock-based compensation expense 

5,309


4,075

Amortization of deferred financing costs

242


-

Depreciation and amortization 

1,081


983

Revenue earned against deferred revenue and other advances  

(16,188)


(11,153)

Income related to investment contributions

(1,672)


-

Loss from equity method investees

3,260


-

Deferred taxes, net 

(22,314)


231

Changes in operating assets and liabilities:

-



Trade accounts receivable 

(19,091)


4,119

Receivables from distributors

79,267


52,231

Film and other inventory costs 

(122,837)


(109,346)

Intangible assets

-


1,015

Prepaid expenses and other assets 

(4,870)


(6,367)

Accounts payable and accrued liabilities 

(48,594)


6,590

Payable to former stockholder 

1,080


(25,700)

Income taxes payable/receivable, net 

(658)


2,521

Deferred revenue and other advances 

27,348


54,641

Net cash (used in) provided by operating activities 

(12,487)


41,682





Investing activities




Investments in unconsolidated entities

(7,000)


(500)

Purchases of property, plant and equipment 

(5,711)


(8,088)

Net cash used in investing activities 

(12,711)


(8,588)





Financing activities




Proceeds from stock option exercises

261


-

Purchase of treasury stock 

(1,278)


(16,552)

Net cash used in financing activities 

(1,017)


(16,552)

Effect of exchange rate changes on cash and cash equivalents

396


447

(Decrease) increase in cash and cash equivalents 

(25,819)


16,989

Cash and cash equivalents at beginning of period

95,467


59,246

Cash and cash equivalents at end of period

$  69,648


$  76,235





Non-cash investing activities:




Intellectual property and technology licenses granted in exchange for equity interest

$    1,294


$            -

Services provided in exchange for equity interest

383


-

Total non-cash investing activities

$    1,677


$            -





Supplemental disclosure of cash flow information:




Cash paid (refunded) during the period for income taxes, net

$       503


$   (2,278)

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

$    7,515


$       217





(1) Included within this amount is depreciation and amortization, interest expense and stock-based compensation previously capitalized to "Film and other inventory costs." During the three months ended March 31, 2014 and 2013, these amounts totaled $8,821 and $5,603, respectively.

Non-GAAP Financial Measures

In connection with our issuance of high-yield notes in August 2013, we began to use Adjusted EBITDA to provide investors a measure of our ability to make our interest payments on the Notes. We define Adjusted EBITDA as net income before provision for income taxes, loss from equity method investees, increase/decrease in income tax benefit payable to former stockholder, other income, net, interest income, net, other non-cash operating income, depreciation and amortization, stock-based compensation expense, impairments and other charges and certain components of amortization of film and other inventory costs (refer to the reconciliation below). Although the indenture governing the notes does not include covenants based on Adjusted EBITDA, we believe that our investors and noteholders use Adjusted EBITDA as one indicator of our ability to comply with our debt covenants because Adjusted EBITDA is similar to the consolidated cash flow measure described in the indenture (refer to our Current Report on Form 8-K filed on August 14, 2013). Although consolidated cash flow is not a financial covenant under the indenture, it is a measure that is used to determine our ability to make certain restricted payments and incur additional indebtedness in accordance with the terms of the indenture.

Adjusted EBITDA is not prepared in accordance with GAAP. We believe the use of this non-GAAP measure on a consolidated basis assists investors in comparing our ongoing operating performance between periods. Adjusted EBITDA provides a supplemental presentation of our operating performance and generally includes adjustments for unusual or non-operational activities. We may not determine Adjusted EBITDA in a manner consistent with the methodologies used by other companies. Adjusted EBITDA (a) does not represent our operating income or cash flows from operating activities as defined by GAAP; (b) does not include all of the adjustments used to compute consolidated cash flow for purposes of the covenants applicable to the Notes; (c) is not necessarily indicative of cash available to fund our cash flow needs; and (d) should not be considered as an alternative to net income, operating income, cash provided by operating activities or our other financial information as determined under GAAP. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or nonrecurring items. We believe that net income is the most directly comparable GAAP measure to Adjusted EBITDA. Accordingly, the following table presents a reconciliation of net income (or loss) to Adjusted EBITDA (in thousands). In addition, as Adjusted EBITDA is also used as a liquidity measure, the following table presents a reconciliation of Adjusted EBITDA to cash flow from (used in) operating activities (in thousands):

 


DREAMWORKS ANIMATION SKG, INC.



ADJUSTED EBITDA RECONCILIATIONS



(Unaudited)








 Three Months Ended 


March 31, 2014


 (in thousands) 

Reconciliation of Net Loss to Adjusted EBITDA:




Net loss

$                      (42,416)

Benefit for income taxes

(22,467)

Loss from equity method investees

3,260

Decrease in income tax benefit payable to former stockholder

(927)

Other income, net

(1,218)

Interest expense, net

1,773

Operating loss

(61,995)

Income related to investment contributions

(1,672)

Amounts included in amortization of film and other inventory costs(1)

8,821

Film impairment

57,074

Depreciation and amortization(2)

4,235

Stock-based compensation expense

5,309

Adjusted EBITDA

$                        11,772



Reconciliation of Adjusted EBITDA to Cash Used in Operating Activities:




Adjusted EBITDA

$                        11,772

Amortization and write-off of film and other inventory costs(3)

79,517

Revenue earned against deferred revenue and other advances

(16,188)

Other income, net

1,218

Interest expense, net

(1,773)

Net refund from income taxes and stockholder payable

1,498

Changes in certain operating asset and liability accounts

(88,531)

Cash used in operating activities

$                      (12,487)





(1) Amortization of film and other inventory costs in any period includes depreciation and amortization, interest expense and stock-based compensation expense that were capitalized as part of film and other inventory costs in the period that those charges were incurred. For purposes of Adjusted EBITDA, we add back the portion of amortization of film and other inventory costs that represents amounts previously capitalized as depreciation and amortization, interest expense and stock-based compensation expense.


(2) Includes amortization of intangible assets classified within costs of revenues.


(3) Represents the remaining portion of amortization and write-off of film and other inventory costs not already included in Adjusted EBITDA (refer to reconciliation of net loss to Adjusted EBITDA).

 

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