DreamWorks Animation Reports Third Quarter 2009 Financial Results

DreamWorks Animation Reports Third Quarter 2009 Financial Results

GLENDALE, Calif., Oct. 27 /PRNewswire-FirstCall/ -- DreamWorks Animation SKG, Inc. (NASDAQ:DWA) today announced financial results for its third quarter ended September 30, 2009. In the quarter, the Company reported total revenue of $135.4 million and net income of $19.6 million, or $0.23 per share on a fully diluted basis. This compares to revenue of $151.5 million and net income of $37.4 million, or $0.41 per share on a fully diluted basis, for the same period in 2008. For the nine months ended September 30, 2009, the Company reported total revenue of $531.0 million and net income of $107.5 million, or $1.23 per share on a fully diluted basis. This compares to total revenue of $450.2 million and net income of $90.9 million, or $0.99 per share on a fully diluted basis, for the nine months ended September 30, 2008.

"Monsters vs. Aliens is off to a strong start in its initial home video release and we continue to see very good performance in home entertainment from our two 2008 titles and our catalogue," said Jeffrey Katzenberg, CEO of DreamWorks Animation. "We had a solid third quarter, making progress toward DreamWorks Animation's goals of growth and diversification. We look forward to building on our success in the fourth quarter and next year."

Monsters vs. Aliens, the Company's 2009 release, contributed $33.4 million of revenue to the quarter, driven by its continued performance at the worldwide box office as well as its initial release into the domestic home entertainment market on September 29, 2009. The film has now reached approximately $380 million in worldwide box office and an estimated 4.6 million home entertainment units sold, net of actual and estimated future returns.

The Company's fall 2008 release, Madagascar: Escape 2 Africa, contributed $35.4 million of revenue to the quarter, primarily driven by international home entertainment and domestic pay television. Through the end of the third quarter, it reached an estimated 11.3 million home entertainment units sold worldwide, net of actual and estimated future returns.

Kung Fu Panda, the Company's 2008 summer release, contributed approximately $21.9 million of revenue to the quarter, primarily driven by international pay television. Through the end of the third quarter, it reached an estimated 16.0 million home entertainment units sold worldwide, net of actual and estimated future returns.

The Company's 2007 releases, Shrek the Third and Bee Movie, delivered $8.0 million and $3.4 million of revenue to the quarter, respectively, primarily driven by television and home entertainment. Flushed Away, the Company's fall 2006 release, delivered $7.3 million of revenue to the quarter, primarily driven by international free television.

Library and other titles contributed $26.0 million of revenue to the quarter, including $10.0 million of revenue from Shrek The Musical. The Company recently announced that Shrek The Musical will play its final performance on Broadway on January 3, 2010. The earlier-than-anticipated closing resulted in approximately $0.03 per share of accelerated amortization expense for the production in the third quarter. In total, Shrek The Musical resulted in a $0.05 per share reduction in earnings for the third quarter.

"We plan to monetize Shrek The Musical in a number of ways going forward," said Lew Coleman, Chief Financial Officer of DreamWorks Animation. "We are confident today that these will be profitable activities for DreamWorks Animation and look forward to launching the touring company in Chicago next summer."

Costs of revenue for the quarter equaled $89.1 million. Selling, general and administrative expenses and product development totaled $24.8 million (including approximately $7.4 million of stock compensation expense) as compared to $29.9 million (including approximately $10.0 million of stock compensation expense) for the comparable period of 2008.

Results for the quarter include a tax benefit of approximately $2.5 million related to the Company's tax sharing agreement with a former stockholder, which resulted in a lower effective tax rate. This benefit was partially offset by a $2.1 million increase in cost for the income tax benefit payable to the former stockholder (as shown on the consolidated statement of income before the line item, "income before income taxes"). The net benefit of $0.4 million, when combined with our research and development tax credit related to the prior year of approximately $1.8 million, resulted in an overall net increase to net income of $2.2 million, or an estimated $0.03 per share on a fully diluted basis.

Looking ahead to the remainder of the year, the Company's fourth quarter results are expected to be driven primarily by its two new holiday television specials: Monsters vs. Aliens: Mutant Pumpkins from Outer Space and Merry Madagascar, both of which will air in primetime on NBC and the second of which will also be released into the home entertainment market in the fourth quarter. Monsters vs. Aliens' continued home entertainment performance and Shrek the Third's domestic network and international free television 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 2009 will be discussed in more detail on the Company's third quarter 2009 earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, October 27, 2009, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1074 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 www.dreamworksanimation.com.

A replay of the conference call will be available shortly after the call ends on Tuesday, October 27, 2009. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 117383 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 SKG

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. All of DreamWorks Animation's feature films are now being produced in 3D. The Company has theatrically released a total of 18 animated feature films, including the franchise properties, Shrek, Madagascar and Kung Fu Panda.

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**                       UNAUDITED CONSOLIDATED BALANCE SHEETS                                                 September 30,  December 31,                                                    2009          2008                                                    ----          ----                                                 (in thousands, except par                                                  value and share amounts)   Assets     Cash and cash equivalents                    $347,230     $262,644     Trade accounts receivable, net      of allowance for doubtful      accounts                                       1,312        4,550     Income taxes receivable                        24,614        6,468     Receivable from Paramount, net      of reserve for returns and      allowance for doubtful accounts              111,032      186,522     Film costs, net                               658,995      638,243     Prepaid expenses and other assets              44,532       31,453     Property, plant and equipment,      net of accumulated depreciation      and amortization                             149,641      114,913     Deferred taxes, net                             3,704       27,049     Goodwill                                       34,216       34,216                                                    ------       ------     Total assets                               $1,375,276   $1,306,058                                                ==========   ==========      Liabilities and Equity     Liabilities:           Accounts payable                         $2,611       $7,499           Accrued liabilities                      94,520      115,158           Payable to former stockholder            54,856       54,192           Deferred revenue and other            advances                                47,769       38,857           Borrowings and other debt                70,059       70,059                                                    ------       ------     Total liabilities                             269,815      285,765     Commitments and contingencies     Equity:           Stockholders' equity:             Class A common stock, par              value $.01 per share,              350,000,000 shares              authorized, 95,493,256 and              95,381,143 shares issued as              of September 30, 2009 and              December 31, 2008,              respectively                             955          954             Class B common stock, par value              $.01 per share, 150,000,000              shares authorized, 11,419,461              shares issued and outstanding              as of September 30, 2009 and              December 31, 2008                        114          114             Additional paid-in capital            907,141      876,651             Retained earnings                     752,735      645,261             Less: Class A Treasury common              stock, at cost, 20,149,343              and 17,432,728 shares as of              September 30, 2009 and              December 31, 2008,              respectively                        (558,425)    (505,628)                                                  --------     --------           Total stockholders' equity            1,102,520    1,017,352           Minority interest                         2,941        2,941                                                     -----        -----     Total equity                                1,105,461    1,020,293                                                 ---------    ---------     Total liabilities and equity               $1,375,276   $1,306,058                                                ==========   ==========                    UNAUDITED CONSOLIDATED STATEMENTS OF INCOME                                       Three Months Ended  Nine Months Ended                                        September 30,       September 30,                                       ---------------     --------------                                       2009      2008      2009      2008                                       ----      ----      ----      ----                                    (in thousands, except per share amounts)     Revenues                       $135,448  $151,525  $530,962  $450,227     Costs of revenues                89,066    75,518   319,494   248,101                                      ------    ------   -------   -------     Gross profit                     46,382    76,007   211,468   202,126     Product development                 155       692     2,616     1,129     Selling, general and      administrative expenses         24,687    29,180    70,209    82,914                                      ------    ------    ------    ------     Operating income                 21,540    46,135   138,643   118,083     Interest income, net                237     2,312     1,755     7,769     Other income, net                 2,191     1,444     5,256     3,301     Increase in income tax benefit      payable to former stockholder   (2,130)   (7,760)  (29,160)  (25,200)                                      ------    ------   -------   -------     Income before income taxes       21,838    42,131   116,494   103,953     Provision for income taxes        2,230     4,780     9,020    13,010                                       -----     -----     -----    ------     Net income                      $19,608   $37,351  $107,474   $90,943                                     =======   =======  ========   =======      Basic net income per share        $0.23     $0.42     $1.24     $1.00                                       -----     -----     -----     -----     Diluted net income per share      $0.23     $0.41     $1.23     $0.99                                       -----     -----     -----     -----     Shares used in computing net      income per share:           Basic                      85,882    89,281    86,402    90,667           Diluted                    87,129    90,665    87,355    91,755                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        Nine Months Ended                                                        September 30,                                                       ---------------                                                       2009       2008                                                       ----       ----                                                        (in thousands)     Operating activities     Net income                                      $107,474   $90,943     Adjustments to reconcile net      income to net cash provided by      operating activities:           Amortization and write off of            film costs                                266,024   225,884           Stock compensation expense                  22,478    28,533           Depreciation and amortization                2,497     2,721           Revenue earned against deferred            revenue and other advances                (69,146)  (58,419)           Deferred taxes, net                         23,345       591           Change in operating assets and            liabilities:               Trade accounts receivable                3,238   (11,497)               Receivable from Paramount               75,490   200,680               Film costs                            (269,011) (296,044)               Prepaid expenses and other assets      (13,710)   10,158               Accounts payable and accrued                liabilities                           (25,157)    1,910               Payable to former stockholder              664   (12,444)               Income taxes payable/receivable, net   (17,317)  (16,991)               Deferred revenue and other advances     84,964    88,877                                                       ------    ------     Net cash provided by operating      activities                                      191,833   254,902                                                      -------   -------      Investing activities     Purchases of property, plant and      equipment                                       (55,030)  (33,088)                                                      -------   -------     Net cash used in investing activities            (55,030)  (33,088)                                                      -------   -------      Financing Activities     Purchase of treasury stock                       (52,797) (177,840)     Receipts from exercise of stock options      and excess tax benefits from employee      equity awards                                       580     1,442                                                          ---     -----     Net cash used in financing activities            (52,217) (176,398)                                                      -------  --------     Increase in cash and cash equivalents             84,586    45,416     Cash and cash equivalents at beginning      of period                                       262,644   292,489                                                      -------   -------     Cash and cash equivalents at end      of period                                      $347,230  $337,905                                                     ========  ========      Supplemental disclosure of cash flow      information:           Cash paid during the period for income            taxes, net                                 $3,347   $29,271                                                       ======   =======           Cash paid during the period for            interest, net of amounts capitalized         $506      $719                                                         ====      ====  

First Call Analyst:
FCMN Contact: atenn@dreamworksanimation.com

Source: DreamWorks Animation SKG, Inc.

CONTACT: DreamWorks Animation Investor Relations, +1-818-695-3900,
ir@dreamworksanimation.com, or DreamWorks Animation Corporate Communications,
+1-818-695-3658, shannon.olivas@dreamworks.com

Web Site: http://www.dreamworksanimation.com/

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Profile: International Entertainment