DreamWorks Animation Reports Third Quarter 2013 Financial Results

DreamWorks Animation Reports Third Quarter 2013 Financial Results

Revenue From Feature Film Segment Drives Strong Third Quarter Earnings

GLENDALE, Calif., Oct. 29, 2013 /PRNewswire/ -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its third quarter ended September 30, 2013. For the quarter, the Company reported total revenue of $154.5 million, net income of $10.1 million, and earnings per share of $0.12 on a fully diluted basis.

"Strength in our feature film segment is the single largest driver of our positive third quarter earnings," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "It also continues to propel new areas of growth for DreamWorks Animation as we have now transitioned into a global, diversified family entertainment company."

"We are introducing four new reporting segments - feature films, television series and specials, consumer products and all other - to align with the ways in which we operate DreamWorks Animation's business today," added Lew Coleman, Chief Financial Officer of DreamWorks Animation. "Our financial reports will now include revenue and gross profit contributions from these segments, which we believe will also serve to provide more detail behind our growth and diversification efforts going forward."

The feature film segment contributed revenue of $120.7 million and gross profit of $55.4 million to the third quarter.

Turbo, which was released theatrically on July 17, 2013, has reached $82.7 million at the domestic box office and $163.5 million at the international box office for a worldwide gross of $246.2 million to date. Turbo contributed feature film revenue of $6.4 million to the third quarter.

The Croods, which was released theatrically on March 22, 2013, has reached $187 million at the domestic box office and $400 million at the international box office for a worldwide gross of $587 million, making it the sixth highest-grossing film of the year on a global basis. The Croods contributed feature film revenue of $4.0 million to the quarter.

Rise of the Guardians contributed feature film revenue of $42.4 million to the third quarter, primarily from worldwide pay television. The film reached an estimated 4.3 million home entertainment units sold worldwide through the end of the third quarter, net of actual and estimated future returns.

Madagascar 3: Europe's Most Wanted and Puss In Boots contributed feature film revenues of $10.9 million and $4.8 million to the third quarter, respectively. Madagascar 3 reached an estimated 8.1 million home entertainment units and Puss In Boots reached an estimated 7.5 million home entertainment units sold worldwide through the end of the third quarter, net of actual and estimated future returns.

Library titles contributed feature film revenue of $52.2 million to the third quarter.

The television series and specials segment contributed revenue of $18.2 million and gross profit of $4.2 million to the third quarter, primarily from Classic Media content and DreamWorks Dragons: Riders of Berk on Cartoon Network.

The consumer products segment contributed revenue of $12.0 million and gross profit of $3.0 million to the third quarter, primarily from Turbo and Classic Media.

The segment consisting of all other items contributed revenue of $3.6 million to the third quarter, primarily from AwesomenessTV.

Costs of revenue for the quarter equaled $91.7 million. Selling, general and administrative expenses totaled $47.7 million, including $4.5 million of stock-based compensation expense.

The Company's income tax expense for the third quarter was $6.9 million. The Company's combined effective tax rate, its actual tax rate coupled with the effect of its tax sharing agreement with a former stockholder, was 41.7% for the third quarter. The Company currently expects that its full-year 2013 combined effective tax rate will be approximately 27%.

During the third quarter, the Company issued $300 million in senior unsecured notes due 2020 at an interest rate of 6.875%.

The home entertainment releases of both The Croods on October 1, 2013 and Turbo on November 12, 2013 occur in the fourth quarter. The Company's fourth quarter results are expected to be driven primarily by its feature film segment as well as the distribution of holiday themed content within its television series & specials segment.

Items related to the earnings press release for the third quarter of 2013 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, October 29, 2013, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1059 in the U.S. and (612) 234-9960 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, October 29, 2013. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 302724 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 27 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda, How to Train Your Dragon, Puss In Boots, and The Croods.

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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)



September 30, December 31,

2013 2012
---- ----

(in thousands, except par value

and share amounts)

Assets

Cash and cash equivalents $156,426 $59,246

Trade accounts receivable, net of allowance
for doubtful accounts 100,985 109,102

Receivables from distributors, net of
allowance for doubtful accounts 215,679 266,185

Film and other inventory costs, net 922,189 820,482

Prepaid expenses 23,987 18,593

Other assets 19,261 14,869

Investments in unconsolidated entities 34,559 9,782

Property, plant and equipment, net of
accumulated depreciation and amortization 186,718 188,986

Deferred taxes, net 226,920 238,007

Intangible assets, net of accumulated
amortization 152,778 148,234

Goodwill 179,722 71,406
------- ------

Total assets $2,219,224 $1,944,892
========== ==========


Liabilities and Equity

Liabilities:

Accounts payable $5,024 $6,611

Accrued liabilities 234,009 123,886

Payable to former stockholder 262,987 277,632

Deferred revenue and other advances 35,207 25,517

Revolving credit facility - 165,000

Senior unsecured notes 300,000 -
------- ---

Total liabilities 837,227 598,646

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,
103,079,162 and 102,687,323 shares issued,
as of September 30, 2013 and December 31,
2012, respectively 1,031 1,027

Class B common stock, par value $0.01 per
share, 150,000,000 shares authorized,
7,838,731 shares issued and outstanding,
as of September 30, 2013 and December 31,
2012 78 78

Additional paid-in capital 1,084,412 1,057,452

Accumulated other comprehensive (loss)
income (1,130) 313

Retained earnings 1,055,208 1,017,314

Less: Class A Treasury common stock, at
cost, 27,124,426 and 25,661,817 shares, as
of September 30, 2013 and December 31,
2012, respectively (758,734) (730,568)
-------- --------

Total DreamWorks Animation SKG, Inc.
stockholders' equity 1,380,865 1,345,616

Non-controlling interests 1,132 630
----- ---

Total equity 1,381,997 1,346,246
--------- ---------

Total liabilities and equity $2,219,224 $1,944,892
========== ==========



DREAMWORKS ANIMATION SKG, INC.


CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)



Three Months Ended Nine Months Ended

September 30, September 30,
------------- -------------

2013 2012 2013 2012
---- ---- ---- ----

(in thousands, except per share amounts)

Revenues $154,549 $186,298 $502,633 $485,185

Costs of revenues 91,697 113,961 310,494 324,708
------ ------- ------- -------

Gross profit 62,852 72,337 192,139 160,477

Product development 455 1,258 2,487 3,732

Selling, general and
administrative
expenses 47,746 36,497 140,246 94,778

Other operating income
related to Oriental
DreamWorks
contributions (3,333) - (6,192) -
------ --- ------ ---

Operating income 17,984 34,582 55,598 61,967


Non-operating income (expense):

Interest (expense)
income, net (769) (87) 871 1,097

Other income, net 2,847 2,831 4,889 6,673

(Increase) decrease in
income tax benefit
payable to former
stockholder (283) 1,369 (1,352) 1,761
---- ----- ------ -----

Income before loss from
equity method
investees and income
taxes 19,779 38,695 60,006 71,498


Loss from equity method
investees 2,781 - 4,110 -
----- --- ----- ---

Income before income
taxes 16,998 38,695 55,896 71,498

Provision for income
taxes 6,919 14,255 17,455 25,212
----- ------ ------ ------

Net income 10,079 24,440 38,441 46,286

Less: Net income
attributable to non-
controlling interests 15 - 547 -
--- --- --- ---

Net income attributable
to DreamWorks
Animation SKG, Inc. $10,064 $24,440 $37,894 $46,286
======= ======= ======= =======


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

Basic net income per
share $0.12 $0.29 $0.45 $0.55

Diluted net income per
share $0.12 $0.29 $0.45 $0.54

Shares used in computing net income per share

Basic 83,631 84,248 83,939 84,104

Diluted 85,353 85,293 85,041 85,049



DREAMWORKS ANIMATION SKG, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)



Nine Months Ended

September 30,
-------------

2013 2012
---- ----

(in thousands)

Operating activities

Net income $38,441 $46,286

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

Amortization and write-off of film and other
inventory costs 254,489 267,099

Amortization of intangible assets 7,341 548

Stock-based compensation expense 14,483 13,692

Amortization of deferred financing costs 182 1,669

Depreciation and amortization 3,420 2,970

Revenue earned against deferred revenue and other
advances (71,489) (58,781)

Income related to Oriental DreamWorks contributions (14,033) -

Loss from equity method investees 4,110 -

Deferred taxes, net 15,372 24,545

Changes in operating assets and liabilities, net of the effects of acquisitions:

Trade accounts receivable 878 (5,565)

Receivables from distributors 50,507 33,143

Film and other inventory costs (323,967) (348,260)

Intangible assets 1,015 -

Prepaid expenses and other assets (6,587) (6,539)

Accounts payable and accrued liabilities 11,269 4,681

Payable to former stockholder (14,645) (15,961)

Income taxes payable/receivable, net 3,115 1,891

Deferred revenue and other advances 96,538 77,735
------ ------

Net cash provided by operating activities 70,439 39,153
------ ------


Investing activities

Purchase of non-marketable securities - (150)

Investments in unconsolidated entities (14,720) (3,000)

Purchases of property, plant and equipment (26,669) (53,266)

Acquisitions, net of cash acquired (30,093) (157,550)
------- --------

Net cash used in investing activities (71,482) (213,966)
------- --------


Financing Activities

Excess tax benefits from employee equity awards - (428)

Deferred financing costs (7,718) (4,865)

Purchase of treasury stock (28,170) (4,725)

Borrowings from revolving credit facility 68,000 200,000

Repayments of borrowings from revolving credit
facility (233,000) -

Borrowings from senior unsecured notes 300,000 -
------- ---

Net cash provided by financing activities 99,112 189,982
------ -------

Effect of exchange rate changes on cash and cash
equivalents (889) (557)

Increase in cash and cash equivalents 97,180 14,612

Cash and cash equivalents at beginning of period 59,246 116,093
------ -------

Cash and cash equivalents at end of period $156,426 $130,705
======== ========


Non-cash investing activities:

Intellectual property and technology licenses
granted in exchange for equity interest $12,007 $1,780

Services provided in exchange for equity interest 2,026 -

Total non-cash investing activities $14,033 $1,780
======= ======


Supplemental disclosure of cash flow information:

Cash (refunded) paid during the period for income
taxes, net $(1,182) $1,041
======= ======

Cash paid during the period for interest, net of
amounts capitalized $ - $5,819
=============== ======
SOURCE DreamWorks Animation SKG, Inc.

DreamWorks Animation SKG, Inc.

CONTACT: Shannon Olivas, DreamWorks Animation Investor Relations, (818) 695-3658, shannon.olivas@dreamworks.com

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


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