Pixar Reports Record Results for 2005

Pixar Reports Record Results for 2005

EMERYVILLE, Calif., March 7 /PRNewswire-FirstCall/ -- Pixar Animation Studios (NASDAQ:PIXR) today reported financial results for its fourth quarter and fiscal year ended December 31, 2005. For the year, Pixar earned $152.9 million, or $1.24 per fully diluted share, on revenues of $289.1 million. This compares to earnings of $141.7 million, or $1.19 per fully diluted share, on revenues of $273.5 million for the year ended January 1, 2005.

For the fourth quarter of 2005, Pixar earned $30.9 million, or $0.25 per fully diluted share, on revenues of $55.6 million. This compares to earnings of $55.2 million, or $0.45 per fully diluted share on revenues of $108.9 million, achieved in the fourth quarter of 2004.

"2005 marks Pixar's tenth year as a public company and, I'm pleased to report, our most profitable year ever," said Pixar CEO Steve Jobs. "With the proposed merger of Pixar and Disney, this will likely be our last report as an independent public company, and I'd like to thank every Pixar shareholder for their support over the past decade in helping us build this amazing company."

Results for the fiscal year ended December 31, 2005, were driven by film revenue of $274.8 million, primarily from The Incredibles and Finding Nemo. This included $151.7 million from The Incredibles, largely from worldwide home video and consumer products licensing, and $58.3 million from Finding Nemo, mainly comprised of worldwide home video, worldwide television and consumer products licensing. The company's library titles contributed approximately 23% of its total film revenues, generating $63.0 million during the year, largely from worldwide home video sales, worldwide television and consumer products licensing. In addition to film revenue, software licensing contributed $14.4 million to full year 2005 revenue.

Results for the fourth quarter ended December 31, 2005, were driven by film revenue of $51.9 million, primarily from Finding Nemo and The Incredibles. This included $22.6 million from Finding Nemo, largely from worldwide television licensing and home video, and $10.2 million from The Incredibles, mainly comprised of consumer products revenue and worldwide home video sales. The company's library titles contributed approximately $19.1 million in the quarter, largely from continuing consumer products revenue and worldwide home video sales, including the domestic DVD re-release of Toy Story 2 and the international DVD re-releases of Toy Story and Toy Story 2. In addition to film revenue, software licensing contributed $3.7 million to fourth quarter 2005 revenue.

Cost of revenue was $39.4 million for fiscal year 2005 compared to $29.9 million in 2004, and primarily represents amortization of capitalized film costs. Gross profit margin for fiscal year 2005 was 86% compared to 89% in 2004. The decrease in gross profit margin from 2004 to 2005 is attributable to a higher proportion of revenues from The Incredibles, which had a higher amortization percentage as compared to Finding Nemo in the prior year. For the fourth quarter of 2005, cost of revenue was $4.1 million, representing a gross profit margin of 93%, compared to $13.3 million and 88%, respectively, for the comparable period in 2004. The increase in gross profit margin from the fourth quarter of 2004 to the fourth quarter of 2005 can be attributable to a higher proportion of revenues from Finding Nemo, which had a lower amortization percentage as compared to The Incredibles and relative to Finding Nemo's amortization rate in the prior year.

Total operating expenses decreased to $34.3 million in fiscal year 2005 from $34.9 million in 2004. For the fourth quarter of 2005, operating expenses decreased to $10.1 million from $11.4 million in the corresponding period last year. For both the full year and the fourth quarter, the decrease in operating expenses over the prior-year was due primarily to a reduction in research and development costs, partially offset by increases in sales and marketing and general and administrative expenses.

Interest and other income was $26.2 million in fiscal year 2005, up from $12.4 million in 2004, and consisted primarily of interest income on investments. For the fourth quarter of 2005, interest and other income was $8.2 million, up from $3.9 million in 2004. The increases in 2005 compared to 2004 were primarily due to higher average cash, cash equivalents, and investment balances earning interest at higher average rates.

The overall effective tax rate for fiscal year 2005 was 36.7%, which was lower than the statutory rate due to a number of factors including the tax benefit associated with certain income earned outside the U.S., a tax deduction related to income attributable to domestic production activities and certain tax-exempt investment income. Cash, cash equivalents, and investments were approximately $1.0 billion at the end of the year, representing an increase of $185.8 million over the company's 2004 year-end balance. This was mainly attributable to cash received from Disney for Pixar's share of film revenues, as well as proceeds from stock option exercises and interest income, offset by film production costs, taxes and capital expenditures.

Capitalized film costs at December 31, 2005 were $182.1 million versus $140.0 million at the end of 2004, reflecting production spending on current film projects, offset by amortization of capitalized film costs of $38.6 million.

Further information regarding these results will be available through the company's 2005 annual report on Form 10-K, accessible through Pixar's Web site at http://corporate.pixar.com/edgar.cfm

About Pixar Animation Studios

Pixar Animation Studios (NASDAQ:PIXR)(NASDAQ:http://www.pixar.com) combines creative and technical artistry to create original stories in the medium of computer animation. Pixar has created six of the most successful and beloved animated films of all time: Toy Story, A Bug's Life, Toy Story 2, Monsters, Inc., Finding Nemo and The Incredibles. Pixar has won 20 Academy Awards(R) and its six films have grossed more than $3.2 billion at the worldwide box office to date. The Northern California studio's next two film releases are Cars (June 9, 2006) and Ratatouille (summer 2007).

This release contains forward-looking information regarding Pixar's targeted release dates for Pixar's next films and actual results may differ materially. Factors that could cause delays in the release of the films include, but are not limited to: (1) the uncertainties related to production delays; (2) financing requirements or other marketing or distribution factors; (3) personnel availability; (4) external socioeconomic and political events; and (5) the release dates of competitive films. Please refer to Pixar's 2005 Annual Report on Form 10-K, particularly the sections on risks, for important factors that could cause actual results to differ.

Note to Editors: Condensed Statements of Income and Balance Sheets to follow.

Pixar Animation Studios
Condensed Statements of Income
(Unaudited, in thousands, except per share data)

Quarter Ended Twelve Months Ended
December 31, January 1, December 31, January 1,
2005 2005 2005 2005
Revenue
Film $ 51,879 $ 105,610 $ 274,765 $ 260,831
Software 3,744 3,286 14,351 12,641

Total revenue 55,623 108,896 289,116 273,472

Cost of revenue 4,062 13,336 39,380 29,881

Gross profit 51,561 95,560 249,736 243,591

Operating expenses:
Research and
development 2,595 5,601 11,099 17,371
Sales and marketing 2,152 740 5,126 2,484
General and
administrative 5,355 5,094 18,103 15,015

Total operating
expenses 10,102 11,435 34,328 34,870

Income from operations 41,459 84,125 215,408 208,721

Interest income and
other 8,244 3,946 26,198 12,419

Income before income
taxes 49,703 88,071 241,606 221,140

Income tax expense 18,762 32,897 88,668 79,418

Net income $ 30,941 $ 55,174 $ 152,938 $ 141,722

Basic net income
per share $ 0.26 $ 0.48 $ 1.29 $ 1.25

Diluted net income
per share $ 0.25 $ 0.45 $ 1.24 $ 1.19

Shares used in
computing basic net
income per share 119,054 116,122 118,329 113,520

Shares used in
computing diluted
net income per
share 124,414 121,492 123,396 119,090

Pixar Animation Studios
Condensed Balance Sheets
(Unaudited, in thousands)

December 31, January 1,
2005 2005
ASSETS

Cash and investments $ 1,040,544 $ 854,784
Receivables, net 59,985 81,962
Prepaid expenses and other assets 3,601 2,227
Deferred income taxes 77,145 70,424
Property and equipment, net 125,394 125,602

Capitalized film production costs, net 182,071 140,038

Total assets $ 1,488,740 $ 1,275,037

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Accounts payable $ 3,223 $ 5,392
Income taxes payable 17,380 14,077
Other accrued liabilities 14,856 26,971
Unearned revenue 11,319 8,502

Total liabilities 46,778 54,942

Shareholders' equity:
Common stock 758,053 687,387
Accumulated other comprehensive loss (3,948) (2,211)
Retained earnings 687,857 534,919

Total shareholders' equity 1,441,962 1,220,095

Total liabilities and shareholders' equity $ 1,488,740 $ 1,275,037

Source: Pixar Animation Studios

CONTACT: Nils Erdmann, Investor Relations, Pixar Animation Studios,
+1-510-752-3374; John Buckley, Brainerd Communicators, +1-212-986-6667, for
Pixar Animation Studios

Web site: http://www.pixar.com/
http://corporate.pixar.com/edgar.cfm

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