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
==== ====

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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