Company Announces New $150 Million Share Repurchase Program
DreamWorks Animation SKG, Inc. (NASDAQ:DWA) today announced financial results for its second quarter ended June 30, 2010. In the quarter, the Company reported total revenue of $158.1 million and net income of $24.0 million, or $0.27 per share on a fully diluted basis.
“Our strong second quarter was driven primarily by the blockbuster performances of Shrek Forever After and How to Train Your Dragon, two of the top 10 films of 2010 on both a domestic and a worldwide basis,” said Jeffrey Katzenberg, DreamWorks Animation’s CEO. “We have once again surpassed $1 billion in worldwide box office and with Megamind still to be released on November 5th, we are on track to make 2010 not only DreamWorks Animation’s single biggest year at the box office, but also the biggest year ever for any CG animation studio.”
Shrek Forever After, which was released on May 21, 2010, contributed $51.8 million of revenue in the quarter, generated by its domestic box office performance as well as merchandising and licensing activities. It has reached approximately $235 million in domestic box office and approximately $368 million in international box office for a worldwide box office total of approximately $603 million to date.
How to Train Your Dragon, which was released on March 26, 2010, contributed $33.4 million of revenue to the quarter, driven primarily by its domestic and international box office performance. It has reached approximately $480 million in worldwide box office to date.
The Company’s 2009 release, Monsters vs. Aliens, contributed $17.2 million of revenue to the quarter, driven primarily by international pay television. The film reached an estimated 7.7 million home entertainment units sold, net of actual and estimated future returns, by the end of the second quarter.
The Company’s 2008 releases, Madagascar: Escape 2 Africa and Kung Fu Panda, contributed $4.4 million and $2.5 million of revenue to the quarter, respectively.
Library and other items contributed approximately $48.8 million of revenue to the quarter.
Costs of revenue for the quarter equaled $98.7 million. Selling, general and administrative expenses totaled $27.8 million, including approximately $7.9 million of stock compensation expense and approximately $2.0 million of marketing expense related to the launch of the Company’s online virtual world, Kung Fu Panda World.
Additionally, the Company recorded an expense of approximately $8.7 million related to its tax sharing agreement with a former stockholder. Combining the amount due to the former stockholder with the Company’s income tax expense of approximately $0.7 million, the result is an overall equivalent tax rate of 28.1% for the second quarter.
The Company also announced today that its Board of Directors has approved a new $150 million share repurchase program. For the six months ended June 30, 2010, the Company has repurchased approximately 3.1 million shares for approximately $111 million.
The Company’s third quarter results are expected to be driven primarily by the continued international box office performance of Shrek Forever After. The Company expects its full year 2010 results, which will likely be heavily weighted toward the second half of the year, to be driven by the continued box office performance of Shrek Forever After as well as the home entertainment performance of How to Train Your Dragon and Shrek Forever After, both of which are expected to be released on DVD and Blu-ray in the fourth quarter.
Items related to the earnings press release for the second quarter of 2010 will be discussed in more detail on the Company’s second quarter 2010 earnings conference call later today.
Conference Call Information
DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, July 27, 2010, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1096 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, July 27, 2010. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 163006 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. DreamWorks Animation has been named one of the “100 Best Companies to Work For” by FORTUNE® Magazine for two consecutive years. In 2010, DreamWorks Animation ranks #6 on the list. All of DreamWorks Animation’s feature films are now being produced in 3D. The Company has theatrically released a total of 20 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon. DreamWorks Animation’s next feature film is Megamind, scheduled to be released in 3D on November 5, 2010.
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**
CONSOLIDATED BALANCE SHEETS
December
June 30, 31,
2010 2009
—- —-
(unaudited)
(in thousands,
except par value and
share
amounts)
Assets
Cash and cash equivalents $76,918 $231,245
Trade accounts receivable, net of
allowance for doubtful accounts 46,558 42,175
Income taxes receivable 13,690 9,016
Receivable from Paramount, net of
reserve for returns and allowance
for doubtful accounts 161,259 171,292
Film, live performance and other
inventory costs, net 752,950 695,963
Prepaid expenses 33,018 25,505
Other assets 21,913 15,958
Property, plant, and equipment, net
of accumulated depreciation and
amortization 174,862 161,558
Deferred taxes, net 7,106 7,669
Goodwill 34,216 34,216
Total assets $1,322,490 $1,394,597
========== ==========
Liabilities and Equity
Liabilities:
Accounts payable $2,194 $2,400
Accrued liabilities 101,998 111,281
Payable to former stockholder 61,744 67,456
Deferred revenue and other advances 41,060 60,870
—— ——
Total liabilities 206,996 242,007
Commitments and contingencies
Stockholders’ equity:
Stockholders’ equity:
Class A common stock, par value
$.01 per share, 350,000,000 shares
authorized, 97,022,472 and
95,967,515 shares issued, as of
June 30, 2010 and December 31,
2009, respectively 970 960
Class B common stock, par value
$.01 per share, 150,000,000 shares
authorized, 10,838,731 and
11,419,461 shares issued and
outstanding, as of June 30, 2010
and December 31, 2009,
respectively 108 114
Additional paid-in capital 953,203 922,681
Retained earnings 841,940 796,296
Less: Class A Treasury common
stock, at cost, 23,612,421 and
20,430,031 shares, as of June 30.
2010 and December 31, 2009,
respectively (680,727) (567,461)
——– ——–
Total stockholders’ equity 1,115,494 1,152,590
——— ———
Total liabilities and stockholders’
equity $1,322,490 $1,394,597
========== ==========
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 30,
——–
2010 2009
— —
(in thousands, except per share amounts)
Revenues $158,095 $131,990
Costs of revenues 98,734 74,022
—- —-
Gross profit 59,361 57,968
Product development 422 93
Selling, general and
administrative
expenses 27,751 24,831
—— ——
Operating income 31,188 33,044
Interest income, net 171 979
Other income, net 2,004 1,613
Increase in income
tax benefit payable
to former
stockholder (8,668) (11,020)
—— ——-
Income before income
taxes 24,695 24,616
Provision (benefit)
for income taxes 720 (940)
— —-
Net income $23,975 $25,556
======= =======
Basic net income per
share $0.28 $0.30
Diluted net income
per share $0.27 $0.30
Shares used in
computing net
income per share
Basic 85,709 85,890
Diluted 87,582 86,382
Six Months Ended
June 30,
——–
2010 2009
— —
(in thousands, except per share amounts)
Revenues $320,238 $395,514
Costs of revenues 204,917 230,428
—– —–
Gross profit 115,321 165,086
Product development 607 2,461
Selling, general
and administrative
expenses 51,261 45,522
—— ——
Operating income 63,453 117,103
Interest income,
net 230 1,518
Other income, net 4,097 3,065
Increase in income
tax benefit
payable to former
stockholder (16,856) (27,030)
——- ——-
Income before
income taxes 50,924 94,656
Provision (benefit)
for income taxes 5,280 6,790
—– —–
Net income $45,644 $87,866
======= =======
Basic net income
per share $0.53 $1.01
Diluted net income
per share $0.51 $1.01
Shares used in
computing net
income per share
Basic 86,741 86,673
Diluted 88,972 87,390
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2010 2009
(in thousands)
Operating activities
Net income $45,644 $87,866
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Amortization and write off of film, live
performance and other inventory costs 183,295 192,183
Stock compensation expense 15,210 14,695
Depreciation and amortization 2,526 1,831
Revenue earned against deferred revenue and
other advances (53,499) (51,667)
Deferred taxes, net 563 12,330
Change in operating assets and liabilities:
Trade accounts receivable (4,383) 2,427
Receivable from Paramount 10,033 72,534
Film, live performance and other inventory
costs (223,418) (183,574)
Prepaid expenses and other assets (15,540) (16,242)
Accounts payable and accrued liabilities (9,347) (27,749)
Payable to former stockholder (5,712) (1,466)
Income taxes payable/receivable, net (4,851) (8,001)
Deferred revenue and other advances 35,549 74,515
—— ——
Net cash (used in) provided by operating
activities (23,930) 169,682
——- ——-
Investing activities
Purchases of property, plant and equipment (26,590) (31,495)
——- ——-
Net cash used in investing activities (26,590) (31,495)
——- ——-
Financing Activities
Receipts from exercise of stock options 8,786 90
Excess tax benefits from employee equity
awards 673 –
Purchase of treasury stock (113,266) (52,125)
——– ——-
Net cash used in financing activities (103,807) (52,035)
——– ——-
(Decrease) increase in cash and cash
equivalents (154,327) 86,152
Cash and cash equivalents at beginning of
period 231,245 262,644
——- ——-
Cash and cash equivalents at end of period $76,918 $348,796
======= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for income
taxes, net $8,891 $2,373
—— ——
Cash paid during the period for interest,
net of amounts capitalized $281 $355
—- —-
Source: DreamWorks Animation SKG, Inc.