Exhibit 99.1
DREAMWORKS ANIMATION REPORTS
FIRST QUARTER 2006 FINANCIAL RESULTS
Glendale, California – May 2, 2006 –For the first quarter of 2006, DreamWorks Animation SKG, Inc. (NYSE:DWA) reported total revenue of $60.1 million and net income of approximately $12.3 million, or $0.12 per share on a fully diluted basis. This compares to revenue of $167.0 million and net income of $45.7 million, or $0.44 per share on a fully diluted basis for the same period in 2005. The Company ended the period with $505.5 million of cash and cash equivalents.
“The quarter’s results were primarily driven by the home video performance ofMadagascar,” commented Jeffrey Katzenberg, DreamWorks Animation’s CEO. “During its initial release the title performed well in a highly competitive home video market.”
Madagascar contributed approximately $30.7 million of revenue in the quarter, and since its release in the fourth quarter of 2005, the film has reached an estimated 17.5 million units shipped through the first quarter of 2006, net of actual returns and estimated future returns. In addition, international pay television and home video sales forShark Tale contributed approximately $13.1 million. Library and other films accounted for approximately $16.3 million in revenue for the quarter. By the end of the first quarter the Company’s distributor had not fully recovered the marketing and distribution costs forShrek 2 andWallace and Gromit: The Curse of the Were-Rabbit. As a result, DreamWorks Animation did not recognize any revenue under the distribution agreement for these films.
The Company reported that it is now operating under its new distribution agreement with Paramount Pictures. DreamWorks Animation’s first movie under the Paramount distribution agreement,Over the Hedge, will be released on May 19th. The Paramount agreement, which runs through 2012, replaced the Company’s distribution deal with DreamWorks Studios. As previously disclosed, the Company received a $75 million signing bonus from Paramount as part of this new agreement. In the first quarter, these proceeds were used towards the repayment of the $75 million advance, plus interest, to Universal Studios. The repayment of the Universal advance reduced the Company’s debt balance to approximately $119.7 million at the end of the first quarter.
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Looking at the remainder of the year, the Company expects the balance of 2006 to be primarily driven by the theatrical and home video performance ofOver the Hedge. As with any of its films, the Company does not expect to recognize any significant revenue until after its distributor recovers the upfront distribution and marketing costs which may not occur until a film is released in home video.
“We are certainly proud of our next release,Over the Hedge, which is a fun film for the entire family and a great way to kick off the summer movie season,” added Katzenberg.
As previously stated, the Company anticipates that SG&A for the full year of 2006 will increase by approximately 15% over the $76.5 million of SG&A for the full year of 2005. This is primarily driven by increased management costs as well as additional services that the Company has taken responsibility for under the new distribution agreement with Paramount. Under the new agreement, the Company will receive reimbursements to help offset some of these the additional costs. These reimbursements will effectively serve as a reduction to the Company’s cost of distribution and the benefit will be amortized equally over the minimum number of films required under the new distribution agreement. This benefit will be recorded as film revenue and the Company will now recognize approximately $4.6 million of revenue upon the release of each film starting withOver the Hedge in the second quarter of 2006.
Items related to the first quarter of 2006 will be discussed in more detail on the Company’s first quarter 2006 earnings conference call later today.
Conference Call Information
DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, May 2, 2006, at 4:30 p.m. (EDT). Investors can access the call by dialing 800-473-6123 in the U.S. and 973-582-2745 internationally and entering 7274405 as the conference ID number. 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, May 2, 2006 through May 16, 2006. To access the replay, dial 877-519-4471 in the U.S. and 973-341-3080 internationally and enter 7274405 as the conference ID number. Both the earnings release and archived webcast will be available on the Company’s website at www.dreamworksanimation.com.
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About DreamWorks Animation SKG
DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films. With world-class creative talent, a strong and experienced management team and advanced CG filmmaking technology and techniques, DreamWorks Animation makes high quality CG animated films meant for a broad movie-going audience. The company has theatrically released a total of eleven animated feature films, includingAntz, Shrek, Shrek 2,Shark Tale, Madagascar andWallace & Gromit: The Curse of the Were-Rabbit. DreamWorks Animation’s newest release,Over the Hedge, opens in theaters May 19, 2006.
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, 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 transition to a new distribution and servicing partner, 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 films, the release dates for the films 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.
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Contacts: |
Investors
Rich Sullivan
DreamWorks Animation Investor Relations
(818) 695-3900
ir@dreamworksanimation.com
Media
Bob Feldman
DreamWorks Animation Public Relations
(818) 695-6677
** FINANCIAL TABLES ATTACHED**
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DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2006 | December 31, 2005 | |||||
In thousands | ||||||
Assets | ||||||
Cash and cash equivalents | $ | 505,472 | $ | 403,796 | ||
Trade accounts receivable, net of allowance for doubtful accounts | 4,601 | 10,186 | ||||
Receivable from affiliate, net of allowance for doubtful accounts | — | 97,991 | ||||
Receivables from employees | 1,625 | 1,082 | ||||
Film inventories, net | 577,384 | 535,886 | ||||
Property, plant and equipment, net of accumulated depreciation and amortization | 84,490 | 85,293 | ||||
Deferred costs, net of amortization | 2,809 | 3,005 | ||||
Income taxes recoverable | 25,084 | 35,851 | ||||
Deferred taxes, net | 60,445 | 80,175 | ||||
Goodwill | 34,216 | 34,216 | ||||
Prepaid expenses and other assets | 34,241 | 25,695 | ||||
Total assets | $ | 1,330,367 | $ | 1,313,176 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities | ||||||
Accounts payable | $ | 7,817 | $ | 7,201 | ||
Payable to affiliate | — | 2,667 | ||||
Payable to Paramount | 43,650 | — | ||||
Payable to stockholder | 47,579 | 73,789 | ||||
Accrued liabilities | 50,908 | 55,014 | ||||
Other advances and unearned revenue | 45,277 | 30,863 | ||||
Obligations under capital leases | 2,056 | 2,264 | ||||
Universal Studios advance | — | 75,000 | ||||
Bank borrowings and other debt | 117,595 | 117,267 | ||||
Total liabilities | 314,882 | 364,065 | ||||
Commitments and contingencies | ||||||
Non-controlling minority interest | 2,941 | 2,941 | ||||
Stockholders’ equity | 1,012,544 | 946,170 | ||||
Total liabilities and stockholders’ equity | $ | 1,330,367 | $ | 1,313,176 | ||
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DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three months ended March 31, | ||||||||
2006 | 2005 | |||||||
In thousands, except per share | ||||||||
Operating revenue | $ | 60,096 | $ | 166,959 | ||||
Costs of revenue | 26,954 | 80,419 | ||||||
Gross profit | 33,142 | 86,540 | ||||||
Selling, general and administrative expenses | 18,707 | 17,396 | ||||||
Operating income | 14,435 | 69,144 | ||||||
Interest income (expense), net | 4,766 | (6 | ) | |||||
Other income (expense), net | 1,460 | (287 | ) | |||||
Increase in income tax benefit payable to stockholder | (3,790 | ) | — | |||||
Income before income taxes | 16,871 | 68,851 | ||||||
Provision for income taxes | 4,543 | 23,178 | ||||||
Net income | $ | 12,328 | $ | 45,673 | ||||
Basic net income per share | $ | 0.12 | $ | 0.44 | ||||
Diluted net income per share | $ | 0.12 | $ | 0.44 | ||||
Shares used in computing net income per share | ||||||||
Basic | 103,188 | 102,985 | ||||||
Diluted | 103,645 | 104,616 |
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DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended March 31, | ||||||||
2006 | 2005 | |||||||
In thousands | ||||||||
Operating activities | ||||||||
Net income | $ | 12,328 | $ | 45,673 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Amortization and write off of film inventories | 25,932 | 77,269 | ||||||
Stock compensation expense | 4,758 | 4,556 | ||||||
Depreciation and amortization | 1,979 | 1,947 | ||||||
Revenue earned against advances and unearned revenue | (3,781 | ) | (1,061 | ) | ||||
Deferred taxes, net | 19,730 | — | ||||||
Change in operating assets and liabilities: | ||||||||
Trade accounts receivable | 5,585 | 7,769 | ||||||
Receivables from employees | (543 | ) | 185 | |||||
Receivable from\Payable to Distributor for Distribution and Services Agreements | 138,974 | 310,072 | ||||||
Film inventories | (68,544 | ) | (90,103 | ) | ||||
Prepaid expenses and other assets | (8,546 | ) | (15,154 | ) | ||||
Payable to stockholder | (26,210 | ) | — | |||||
Accounts payable and accrued expenses | (3,545 | ) | (6,743 | ) | ||||
Income taxes | (15,558 | ) | 22,982 | |||||
Advances and unearned revenue | 19,697 | 19,845 | ||||||
Net cash provided by operating activities | 102,256 | 377,237 | ||||||
Investing activities | ||||||||
Purchases of property, plant, and equipment | $ | (652 | ) | $ | (1,737 | ) | ||
Net cash used in investing activities | (652 | ) | (1,737 | ) | ||||
Financing activities | ||||||||
Increase in bank borrowings and other debt | $ | — | $ | 4,837 | ||||
Payments on capital leases | (208 | ) | (195 | ) | ||||
Receipts from exercise of stock options | 464 | 1,769 | ||||||
Excess tax benefits from employee equity awards | 116 | — | ||||||
Purchase of treasury stock | (300 | ) | (42 | ) | ||||
Paramount signing bonus deemed a contribution from controlling stockholders | 75,000 | — | ||||||
Repayment of Universal Studios advance | (75,000 | ) | — | |||||
Net cash provided by financing activities | 72 | 6,369 | ||||||
Increase in cash and cash equivalents | 101,676 | 381,869 | ||||||
Cash and cash equivalents at beginning of period | 403,796 | 63,134 | ||||||
Cash and cash equivalents at end of period | $ | 505,472 | $ | 445,003 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during period for income taxes | $ | 256 | $ | 196 | ||||
Cash paid during period for interest, net of amounts capitalized | $ | 61 | $ | 1,086 | ||||
Supplemental disclosure of non-cash operating activities: | ||||||||
Transfer on January 31, 2006 of net receivable from affiliate to Paramount for Distribution and Servicing Agreements | $ | 102,509 | $ | — | ||||
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