Exhibit 99.1
DREAMWORKS ANIMATION REPORTS
THIRD QUARTER 2006 FINANCIAL RESULTS
Glendale, California – October 31, 2006 – For the third quarter of 2006, DreamWorks Animation SKG, Inc. (NYSE:DWA) reported total revenue of $55.6 million and net income of $10.5 million, or $0.10 per share on a fully diluted basis. This compares to revenue of $87.1 million and net loss of $0.7 million, or $(0.01) per share on a fully diluted basis, for the same period in 2005. The Company ended the third quarter of 2006 with $536.0 million of cash and cash equivalents.
For the period,Madagascar contributed approximately $24.1 million of revenue driven primarily by home video catalogue sales as well as a benefit due to a partial reduction of reserves established for returns and costs associated with the transition of its home video distribution. In total, the film has reached an estimated 20.4 million units shipped through the third quarter of 2006, net of actual returns and estimated future returns.Wallace and Gromit: Curse of the Were-Rabbit generated revenue of approximately $17.2 million as the film was made available in the domestic pay television market in the quarter. Since its home video release in the first quarter of this year, the film has reached an estimated 5.1 million units shipped through the third quarter of 2006, net of actual returns and estimated future returns.Shark Talerecorded revenue of approximately $5.8 million in the quarter. Library and other titles contributed $8.5 million of revenue for the period. The Company’s distributor remained in an unrecouped position of approximately $7.1 million on theShrek 2title at the end of the third quarter.
The Company’s revenues for the third quarter of 2006 included a benefit resulting from the renegotiation of a vendor contract for services provided as part of Paramount’s
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distribution of the Company’s titles. This resulted in higher net revenue of approximately $6.4 million due to a distribution cost credit from Paramount, predominantly impacting the net revenue of the Company’s 2005 theatrical releases. The benefit resulted in $0.01 of earnings per share in the quarter on a fully diluted basis.
DreamWork’s latest release,Over the Hedge,has reached approximately $325 million in box office as of October 30, 2006 on a worldwide basis, making it the eighth highest grossing film of 2006. As expected, the Company’s distributor remains in an un-recouped position at the end of the quarter. The title contributed approximately $2.1 million in revenue to the Company in the quarter.
Looking ahead, the Company reiterated its expectation that revenue for the remainder of the year will be driven by the home video performance ofOver the Hedge, which was released domestically on October 17, 2006.
The Company’s next release,Flushed Away, opens domestically in theatres on November 3, 2006. As is typical in the quarter of a film’s theatrical release, the Company does not anticipate generating significant revenue in the fourth quarter from the title as its distributor will likely not have recouped its upfront marketing and distribution costs.
“We are excited about the upcoming release ofFlushed Away,our latest collaboration with Aardman Animation,” stated Jeffrey Katzenberg, CEO of DreamWorks Animation. “By combining Aardman’s signature look with cutting-edge CG technology, we believe we’ve created a new visual style – and ultimately, a unique film experience.”
In addition to results for the third quarter, the Company provided updates on several future projects, including DreamWorks Animation’sPuss in Boots,based on the beloved character from theShrek franchise. Originally expected to be released as a direct-to-video title, the property is now being slated as a future theatrical release. Due to current market conditions, the Company has decided to shift away from its direct-to-video strategy in favor of new opportunities with Paramount and Nickelodeon.
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“Puss in Bootsis a unique creative property thathas the potential to be a valuable extension of theShrek franchise,” stated Katzenberg. “We are excited to be developing this into a feature film where we think it has the greatest opportunity.”
The Company also announced that its new partnership with Nickelodeon has identified its first two creative concepts for ongoing television series based on DreamWorks Animation theatrical properties. The first will be based on the hit penguin characters from the Company’s 2005 theatrical releaseMadagascarand the second series will be derived from DreamWorks’ 2008 theatrical releaseKung Fu Panda.
Lastly, the Company revealed its theatrical release slate for 2009 from its projects currently under development.Monsters vs. Aliens,the working title of an original concept from DreamWorks Animation, is scheduled for release in the summer of 2009.How to Train Your Dragon, based on the book by Cressida Cowell, is scheduled as the Company’s release for the 2009 fall/holiday season.
Items related to the earnings release for the third quarter of 2006 will be discussed in more detail on the Company’s third 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, October 31, 2006 at 4:30 p.m. (EST). Investors can access the call by dialing 1-888-428-4480 in the U.S. and 1-612-234-9960 internationally and identifying “DreamWorks Animation Earnings” to the operator. The call will also be available via live webcast at www.dreamworksanimation.com.
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A replay of the conference call will be available shortly after the call ends on October 31, 2006 through November 11, 2006. To access the replay, dial 1-800-475-6701 in the U.S. and 1-320-365-3844 internationally and enter 844347 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 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 twelve animated feature films, includingAntz, Shrek, Shrek 2,Shark Tale, Madagascar,Wallace & Gromit: The Curse of the Were-Rabbit,and Over the Hedge. DreamWorks Animation’s newest release,Flushed Away, opens in theaters November 3, 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 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 transition to a new distribution and servicing partner, the increasing cost of producing and marketing feature films, piracy of
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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.
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
September 30, 2006 | December 31, 2005 | |||||
(in thousands) | ||||||
Assets | ||||||
Cash and cash equivalents | $ | 535,967 | $ | 403,796 | ||
Trade accounts receivable, net of allowance for doubtful accounts | 1,424 | 10,186 | ||||
Receivable from affiliate, net of allowance for doubtful accounts | – | 97,991 | ||||
Film inventories, net | 638,858 | 535,886 | ||||
Property, plant and equipment, net of accumulated depreciation and amortization | 81,887 | 85,293 | ||||
Income taxes receivable | 12,350 | 35,851 | ||||
Deferred taxes, net | 29,770 | 80,175 | ||||
Goodwill | 34,216 | 34,216 | ||||
Prepaid expenses and other assets | 37,652 | 29,782 | ||||
Total assets | $ | 1,372,124 | $ | 1,313,176 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities | ||||||
Accounts payable | $ | 4,175 | $ | 7,201 | ||
Payable to affiliate | – | 2,667 | ||||
Payable to Paramount | 54,634 | – | ||||
Payable to stockholder | 47,699 | 73,789 | ||||
Accrued liabilities | 57,444 | 55,014 | ||||
Other advances and unearned revenue | 37,926 | 30,863 | ||||
Obligations under capital leases | 1,629 | 2,264 | ||||
Universal Studios advance | – | 75,000 | ||||
Bank borrowings and other debt | 118,269 | 117,267 | ||||
Total liabilities | 321,776 | 364,065 | ||||
Commitments and contingencies | ||||||
Non-controlling minority interest | 2,941 | 2,941 | ||||
Stockholders’ equity | 1,047,407 | 946,170 | ||||
Total liabilities and stockholders’ equity | $ | 1,372,124 | $ | 1,313,176 | ||
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DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Operating revenue | $ | 55,584 | $ | 87,107 | $ | 190,566 | $ | 289,421 | |||||||
Costs of revenue | 29,739 | 55,559 | 97,194 | 161,903 | |||||||||||
Gross profit | 25,845 | 31,548 | 93,372 | 127,518 | |||||||||||
Selling, general and administrative expenses | 16,966 | 21,919 | 56,936 | 58,467 | |||||||||||
Operating income | 8,879 | 9,629 | 36,436 | 69,051 | |||||||||||
Interest income, net | 6,984 | 2,490 | 17,506 | 3,185 | |||||||||||
Other income, net | 1,452 | 1,454 | 4,393 | 2,581 | |||||||||||
Decrease (increase) in income tax benefit payable to stockholder | 3,851 | 2,677 | (3,764 | ) | (8,682 | ) | |||||||||
Income before income taxes | 21,166 | 16,250 | 54,571 | 66,135 | |||||||||||
Provision for income taxes | 10,699 | 16,906 | 18,112 | 24,784 | |||||||||||
Net income (loss) | $ | 10,467 | $ | (656 | ) | $ | 36,459 | $ | 41,351 | ||||||
Basic net income (loss) per share | $ | 0.10 | $ | (0.01 | ) | $ | 0.35 | $ | 0.40 | ||||||
Diluted net income (loss) per share | $ | 0.10 | $ | (0.01 | ) | $ | 0.35 | $ | 0.40 | ||||||
Shares used in computing net income (loss) per share | |||||||||||||||
Basic | 103,250 | 103,092 | 103,235 | 103,055 | |||||||||||
Diluted | 103,432 | 103,092 | 103,663 | 104,327 |
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DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 36,459 | $ | 41,351 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Amortization and write off of film inventories | 92,832 | 155,755 | ||||||
Stock compensation expense | 16,058 | 15,187 | ||||||
Depreciation and amortization | 6,303 | 6,316 | ||||||
Revenue earned against advances and unearned revenue | (39,738 | ) | (35,549 | ) | ||||
Deferred taxes, net | 50,405 | 22,070 | ||||||
Change in operating assets and liabilities: | ||||||||
Trade accounts receivable | 8,762 | 5,784 | ||||||
Receivable from/Payable to Distributor for Distribution and Services Agreements | 149,958 | 415,530 | ||||||
Film inventories | (197,974 | ) | (203,643 | ) | ||||
Prepaid expenses and other assets | (8,458 | ) | (18,460 | ) | ||||
Payable to stockholder | (26,090 | ) | 5,289 | |||||
Accounts payable and accrued expenses | (773 | ) | (12,544 | ) | ||||
Income taxes | (3,384 | ) | (21,571 | ) | ||||
Advances and unearned revenue | 50,195 | 25,784 | ||||||
Net cash provided by operating activities | 134,555 | 401,299 | ||||||
Investing activities | ||||||||
Purchases of property, plant, and equipment | $ | (1,307 | ) | $ | (3,733 | ) | ||
Purchase of short-term investments | – | (21,800 | ) | |||||
Sale of short-term investments | – | 550 | ||||||
Net cash used in investing activities | (1,307 | ) | (24,983 | ) | ||||
Financing activities | ||||||||
Bank borrowings and other debt | – | 4,597 | ||||||
Payments on bank borrowings | – | (27,772 | ) | |||||
Payments on capital leases | (635 | ) | (593 | ) | ||||
Receipts from exercise of stock options | 697 | 2,822 | ||||||
Excess tax benefits from employee equity awards | 393 | – | ||||||
Purchase of treasury stock | (1,532 | ) | (6,119 | ) | ||||
Paramount signing bonus deemed a contribution from controlling shareholders | 75,000 | – | ||||||
Repayment of Universal Studios advance | (75,000 | ) | – | |||||
Net cash used in financing activities | (1,077 | ) | (27,065 | ) | ||||
Increase in cash and cash equivalents | 132,171 | 349,251 | ||||||
Cash and cash equivalents at beginning of period | 403,796 | 63,134 | ||||||
Cash and cash equivalents at end of period | $ | 535,967 | $ | 412,385 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid (refunded) during period for income taxes, net | $ | (29,302 | ) | $ | 27,863 | |||
Cash paid during the period for interest, net of amounts capitalized | $ | 123 | $ | 5,807 | ||||
Supplemental disclosure of non-cash operating activities: | ||||||||
Transfer on January 31, 2006 of net receivable from affiliate to Paramount for Distribution and Services Agreements | $ | 102,509 | $ | – | ||||
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