Exhibit 99.1
DREAMWORKS ANIMATION REPORTS
FIRST QUARTER 2007 FINANCIAL RESULTS
Glendale, California – May 1, 2007 –For the quarter ended March 31, 2007, DreamWorks Animation SKG, Inc. (NYSE:DWA) reported total revenue of $93.7 million and net income of $15.4 million, or $0.15 per share on a fully diluted basis. This compares to revenue of $60.1 million and net income of $12.3 million, or $0.12 per share on a fully diluted basis, for the same period in 2006.
“In what was a relatively quiet quarter, our library of titles continued to perform well especially in the home video market, withOver the Hedge performing even better than we had expected,” commented Jeffrey Katzenberg, DreamWorks Animation’s CEO. “This is an exciting time for all of us at DreamWorks Animation. With two strong films set to be released in 2007, we are all hopeful that this is the start of a great year for our company and its shareholders.”
For the period, the largest contributor of revenue wasOver the Hedge which contributed approximately $33.1 million of revenue driven primarily by home video. Through the first quarter of 2007,Over the Hedge has reached an estimated 12.6 million units shipped, net of actual returns and estimated future returns.Shark Tale contributed approximately $18.1 million driven primarily by domestic network television andShrek 2 contributed approximately $17.5 million driven primarily by international network television. The Company’s 2005 release,Wallace & Gromit: The Curse of the Were-Rabbit, contributed approximately $9.4 million of revenue, driven by home video and international pay television. Through the first quarter,Wallace & Gromit: The Curse of the Were-Rabbit has reached an estimated 5.8 million units shipped net of actual returns
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and estimated future returns.Madagascar contributed approximately $6.4 million of revenue driven primarily by home video catalogue sales.
The Company’s latest release,Flushed Awayhas reached approximately $176 million in worldwide box office. While the film has not yet been fully recouped by the company’s distributor, it did contribute $1.2 million of revenue in the quarter driven by merchandising and licensing. The title was released on home video domestically on February 20, 2007 and through the end of the first quarter has reached an estimated 3.2 million units shipped, net of actual returns and estimated future returns.
Cost of sales for the first quarter of 2007 equaled $53.5 million while SG&A totaled $25.8 million, including $9.6 million of stock compensation expense.
In the first quarter of 2007, due to changes in the Company’s production process and organizational structure, it was determined that certain operating costs that had historically been capitalized should, beginning with the first quarter of 2007, be recorded as an expense in the period in which incurred. For the quarter ended March 31, 2007, this change resulted in $4.2 million of costs recorded as operating expense instead of being capitalized as film costs. The Company estimates a comparable amount in each quarter going forward for the remainder of 2007. As a result, the Company expects that the capitalized cost of its films will decrease by approximately $10 million per film, with the full impact taking effect on films released in 2009. The change in allocation does not increase the Company’s overall cost structure.
Results for the quarter also included a tax benefit related to the Company’s tax sharing agreement with an affiliated stockholder of approximately $6.8 million, which resulted in a lower effective tax rate. This was partially offset by a $5.8 million increase in the income tax benefit payable to the stockholder in accordance with the agreement. In addition, on January 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No.
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109.” As a result of the adoption of FIN 48, the Company recognized a $2.1 million net increase to reserves for uncertain tax positions as a decrease to opening retained earnings.
Looking ahead to the remainder of the year, the Company reiterates its expectation that results will be primarily driven by the performance ofShrek the Third, which will be released domestically on May 18, 2007.
“From a creative standpoint,Shrek the Third delivers as the next chapter of one of the most successful movie franchises of all times,” stated Katzenberg. “With several other blockbusters opening within weeks of each other, this May has the potential to be one of the biggest of all time and we are looking forward to seeing how it all plays out.”
The Company’s fall release,Bee Movie, is expected to open domestically in theatres on November 2, 2007. 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 this title, as its distributor will likely not have recouped its upfront marketing and distribution costs.
In addition to results for the first quarter, the Company provided an update on its share repurchase program announced earlier in the year. Through the end of the first quarter of 2007, the Company had repurchased approximately 1.2 million shares for $35 million and is authorized to repurchase approximately $115 million worth of additional shares through the period ending August 31, 2008.
Items related to the earnings release for the first quarter of 2007 will be discussed in more detail on the Company’s first quarter 2007 earnings conference call later today.
Conference Call Information
DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, May 1, 2007, at 4:30 p.m. (EDT). Investors can access the call by dialing (800) 553-0326 in the U.S. and (612) 332-0636 internationally and identifying “DreamWorks
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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, May 1, 2007. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 869840 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 thirteen animated feature films, includingAntz, Shrek, Shrek 2,Shark Tale, Madagascar,Wallace & Gromit: The Curse of the Were-Rabbit, Over the Hedge andFlushed Away. DreamWorks Animation’s newest release,Shrek the Third, opens in theaters May 18, 2007.
Contact:
Rich Sullivan
DreamWorks Animation Investor Relations
(818) 695-3900
ir@dreamworksanimation.com
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
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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**
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DreamWorks Animation SKG, Inc.
Condensed Consolidated Balance Sheets
| March 31, 2007 | December 31, 2006 | |||||
| (Unaudited) | ||||||
| (In thousands) | ||||||
Assets | ||||||
Cash and cash equivalents | $ | 558,886 | $ | 506,304 | ||
Trade accounts receivable, net of allowance for doubtful accounts | 630 | 1,208 | ||||
Receivable from Paramount, net of reserve for returns and allowance for doubtful accounts | 43,315 | 122,403 | ||||
Film costs, net | 539,306 | 502,440 | ||||
Property, plant and equipment, net of accumulated depreciation and amortization | 82,677 | 83,416 | ||||
Receivable from stockholder | 13,905 | — | ||||
Deferred taxes, net | 4,171 | 3,590 | ||||
Goodwill | 34,216 | 34,216 | ||||
Prepaid expenses and other assets | 25,768 | 26,892 | ||||
Total assets | $ | 1,302,874 | $ | 1,280,469 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities | ||||||
Accounts payable | $ | 6,001 | $ | 5,021 | ||
Payable to stockholder | — | 6,436 | ||||
Accrued liabilities | 58,869 | 52,516 | ||||
Income taxes payable | 10,719 | 3,173 | ||||
Other advances and unearned revenue | 82,267 | 57,164 | ||||
Obligations under capital leases | 1,110 | 1,335 | ||||
Bank borrowings and other debt | 118,966 | 118,615 | ||||
Total liabilities | 277,932 | 244,260 | ||||
Commitments and contingencies | ||||||
Non-controlling minority interest | 2,941 | 2,941 | ||||
Stockholders’ equity | 1,022,001 | 1,033,268 | ||||
Total liabilities and stockholders’ equity | $ | 1,302,874 | $ | 1,280,469 | ||
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DreamWorks Animation SKG, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three months ended March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands, except per share amounts) | ||||||||
Operating revenue | $ | 93,728 | $ | 60,096 | ||||
Costs of revenue | 53,479 | 26,954 | ||||||
Gross profit | 40,249 | 33,142 | ||||||
Selling, general and administrative expenses | 25,770 | 18,707 | ||||||
Operating income | 14,479 | 14,435 | ||||||
Interest income, net | 6,271 | 4,766 | ||||||
Other income, net | 1,444 | 1,460 | ||||||
Increase in income tax benefit payable to stockholder | (5,817 | ) | (3,790 | ) | ||||
Income before income taxes | 16,377 | 16,871 | ||||||
Provision for income taxes | 977 | 4,543 | ||||||
Net income | $ | 15,400 | $ | 12,328 | ||||
Basic net income per share | $ | 0.15 | $ | 0.12 | ||||
Diluted net income per share | $ | 0.15 | $ | 0.12 | ||||
Shares used in computing net income per share | ||||||||
Basic | 103,367 | 103,188 | ||||||
Diluted | 103,687 | 103,645 | ||||||
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DreamWorks Animation SKG, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
Operating activities | ||||||||
Net income | $ | 15,400 | $ | 12,328 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Amortization and write off of film costs | 51,159 | 25,932 | ||||||
Stock compensation expense | 9,554 | 4,758 | ||||||
Depreciation and amortization | 1,937 | 1,979 | ||||||
Revenue earned against advances and unearned revenue | (3,730 | ) | (3,781 | ) | ||||
Deferred taxes, net | (581 | ) | 19,730 | |||||
Change in operating assets and liabilities: | ||||||||
Trade accounts receivable | 578 | 5,585 | ||||||
Receivable from/Payable to Distributor for Distribution and Services Agreements | 79,088 | 138,974 | ||||||
Film costs | (87,431 | ) | (68,544 | ) | ||||
Prepaid expenses and other assets | 927 | (9,089 | ) | |||||
Receivable from/Payable to stockholder | (16,178 | ) | (26,210 | ) | ||||
Accounts payable and accrued expenses | 7,272 | (3,545 | ) | |||||
Income taxes | 1,010 | (15,558 | ) | |||||
Advances and unearned revenues | 29,020 | 19,697 | ||||||
Net cash provided by operating activities | 88,025 | 102,256 | ||||||
Investing activities | ||||||||
Purchases of property, plant, and equipment | (650 | ) | (652 | ) | ||||
Net cash used in investing activities | (650 | ) | (652 | ) | ||||
Financing activities | ||||||||
Payments on capital leases | (225 | ) | (208 | ) | ||||
Receipts from exercise of stock options | 235 | 464 | ||||||
Excess tax benefits from employee equity awards | 349 | 116 | ||||||
Purchase of treasury stock | (35,152 | ) | (300 | ) | ||||
Paramount signing bonus deemed a contribution from controlling stockholders | — | 75,000 | ||||||
Repayment of Universal Studios advance | — | (75,000 | ) | |||||
Net cash provided by (used in) financing activities | (34,793 | ) | 72 | |||||
Increase in cash and cash equivalents | 52,582 | 101,676 | ||||||
Cash and cash equivalents at beginning of period | 506,304 | 403,796 | ||||||
Cash and cash equivalents at end of period | $ | 558,886 | $ | 505,472 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for income taxes, net | $ | 199 | $ | 256 | ||||
Cash paid during the period for interest, net of amounts capitalized | $ | 53 | $ | 61 | ||||
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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