DreamWorks Animation Reports First Quarter 2015 Financial Results
GLENDALE, Calif., April 30, 2015 /PRNewswire/ -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today reported revenues for the quarter ended March 31, 2015 of $166.5 million, representing an increase of 13.1% from the same period in 2014. In addition, DWA reported an adjusted(1) operating loss of ($3.4) million and adjusted(1) net loss attributable to DWA of ($21.5) million or an adjusted(1) loss of ($0.25) per share. Adjusted financial results exclude a $31.9 million pre-tax charge associated with Company's restructuring plan announced on January 22, 2015.
Including the impact of the restructuring plan, DWA reported an operating loss of ($35.3) million and reported net loss attributable to DWA of ($54.8) million, or ($0.64) per share for the quarter ended March 31, 2015. Of the restructuring-related charges totaling $31.9 million or a loss of ($0.37) per share, $6.1 million was due to employee termination and other employee-related costs, $9.3 million was related to accelerated depreciation and amortization charges associated with the closure of our Redwood City facility, and $16.5 million was primarily related to excess staffing and other costs associated with the previously announced changes in the feature film slate.
"While 2015 is a transitional year for us, the worldwide box office performance of Home serves as early evidence that the changes we're making in the core feature animation business are working," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "In addition, last Friday, our television series All Hail King Julien won the Emmy Award for Outstanding Children's Animated Program." Katzenberg added, "This recognition highlights the extraordinary talent and high quality of their work being done at the studio today and we couldn't be prouder."
Home released theatrically on March 27, 2015 and has reached $154 million at the domestic box office and nearly $154 million at the international box office to date.
First Quarter Review:
DWA's first quarter revenues of $166.5 million increased 13.1% versus the prior year period due to increases across each of the Company's operating segments.
Revenues for the quarter ended March 31, 2015 from the Feature Film Segment increased to $128.0 million, up from $110.1 million in the prior year period. Segment gross profit also increased to $41.0 million compared to a loss of $25.4 million in the same period last year. In the first quarter of 2014, DWA recorded an impairment charge of $57.1 million for the theatrical release of Mr. Peabody and Sherman.
Home, which was released theatrically on March 27, 2015, contributed feature film revenue of $2.9 million in the current quarter, primarily from ancillary revenues. As a result of the film's performance in the worldwide theatrical markets, DWA currently anticipates that Fox will recoup their marketing and distribution costs and begin reporting revenue to DWA in the second quarter of 2015.
The Penguins of Madagascar contributed feature film revenue of $2.0 million in the current quarter, primarily from distribution outside of Fox territories. The film was released into the domestic home entertainment market on March 17, 2015 and through the end of the first quarter reached an estimated 2.2 million home entertainment units sold worldwide, net of actual and estimated future returns. Fox did not report any revenue to DWA in the quarter for the film as they had not yet recouped their marketing and distribution costs. DWA currently anticipates that Fox will recoup their marketing and distribution costs and begin reporting revenue to DWA in the second quarter of 2015.
How to Train Your Dragon 2 contributed feature film revenue of $41.4 million in the quarter, primarily from the domestic and international pay television windows as well as home entertainment. The film reached an estimated 8.4 million home entertainment units sold worldwide through the end of the first quarter, net of actual and estimated future returns.
Mr. Peabody and Sherman contributed feature film revenue of $31.5 million in the quarter, primarily from the domestic and international pay television windows as well as home entertainment. The film reached an estimated 3.8 million home entertainment units sold worldwide at the end of the first quarter, net of actual and estimated future returns.
Turbo contributed feature film revenue of $12.3 million in the quarter, primarily from international home entertainment. The film reached an estimated 7.1 million home entertainment units sold worldwide at the end of the first quarter, net of actual and estimated future returns.
Library titles contributed feature film revenue of $37.9 million to the quarter. Library revenues in the current quarter were driven by Rise of the Guardians, primarily from worldwide television markets, along with revenues generated in the home entertainment market by How to Train Your Dragon, which benefited from the home entertainment release of the sequel, How to Train Your Dragon 2, in November 2014. In addition, during the three months ended March 31, 2015, our Library benefitted from recoveries of $6.3 million from previously established home entertainment reserves related to sales through DWA's former primary theatrical distributor.
Revenues for the quarter ended March 31, 2015 from the Television Series and Specials Segment were relatively in line with the prior year period at $18.0 million and were comprised of revenues generated from the delivery of episodic series. Segment gross profit declined to $3.5 million in the current period from $5.8 million in the same period of the prior year, primarily due to higher up-front marketing costs attributable to the initial launch of new series.
Revenues from the Consumer Products Segment increased to $15.1 million in the first quarter, compared to $12.1 million in the same period last year. The increase was primarily driven by revenues generated in location-based entertainment initiatives as well as from increased merchandise sales. Segment gross profit increased to $6.5 million from $6.0 million in the prior year period as higher revenues were partially offset by the timing of creative development expenses and investments in new initiatives.
Revenues for the quarter ended March 31, 2015 from the Company's New Media Segment were $4.6 million compared to $4.1 million during the three months ended March 31, 2014, an increase of approximately 12% compared with the prior year period. This increase was primarily attributable to revenues generated by channels and Big Frame, which was acquired in April 2014. Beginning in the quarter ended December 31, 2014, the Company began reporting certain advertising revenues in this segment on a "net" basis rather than on a "gross" basis. For comparative purposes, if the New Media Segment's revenues had been reported on a "net" basis during the quarter ended March 31, 2014, revenues for the quarter ended March 31, 2015 would reflect an increase of approximately 72% compared with the prior year period. Segment gross profit, which is not affected by this item, increased to $2.1 million from ($0.1) million in the prior-year period primarily attributable to the incremental contribution from channels, Big Frame and the successful release of Expelled.
For the quarter ended March 31, 2015, DWA posted an adjusted(1) operating loss of ($3.4) million. The increase in revenues and segment gross profit were partially offset by an increase in general and administrative expenses largely driven by costs associated with the expansion and growth of the AwesomenessTV business and higher up-front marketing costs related to the launch of new television series. The reported operating loss for the quarter ended March 31, 2015, inclusive of restructuring-related charges was ($35.3) million.
Adjusted(1) net loss attributable to DWA for the quarter ended March 31, 2015 was ($21.5) million, or an adjusted loss of ($0.25) per share. Adjusted net loss reflects interest expense associated with higher debt balances and a write-off of an equity method investment in the amount of $5.1 million in other expense (net). Reported net loss attributable to DWA for the quarter ended March 31, 2015 was ($54.8) million, or ($0.64) per share.
For the three months ended March 31, 2015, net cash provided by operating activities was $1.6 million, compared to net cash used in operating activities of ($12.5) million in the prior year period. The main sources of cash from operating activities were How to Train Your Dragon 2's worldwide home entertainment revenues, The Croods' worldwide home entertainment revenues, Madagascar 3's international television revenues, and the collection of worldwide television and home entertainment revenues from other films. Cash from operating activities was partially offset by production spending for films and television series, as well as participation and residual payments. Cash from operating activities in the quarter also included cash payments totaling $29.2 million related to the 2015 Restructuring Plan.
During the quarter ended March 31, 2015, DWA amended its $400 million revolving credit facility, increasing the size of the committed facility to $450 million and extending the term through February 2020. Also in the quarter, DWA entered into an agreement to sell its campus located in Glendale, California for $185.0 million and concurrently leased it back from the purchaser. Proceeds from the sale were used to repay outstanding borrowings on the Company's revolving credit facility. As of March 31, 2015, DWA had $370.0 million of availability on its revolving credit facility and $89.7 million of unrestricted cash and cash equivalents on hand, bringing the Company's total available liquidity to nearly $460 million.
Items related to the earnings press release for the first quarter of 2015 will be discussed in more detail on the Company's earnings conference call later today.
Conference Call Information
DreamWorks Animation will host a conference call and webcast to discuss the results on Thursday, April 30, 2015, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1085 in the U.S. and (612) 288-0329 internationally and identifying "DreamWorks Animation Earnings" to the operator. The call will also be available via live webcast at ir.dreamworksanimation.com.
A replay of the conference call will be available shortly after the call ends on Thursday, April 30, 2015. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 357034 as the conference ID number. Both the earnings release and archived webcast will be available on the Company's website at ir.dreamworksanimation.com.
About DreamWorks Animation
DreamWorks Animation creates high-quality entertainment, including CG-animated feature films, television specials and series and live entertainment properties, 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 five consecutive years. In 2013, DreamWorks Animation ranked #12 on the list. All of DreamWorks Animation's feature films are produced in 3D. The Company has theatrically released a total of 31 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda, How to Train Your Dragon, Puss In Boots, and The Croods.
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.
(1)Reconciliations of non-GAAP measures to reported results are included at the end of this earnings release
| DREAMWORKS ANIMATION SKG, INC. |
|||
| CONSOLIDATED BALANCE SHEETS |
|||
| (Unaudited) |
|||
| March 31, |
December 31, |
||
| 2015 |
2014 |
||
| (in thousands, except par value |
|||
| and share amounts) |
|||
| Assets |
|||
| Cash and cash equivalents |
$ 89,662 |
$ 34,227 |
|
| Restricted cash |
14,907 |
25,244 |
|
| Trade accounts receivable, net of allowance for doubtful accounts |
173,267 |
160,379 |
|
| Receivables from distributors, net of allowance for doubtful accounts |
214,672 |
271,256 |
|
| Film and other inventory costs, net |
830,692 |
827,890 |
|
| Prepaid expenses |
33,478 |
17,555 |
|
| Other assets |
47,406 |
40,408 |
|
| Investments in unconsolidated entities |
26,695 |
35,330 |
|
| Property, plant and equipment, net of accumulated depreciation and amortization |
164,171 |
180,607 |
|
| Intangible assets, net of accumulated amortization |
180,534 |
186,141 |
|
| Goodwill |
190,668 |
190,668 |
|
| Total assets |
$ 1,966,152 |
$ 1,969,705 |
|
| Liabilities and Equity |
|||
| Liabilities: |
|||
| Accounts payable |
$ 9,781 |
$ 9,031 |
|
| Accrued liabilities |
164,093 |
190,217 |
|
| Payable to former stockholder |
3,128 |
10,455 |
|
| Deferred revenue and other advances |
51,052 |
33,895 |
|
| Revolving credit facility |
80,000 |
215,000 |
|
| Lease financing obligation |
183,816 |
- |
|
| Senior unsecured notes |
300,000 |
300,000 |
|
| Deferred taxes, net |
17,388 |
16,709 |
|
| Total liabilities |
809,258 |
775,307 |
|
| Commitments and contingencies |
|||
| Equity: |
|||
| DreamWorks Animation SKG, Inc. Stockholders' Equity: |
|||
| Class A common stock, par value $0.01 per share, 350,000,000 shares authorized, 105,915,146 and 105,718,014 shares issued, as of March 31, 2015 and December 31, 2014, respectively |
1,059 |
1,057 |
|
| Class B common stock, par value $0.01 per share, 150,000,000 shares authorized, 7,838,731 shares issued and outstanding, as of March 31, 2015 and December 31, 2014 |
78 |
78 |
|
| Additional paid-in capital |
1,179,584 |
1,172,806 |
|
| Accumulated other comprehensive loss |
(2,637) |
(1,827) |
|
| Retained earnings |
708,007 |
762,784 |
|
| Less: Class A Treasury common stock, at cost, 28,019,254 and 27,884,524 shares, as of March 31, 2015 and December 31, 2014, respectively |
(780,554) |
(778,541) |
|
| Total DreamWorks Animation SKG, Inc. stockholders' equity |
1,105,537 |
1,156,357 |
|
| Non-controlling interests |
51,357 |
38,041 |
|
| Total equity |
1,156,894 |
1,194,398 |
|
| Total liabilities and equity |
$ 1,966,152 |
$ 1,969,705 |
|
| DREAMWORKS ANIMATION SKG, INC. |
||||
| CONSOLIDATED STATEMENTS OF OPERATIONS |
||||
| (Unaudited) |
||||
| Three Months Ended |
||||
| March 31, |
||||
| 2015 |
2014 |
|||
| (in thousands, except per share amounts) |
||||
| Revenues |
$ 166,530 |
$ 147,241 |
||
| Operating expenses (income): |
||||
| Costs of revenues |
106,165 |
156,398 |
||
| Selling and marketing |
8,475 |
6,262 |
||
| General and administrative |
89,142 |
47,708 |
||
| Product development |
332 |
540 |
||
| Other operating income |
(2,281) |
(1,672) |
||
| Operating loss |
(35,303) |
(61,995) |
||
| Non-operating income (expense): |
||||
| Interest expense, net |
(6,334) |
(1,773) |
||
| Other (expense) income, net |
(5,466) |
1,218 |
||
| (Increase) decrease in income tax benefit payable to former stockholder |
(25) |
927 |
||
| Loss before loss from equity method investees and income |
(47,128) |
(61,623) |
||
| Loss from equity method investees |
6,362 |
3,260 |
||
| Loss before income taxes |
(53,490) |
(64,883) |
||
| Provision (benefit) for income taxes |
2,400 |
(22,467) |
||
| Net loss |
(55,890) |
(42,416) |
||
| Less: Net (loss) income attributable to non-controlling interests |
(1,113) |
520 |
||
| Net loss attributable to DreamWorks Animation SKG, Inc. |
$ (54,777) |
$ (42,936) |
||
| Net loss per share of common stock attributable to |
||||
| Basic and diluted net loss per share |
$ (0.64) |
$ (0.51) |
||
| Shares used in computing net loss per share |
||||
| Basic and diluted |
85,615 |
84,484 |
||
| DREAMWORKS ANIMATION SKG, INC. |
|||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||
| (Unaudited) |
|||
| Three Months Ended |
|||
| March 31, |
|||
| 2015 |
2014 |
||
| (in thousands) |
|||
| Operating activities |
|||
| Net loss |
$ (55,890) |
$ (42,416) |
|
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|||
| Amortization and write-off of film and other inventory costs |
93,352 |
145,412 |
|
| Other impairments and write-offs |
5,064 |
- |
|
| Amortization of intangible assets |
3,977 |
3,154 |
|
| Depreciation and amortization |
13,374 |
1,081 |
|
| Amortization of deferred financing costs |
571 |
242 |
|
| Stock-based compensation expense |
4,399 |
5,309 |
|
| Revenue earned against deferred revenue and other advances |
(16,469) |
(16,188) |
|
| Income related to investment contributions |
(2,281) |
(1,672) |
|
| Loss from equity method investees |
6,362 |
3,260 |
|
| Deferred taxes, net |
679 |
(22,314) |
|
| Changes in operating assets and liabilities: |
|||
| Restricted cash |
10,337 |
- |
|
| Trade accounts receivable |
(16,704) |
(19,091) |
|
| Receivables from distributors |
54,648 |
79,267 |
|
| Film and other inventory costs |
(89,192) |
(122,837) |
|
| Prepaid expenses and other assets |
(20,387) |
(4,870) |
|
| Accounts payable and accrued liabilities |
(25,015) |
(48,594) |
|
| Payable to former stockholder |
(7,328) |
1,080 |
|
| Income taxes payable/receivable, net |
305 |
(658) |
|
| Deferred revenue and other advances |
41,760 |
27,348 |
|
| Net cash provided by (used in) operating activities |
1,562 |
(12,487) |
|
| Investing activities |
|||
| Investments in unconsolidated entities |
(510) |
(7,000) |
|
| Purchases of property, plant and equipment |
(1,845) |
(5,711) |
|
| Net cash used in investing activities |
(2,355) |
(12,711) |
|
| Financing activities |
|||
| Proceeds from stock option exercises |
- |
261 |
|
| Deferred financing costs |
(5,729) |
- |
|
| Purchase of treasury stock |
(2,013) |
(1,278) |
|
| Contingent consideration payment |
(335) |
- |
|
| Borrowings from revolving credit facility |
340,405 |
- |
|
| Repayments of borrowings from revolving credit facility |
(475,405) |
- |
|
| Proceeds from lease financing obligation |
185,000 |
- |
|
| Repayments of lease financing obligation |
(1,184) |
- |
|
| Capital contribution from non-controlling interest holder |
15,000 |
- |
|
| Distributions to non-controlling interest holder |
(571) |
- |
|
| Net cash provided by (used in) financing activities |
55,168 |
(1,017) |
|
| Effect of exchange rate changes on cash and cash equivalents |
1,060 |
396 |
|
| Increase (decrease) in cash and cash equivalents |
55,435 |
(25,819) |
|
| Cash and cash equivalents at beginning of period |
34,227 |
95,467 |
|
| Cash and cash equivalents at end of period |
$ 89,662 |
$ 69,648 |
|
| Non-cash investing activities: |
|||
| Intellectual property and technology licenses granted in exchange for equity interest |
$ 2,225 |
$ 1,294 |
|
| Services provided in exchange for equity interest |
55 |
383 |
|
| Total non-cash investing activities |
$ 2,280 |
$ 1,677 |
|
| Supplemental disclosure of cash flow information: |
|||
| Cash paid during the period for income taxes, net of amounts refunded |
$ 1,441 |
$ 503 |
|
| Cash paid during the period for interest, net of amounts capitalized |
$ 12,132 |
$ 7,515 |
|
Non-GAAP Measures
In addition to the financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP measures: Adjusted Income/Loss and Adjusted EBITDA (collectively, "non-GAAP measures"). Adjusted Income/Loss and Adjusted EBITDA are not prepared in accordance with U.S. GAAP. We believe the use of these non-GAAP measures on a consolidated basis assists investors in comparing our ongoing operating performance between periods. Adjusted Income/Loss and Adjusted EBITDA provide a supplemental presentation of our operating performance and generally reflect adjustments for unusual or non-operational activities. We may not calculate Adjusted Income/Loss or Adjusted EBITDA in a manner consistent with the methodologies used by other companies. Adjusted Income/Loss and Adjusted EBITDA (a) do not represent our operating income or cash flows from operating activities as defined by U.S. GAAP; (b) in the case of Adjusted EBITDA, does not include all of the adjustments used to compute consolidated cash flow for purposes of the covenants applicable to the Notes; (c) are not necessarily indicative of cash available to fund our cash flow needs; and (d) should not be considered alternatives to net income, operating income, cash provided by operating activities or our other financial information as determined under U.S. GAAP. Our presentation of Adjusted Income/Loss and Adjusted EBITDA measures should not be construed as an implication that our future results will be unaffected by unusual items.
Adjusted Income / Loss Measures
On January 22, 2015, the Company announced its restructuring initiatives (the "2015 Restructuring Plan") that are intended to refocus the Company's core feature animation business. In connection with the 2015 Restructuring Plan, the Company made changes in its senior leadership team and also made changes based on its reevaluation of the Company's feature film slate. The Company evaluates operating performance to exclude the effects of the charges related to the execution of the 2015 Restructuring Plan as it believes the restructuring-related charges do not correlate with the ongoing operating results of the Company's business and were charges that resulted from significant decisions that were made in order to refocus the Company. As a result, the Company believes that presenting the Company's Adjusted Operating Income/Loss, Adjusted Net Income/Loss Attributable to DWA and Adjusted Diluted Income/Loss per share (collectively, "Adjusted Income/Loss Measures") will aid investors in evaluating the performance of the Company. The Company defines Adjusted Income/Loss Measures as net earnings (loss) adjusted to exclude the items within its Consolidated Statements of Operations that relate to its 2015 Restructuring Plan (as discussed further in the footnotes to the tables below).
The Company uses these Adjusted Income/Loss Measures to, among other things, evaluate the Company's operating performance. These measures are among the primary measures used by management for planning and forecasting of future periods, and they are important indicators of the Company's operational strength and business performance because they provide a link between profitability and operating cash flow. The Company believes these measures are relevant and useful for investors because they allow investors to view performance in a manner similar to the method used by the Company's management and help improve investors' understanding of the Company's operating performance. In addition, the Company believes that these are among the primary measures used externally by the Company's investors, analysts and industry peers for purposes of valuation and for the comparison of the Company's operating performance to other companies in its industry.
Adjusted Income/Loss Measures Reconciliation
The following is a reconciliation of each of the Company's GAAP measures (operating income/loss, net income/loss attributable to DreamWorks Animation SKG, Inc. and diluted earnings per share) to the non-GAAP adjusted amounts. In addition, following this table is an additional reconciliation for adjusted general and administrative, which is a component of the Adjusted Income/Loss Measures.
| DREAMWORKS ANIMATION SKG, INC. |
||
| ADJUSTED INCOME/LOSS RECONCILIATIONS |
||
| (Unaudited) |
||
| Three Months Ended |
||
| March 31, 2015 |
||
| (in thousands, |
||
| Operating loss - as reported |
$ (35,303) |
|
| Reverse 2015 Restructuring Plan charges: |
||
| Employee-related termination costs(1) |
4,587 |
|
| Relocation and other employee-related costs(2) |
1,496 |
|
| Accelerated depreciation and amortization charges(3) |
9,279 |
|
| Additional labor and other excess costs(4) |
16,509 |
|
| Total restructuring-related charges |
31,871 |
|
| Adjusted operating loss |
$ (3,432) |
|
| Net loss attributable to DreamWorks Animation |
$ (54,777) |
|
| Reverse 2015 Restructuring Plan charges: |
||
| Employee-related termination costs(1) |
4,587 |
|
| Relocation and other employee-related costs(2) |
1,496 |
|
| Accelerated depreciation and amortization charges(3) |
9,279 |
|
| Additional labor and other excess costs(4) |
16,509 |
|
| Total restructuring-related charges |
31,871 |
|
| Tax impact(5) |
1,434 |
|
| Adjusted net loss attributable to DreamWorks |
$ (21,472) |
|
| Loss per share - as reported |
$ (0.64) |
|
| Reverse 2015 Restructuring Plan charges: |
||
| Employee-related termination costs(1) |
0.05 |
|
| Relocation and other employee-related costs(2) |
0.02 |
|
| Accelerated depreciation and amortization charges(3) |
0.11 |
|
| Additional labor and other excess costs(4) |
0.19 |
|
| Total restructuring-related charges |
0.37 |
|
| Tax impact(5) |
0.02 |
|
| Adjusted loss per share |
$ (0.25) |
|
| DREAMWORKS ANIMATION SKG, INC. |
||
| ADJUSTED EXPENSE RECONCILIATION |
||
| (Unaudited) |
||
| Three Months Ended |
||
| March 31, 2015 |
||
| (in thousands) |
||
| General and administrative - as reported |
$ 89,142 |
|
| Reverse 2015 Restructuring Plan charges: |
||
| Employee-related termination costs(1) |
(4,587) |
|
| Relocation and other employee-related costs(2) |
(1,496) |
|
| Accelerated depreciation and amortization charges(3) |
(9,279) |
|
| Additional labor and other excess costs(4) |
(16,509) |
|
| Total restructuring-related charges |
(31,871) |
|
| Adjusted general and administrative |
$ 57,271 |
|
| (1) |
Employee-related termination costs. Employee-related termination costs consist of severance and benefits (including stock-based compensation) attributable to employees that were terminated in connection with the 2015 Restructuring Plan. |
| (2) |
Relocation and other employee-related costs. Relocation and other employee-related costs largely consist of costs to relocate employees from our Northern California facility to our Southern California facility. |
| (3) |
Accelerated depreciation and amortization charges. Accelerated depreciation and amortization charges consist of the incremental charges we incurred as a result of shortened estimated useful lives of certain property, plant and equipment due to the decision to exit our Northern California facility. |
| (4) |
Additional labor and other excess costs. Additional labor consists of costs related to excess staffing in order to execute the restructuring plans specifically related to changes in the feature film slate. These additional labor costs are incremental to our normal operating charges and are expensed as incurred. Other excess costs are those due to the closure of our Northern California facility and primarily relate to costs that we incurred to continue to operate the facility until we exit the facility. |
| (5) |
Tax Impact. The tax impact of the non-GAAP adjustments is calculated at the Company's combined effective tax rate of (4.5)% for the quarter ended March 31, 2015. |
Adjusted EBITDA
In connection with our issuance of the Notes on August 14, 2013, we began to use Adjusted EBITDA to provide investors with a measure of our ability to make our interest payments on the Notes. We define Adjusted EBITDA as net income before provision for income taxes, loss from equity method investees, increase/decrease in income tax benefit payable to former stockholder, other income (net), interest income (net), other non-cash operating income, depreciation and amortization, stock-based compensation expense, impairments and other charges and certain components of amortization of film and other inventory costs (refer to the reconciliation below). Although the indenture governing the Notes does not include covenants based on Adjusted EBITDA, we believe our investors and noteholders use Adjusted EBITDA as one indicator of our ability to comply with our debt covenants as it is similar to the consolidated cash flow measure described in the indenture (refer to our Current Report on Form 8-K filed on August 14, 2013). Although consolidated cash flow is not a financial covenant under the indenture, it is a measure that is used to determine our ability to make certain restricted payments and incur additional indebtedness in accordance with the terms of the indenture.
Adjusted EBITDA Reconciliation
We believe that net income is the most directly comparable U.S. GAAP measure to Adjusted EBITDA. Accordingly, the table below presents a reconciliation of net income (or loss) to Adjusted EBITDA. The reconciliation also includes a further reconciliation of Adjusted EBITDA to exclude the charges associated with the 2015 Restructuring Plan (as described above). Lastly, as Adjusted EBITDA is also used as a liquidity measure, the table also presents a reconciliation of Adjusted EBITDA to cash flow provided by (used in) operating activities.
| DREAMWORKS ANIMATION SKG, INC. |
||||
| ADJUSTED EBITDA RECONCILIATIONS |
||||
| (Unaudited) |
||||
| Three Months Ended |
||||
| March 31, |
||||
| 2015 |
2014 |
|||
| (in thousands) |
||||
| Reconciliation of Net Loss to Adjusted EBITDA: |
||||
| Net loss |
$ (55,890) |
$ (42,416) |
||
| Provision (benefit) for income taxes |
2,400 |
(22,467) |
||
| Loss from equity method investees |
6,362 |
3,260 |
||
| Increase/decrease in income tax benefit payable to former stockholder |
25 |
(927) |
||
| Other expense/income, net |
5,466 |
(1,218) |
||
| Interest expense, net |
6,334 |
1,773 |
||
| Operating loss |
(35,303) |
(61,995) |
||
| Income related to investment contributions |
(2,281) |
(1,672) |
||
| Amounts included in amortization of film and other inventory costs(1) |
12,478 |
8,821 |
||
| Film impairments |
933 |
57,074 |
||
| Depreciation and amortization(2) |
17,351 |
4,235 |
||
| Stock-based compensation expense |
4,399 |
5,309 |
||
| Adjusted EBITDA |
$ (2,423) |
$ 11,772 |
||
| Reconciliation of Adjusted EBITDA to exclude 2015 Restructuring Plan: |
||||
| Reverse 2015 Restructuring Plan charges(4): |
||||
| Employee-related termination costs |
$ 4,587 |
$ - |
||
| Relocation and other employee-related costs |
1,496 |
- |
||
| Accelerated depreciation and amortization charges |
9,279 |
- |
||
| Additional labor and other excess costs |
16,509 |
- |
||
| Total restructuring-related charges |
31,871 |
- |
||
| Adjusted EBITDA (excluding 2015 Restructuring Plan) |
$ 29,448 |
$ 11,772 |
||
| Reconciliation of Adjusted EBITDA to Cash Provided by (Used in) Operating Activities: |
||||
| Adjusted EBITDA |
$ (2,423) |
$ 11,772 |
||
| Amortization and write-off of film and other inventory costs(3) |
79,941 |
79,517 |
||
| Revenue earned against deferred revenue and other advances |
(16,469) |
(16,188) |
||
| Other expense/income, net |
(5,466) |
1,218 |
||
| Other impairments and write-offs |
5,064 |
- |
||
| Interest expense, net |
(6,334) |
(1,773) |
||
| Net (payments of) refund from income taxes and stockholder payable |
(8,793) |
1,498 |
||
| Changes in certain operating asset and liability accounts |
(43,958) |
(88,531) |
||
| Cash provided by (used in) operating activities |
$ 1,562 |
$ (12,487) |
||
| (1) |
Amortization and write-offs of film and other inventory costs in any period include depreciation and amortization, interest expense and stock-based compensation expense that were capitalized as part of film and other inventory costs in the period that those charges were incurred. For purposes of Adjusted EBITDA, we add back the portion of amortization and write-offs of film and other inventory costs that represents amounts previously capitalized as depreciation and amortization, interest expense and stock-based compensation expense. |
| (2) |
Includes those amounts pertaining to the amortization of intangible assets that are classified within costs of revenues. |
| (3) |
Represents the remaining portion of amortization and write-off of film and other inventory costs not already included in Adjusted EBITDA (refer to reconciliation of net income (or loss) to Adjusted EBITDA). |
| (4) |
Refer to footnotes in the Adjusted Income/Loss Measures Reconciliation section for a description of these adjustments. |
SOURCE DreamWorks Animation SKG, Inc.
Related Links
http://www.dreamworksanimation.com
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