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DreamWorks Animation Reports $263.2 Million Loss

Studio chief Jeffrey Katzenberg calls 2015 ‘a reset year’ amid company restructuring.

Amid restructuring plans and recent underperforming films, DreamWorks Animation reported on Tuesday a loss of $263.2 million.

The Glendale-based studio said it lost $3.08 cents per share in the quarter ended December 31, compared to a profit of 20 cents a share during the same period a year ago. And while the company's fourth quarter revenue of $234.2 million increased by 14.7 percent, the results were worse than expected by analysts, who had estimated a net loss of $3.01 a share and revenue of $246 million.

“Although 2014 was a challenging year for our company, I am confident that our recent announcement to restructure our feature film business will enable us to deliver great films and better box office results, while improving the overall financial performance of our business,” DWA CEO Jeffrey Katzenberg stated in a press release announcing the results. “And while 2015 will be a transitional year for us, I couldn’t be more confident for the future. We have a set of strategic imperatives in place designed to ensure sustainable and profitable growth over the long term.”

Announced in January, those restructuring plans have so far resulted in more than 500 layoffs as well as the closure of DWA’s Northern California studio, DreamWorks/PDI, and changes in the company’s film release strategy. Now, DWA has also said it is selling its Glendale, CA campus for $185 million and will lease back the space in an effort to cut costs.

During a conference call with Wall Street analysts, Katzenberg called 2015 “a reset year for us,” and the period of the restructuring process “the most difficult eight weeks in the company’s 20-year history.”

DreamWorks Animation’s adjusted operating loss came in at $37.6 million, while its net loss was $64.1 million. The adjusted financial results exclude a $210.1 million pre-tax charge associated with the company’s restructuring plan.

The quarter included impairment charges of $57.1 million from the performance of The Penguins of Madagascar and Mr. Peabody and Sherman.

Roughly $54.6 million of the loss was related to employee termination costs and other contractual obligations, while $155.5 million was primarily related to film write-offs for unreleased projects including B.O.O.: Bureau of Otherworldly Operations and Monkeys of Mumbai.

For the full year, DWA’s 2014 revenues decreased 3.2 percent to $684.6 million against an operating loss of $300 million, leading to $90 million in adjusted losses.

During the quarter, films generated $131.3 million. Write-offs, however, forced the studio to post a $152.2 million loss.

Released in November, Penguins of Madagascar has earned a total of $82.7 million domestically and $275 million overseas. Mr. Peabody and Sherman, which saw a March release, made $111.5 million domestically and $161.4 million overseas for a total of $272.9 million worldwide.

The Academy Award-nominated How to Train Your Dragon 2 made $66 million in home entertainment sales during the same quarter, selling an estimated 7.5 million units worldwide.

This latest news comes on the heels of Sunday night’s loss of the Oscar for best animated feature to Disney’s Big Hero 6, despite a Golden Globe win in January. DWA did win recognition, however, for its innovations in CG filmmaking at the Academy’s Sci-Tech Awards for Foliage System and OpenVDB, both of which were developed for use on HTTYD2.

The full press release has been posted below:

DreamWorks Animation Reports Fourth Quarter and Year-End 2014 Financial Results

GLENDALE, Calif., Feb. 24, 2015 -- DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today reported revenues for the quarter ended December 31, 2014 of $234.2 million, representing an increase of 14.7% from the same period in 2013. In addition, DWA reported an adjusted operating loss of $(37.6) million and adjusted net loss attributable to DWA of ($64.1) million or an adjusted loss of ($0.75) per share. Adjusted financial results exclude a $210.1 million pre-tax charge associated with Company's restructuring plan announced on January 22, 2015. The Company's results for the quarter ended December 31, 2014 include impairment charges of $57.1 million, or a loss of approximately $(0.63) per share, primarily related to the performance of The Penguins of Madagascar and Mr. Peabody and Sherman, as well as certain other titles and investments.

Including the impact of the restructuring plan, DWA reported an operating loss of ($247.7) million and reported net loss attributable to DWA of ($263.2) million, or ($3.08) per share for the quarter ended December 31, 2014. Of the restructuring-related charges totaling $210.1 million or a loss of ($2.33) per share, $54.6 million was related to employee termination costs and other contractual obligations and $155.5 million was primarily related to write-offs of capitalized production costs of unreleased projects, including B.O.O. and Monkeys of Mumbai, as well as other charges associated with changes in the film slate.

"Although 2014 was a challenging year for our Company, I am confident that our recent announcement to restructure our feature film business will enable us to deliver great films and better box office results, while improving the overall financial performance of our business," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "And while 2015 will be a transitional year for us, I couldn't be more confident for the future. We have a set of strategic imperatives in place designed to ensure sustainable and profitable growth over the long term."

Fourth Quarter Review:

DWA's fourth quarter revenues of $234.2 million increased 14.7% due to increases in revenues across each of the Company's primary segments.

Revenues for the quarter ended December 31, 2014 from the Feature Film Segment increased to $131.3 million, while segment gross profit declined to $(152.2) million, primarily due to the impact of film and other inventory write-offs of $153.8 million stemming from the Company's restructuring initiatives, as well as impairment charges of $39.7 million related to The Penguins of Madagascar and Mr. Peabody and Sherman:

The Penguins of Madagascar, which was released theatrically on November 26, 2014, has reached $358.0 million at the worldwide box office to date. The film contributed feature film revenue of $6.9 million in the quarter, primarily from distribution outside of Fox territories. 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.

How to Train Your Dragon 2 contributed feature film revenue of $66.0 million in the quarter, primarily from home entertainment. The film was released into the domestic home entertainment market on November 11, 2014 and through the end of the fourth quarter reached an estimated 7.5 million home entertainment units sold worldwide, net of actual and estimated future returns.

Mr. Peabody & Sherman was released into the domestic home entertainment market on October 14, 2014 and through the end of the fourth quarter, reached an estimated 3.4 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 Mr. Peabody and Sherman as they had not yet recouped their marketing and distribution costs.

Turbo contributed feature film revenue of $5.8 million in the quarter, primarily from home entertainment. The film was released into the domestic home entertainment market on November 12, 2013 and through the end of the fourth quarter, reached an estimated 6.3 million home entertainment units sold worldwide, net of actual and estimated future returns.

The Croods contributed feature film revenue of $6.5 million in the quarter, primarily from home entertainment. The film was released into the domestic home entertainment market on October 1, 2013 and through the end of the fourth quarter, reached an estimated 9.0 million home entertainment units sold worldwide, net of actual and estimated future returns.

Library titles contributed feature film revenue of $46.1 million to the quarter.

Revenues for the quarter ended December 31, 2014 from the Television Series and Specials Segment increased 7.7% to $50.7 million. Segment gross profit declined from $7.3 million to $(2.6) million, as the higher revenues were more than offset by write-downs of capitalized film costs totaling $13.3 million in the quarter, primarily due to revisions in estimated future revenues for certain television specials, as well as up front marketing costs related to the various television series that were delivered in the quarter.

Revenues from the Consumer Products Segment increased 77.5% to $22.1 million, while segment gross profit increased to $6.1 million mostly due to increased sales in the Company's merchandise, location-based entertainment and retail development businesses.

The Company is now presenting a New Media Segment within its financials, which consists of revenues and expenses attributable to Awesomeness TV ("ATV") and related businesses. Revenues and segment gross profit for the quarter ended December 31, 2014 from the Company's New Media Segment increased to $24.9 million and $13.2 million, respectively. The New Media Segment benefitted from the production and delivery of original programming, sponsorships arrangements and content licensing fees.

Also during the quarter, DWA entered into a joint venture agreement with Hearst Corporation ("Hearst") under which Hearst purchased a 25% ownership interest in ATV for $81.25 million. DWA also entered into an agreement with the former stockholders of ATV under which the Company paid $80.0 million in lieu of any amounts of earn-out consideration. As a result, DWA recorded a gain in the quarter of $6.8 million to reflect the change in fair value of the contingent consideration liability.

Revenues for the quarter ended December 31, 2014 from the All Other Segment declined to $5.2 million, primarily because the Company is no longer self-producing any live performance productions. In the prior year period, the Company earned revenues of $11.0 million attributable to the subscription video-on-demand ("SVOD") release of the filmed version of Shrek the Musical. Segment gross profit decreased to $(4.0) million, largely due to lower revenues and the write-off of capitalized costs in the amount of $5.4 million.

For the quarter ended December 31, 2014, DWA posted an adjusted operating loss of ($37.6) million. This was primarily driven by impairment write-downs on certain film assets and investments, as well as the impact of increased investment in support of brand and new business initiatives.

The reported operating loss for the quarter ended December 31, 2014, inclusive of restructuring-related charges was $(247.7) million.

The Company's income tax expense for the fourth quarter was $239.4 million, largely driven by the establishment of a valuation allowance against certain deferred tax assets in the amount of $338.9 million. The impact of establishing the valuation allowance was partially offset by a corresponding decrease in income tax benefit payable to a former stockholder in the amount of $252.6 million, resulting in a net expense of $86.3 million. The Company's combined effective tax rate, its actual tax rate coupled with the effect of a tax sharing agreement with a former stockholder, was 5.2% for the quarter.

Adjusted net loss attributable to DWA for the quarter ended December 31, 2014 was ($64.1) million, or an adjusted loss of ($0.75) per share. Reported net loss attributable to DWA for the quarter ended December 31, 2014 was $(263.2) million, or $(3.08) per share.

Full Year Review:

DWA's full year 2014 revenues decreased 3.2% to $684.6 million, as increases in the New Media segment were more than offset by lower year-over-year performance in the Feature Film Segment.

Full year 2014 revenues for the Feature Film Segment decreased to $453.5 million, as increases from current year theatrical releases were more than offset by lower contributions from prior year theatrical releases and lower library revenues relative to the prior year period. Segment gross profit declined to $(89.4) million, primarily due to restructuring-related charges totaling $163.0 million, as well as impairment charges totaling $96.7 million, primarily related to the performance of The Penguins of Madagascar and Mr. Peabody and Sherman:

The Penguins of Madagascar contributed feature film revenue of $6.9 million in 2014, primarily earned in markets outside Fox distribution territories. During the year ended December 31, 2014, Fox did not report any revenue to DWA for The Penguins of Madagascar as they had not yet recouped their marketing and distribution costs.

How to Train Your Dragon 2 contributed feature film revenue of $142.8 million in 2014, mostly from theatrical and home entertainment.

Mr. Peabody and Sherman contributed feature film revenue of $4.5 million in 2014, primarily earned in markets outside of Fox distribution territories. During the year ended December 31, 2014, Fox did not report any revenue to DWA for Mr. Peabody and Sherman as they had not yet recouped their marketing and distribution costs.

Turbo contributed revenue of $51.8 million in 2014, primarily related to SVOD distribution, as well as revenues earned in the worldwide television and home entertainment markets.

The Croods contributed film revenue of $75.5 million in 2014, primarily related to SVOD distribution, as well as revenues earned in the worldwide television and home entertainment markets.

Library titles contributed feature film revenue of $161.3 million in the full year 2014.

Full year 2014 revenues from the Television Series and Specials Segment declined 2.7% to $103.0 million, mostly due to a decline in revenues generated by holiday television specials and Classic Media properties, partially offset by an increase in revenues generated by How to Train Your Dragon and other television series. Segment gross profit declined 71% to $6.7 million, primarily due to write-downs of capitalized films costs totaling $13.3 million, as well as higher up front marketing costs related to the new content delivered to various partners throughout the year.

Revenues from the Consumer Products Segment decreased 3.9% to $64.8 million. Impacting the comparison was $13.8 million in the prior-year period associated with the sale of the 1960s live-action Batman television series to Fox, as well as the licensing of Kung Fu Panda and the DreamWorks brand to Oriental DreamWorks. Excluding this, the Consumer Products segment grew revenues by 21.0% and gross profit increased to $23.7 million, largely driven by location-based entertainment and merchandise sales.

Full year 2014 revenues from the New Media Segment increased from $11.4 million to $49.0 million and segment gross profit margin improved from 20.2% to 36.5%. The timing of the Awesomeness TV acquisition in May 2013 has an impact on the year-over-year revenue comparison. In addition, this segment benefitted from the production and delivery of original programming, as well as sponsorship arrangements.

Also during the full year of 2014, DWA entered into a joint venture agreement with Hearst under which Hearst purchased a 25% ownership interest in ATV for $81.25 million. Additionally, DWA entered into an agreement with the former stockholders of ATV under which the Company paid $80.0 million in lieu of any amounts of earn-out consideration. As a result, DWA recorded a gain of $16.5 million to reflect the change in fair value of the contingent consideration liability.

Revenues from the Company's All Other Segment declined to $14.3 million, primarily because DWA is no longer self-producing any live performance productions. In the prior year period, the Company earned revenues of $11.0 million from the SVOD release of the filmed version of Shrek the Musical. Segment gross profit decreased to $(5.0) million largely due to lower revenues and the write-off of capitalized costs in the amount of $5.4 million.

DWA posted an adjusted operating loss for 2014 of ($90.0) million. This was largely due to impairment write downs on certain film assets, as well as increased investments in support of brand and new business initiatives.

The Company's reported operating loss for 2014 was ($300.0) million. The decrease was largely due to film and other impairments, restructuring-related charges and increased investments in support of brand and new business initiatives.

The Company's income tax expense for the full year 2014 was $222.1 million. DWA established a valuation allowance against certain deferred tax assets in the amount of $338.9 million and recorded a corresponding decrease in income tax benefit payable to a former stockholder in the amount of $252.6 million, resulting in a net expense of $86.3 million. The Company's combined effective tax rate, its actual tax rate coupled with the effect of a tax sharing agreement with a former stockholder, was 9.3% for the full year 2014. DWA currently expects that its full-year 2015 combined effective tax rate will be minimal.

Adjusted net loss attributable to DWA for 2014 was ($119.1) million, or an adjusted loss of ($1.41) per share. Reported net loss attributable to DWA for 2014 was ($309.6) million, or a loss of ($3.65) per share.

For the year ended December 31, 2014, net cash used in operating activities was ($162.4) million. The main source of cash from operating activities during the period was the collection of worldwide theatrical and home entertainment revenues from films as well as revenues from the television segment. Cash used in operating activities for the year ended December 31, 2014, included a greater number of projects in development and in production, the expansion of episodic series productions, as well as participation and residual payments. In addition, as of December 31, 2014, there was $215 million outstanding under the Company's revolving credit facility.

Subsequent to the end of the year, in February 2015, DWA amended the $400 million revolving credit facility and increased the size of the committed facility to $450 million and extended the term through February 2020. Also in February 2015, DWA entered into an agreement for a $185 million sale and leaseback transaction for the campus located in Glendale, California.

Significant first quarter 2015 events include the theatrical release of Home as well as the release of The Penguins of Madagascar into the home entertainment market.

Items related to the earnings press release for the fourth quarter of 2014 will be discussed in more detail on the Company's earnings conference call later today.

Source: DreamWorks Animation

Jennifer Wolfe's picture

Formerly Editor-in-Chief of Animation World Network, Jennifer Wolfe has worked in the Media & Entertainment industry as a writer and PR professional since 2003.

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