UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________

FORM 8-K
___________________________

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 29, 2014
___________________________
DreamWorks Animation SKG, Inc.
(Exact name of registrant as specified in its charter)
___________________________
 
 
 
 
 
Delaware
 
001-32337
 
68-0589190
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
 
1000 Flower Street, Glendale, California
 
91201
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (818) 695-5000
___________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 





ITEM 2.02.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On July 29, 2014, DreamWorks Animation SKG, Inc. (the "Company") issued an earnings release announcing its results for the quarter ended June 30, 2014, which is furnished as Exhibit 99.1 hereto. In its press release, the Company makes reference to Adjusted EBITDA, which is a non-GAAP financial measure as defined in Regulation G promulgated by the Securities and Exchange Commission. A reconciliation of Adjusted EBITDA to the nearest comparable GAAP financial measure is included in the press release.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference to such filing.

ITEM 9.01.
FINANCIAL STATEMENTS AND EXHIBITS.
(d)
 
Exhibits:
 
 
 
Exhibit No.
 
Description
99.1
 
Earnings release issued by DreamWorks Animation SKG, Inc. on July 29, 2014.
 
 
 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
DreamWorks Animation SKG, Inc.
 
 
Date: July 29, 2014
By:  
  /s/ Andrew Chang
 
 
 
Andrew Chang
 
 
 
General Counsel
 
 





EXHIBIT INDEX
 
 
 
Exhibit No.
 
Description
99.1
 
Earnings release issued by DreamWorks Animation SKG, Inc. on July 29, 2014.



Exhibit 99.1 Earnings Release (7.29.2014)


Exhibit 99.1


DREAMWORKS ANIMATION REPORTS
SECOND QUARTER 2014 FINANCIAL RESULTS
________________________________________________________________________

Glendale, California - July 29, 2014 - DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its second quarter ended June 30, 2014. For the quarter, the Company reported total revenue of $122.3 million, a net loss attributable to the Company of $15.4 million, or a loss of $0.18 per share.

“How to Train Your Dragon 2 is the ninth highest-grossing film of the year so far on a worldwide basis and it has yet to be released in several significant international territories,” said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. “It will be a highly profitable film for the Company and DreamWorks Dragons will remain a very valuable franchise for many years to come.”

The feature film segment contributed revenue of $69.7 million and gross profit of $23.9 million to the second quarter.

How to Train Your Dragon 2, which was released theatrically on June 13, 2014, has reached $166 million at the domestic box office and $262 million at the international box office for a worldwide gross of $428 million to date. The film contributed feature film revenue of $2.6 million to the second quarter and remains in an un-recouped position with the Company’s primary distributor.

Mr. Peabody & Sherman contributed feature film revenue of $1.5 million to the second quarter and remains in an un-recouped position with the Company’s distributor.

Turbo contributed feature film revenue of $11 million to the second quarter, primarily from home entertainment and international pay television. The film reached an estimated 5.1 million home entertainment units sold worldwide through the end of the second quarter, net of actual and estimated future returns.

The Croods contributed feature film revenue of $25.5 million to the second quarter, primarily from international pay television. The film reached an estimated 7.4 million home entertainment units sold worldwide through the end of the second quarter, net of actual and estimated future returns.

Rise of the Guardians contributed feature film revenue of $2.0 million to the second quarter, primarily from home entertainment. The film reached an estimated 5.7 million home entertainment units sold worldwide through the end of the second quarter, net of actual and estimated future returns.

Library titles contributed feature film revenue of $27.1 million to the second quarter.

The Television segment contributed revenue of $20.0 million and gross profit of $1.2 million to the second quarter, primarily from Turbo F.A.S.T. on Netflix, Classic Media content and DreamWorks Dragons: Riders of Berk on Cartoon Network.

The Consumer Products segment contributed revenue of $18.5 million and gross profit of $7.3 million to the second quarter, mainly from the How to Train Your Dragon franchise.

The segment consisting of all other items contributed revenue of $14.1 million and gross profit of $2.3 million to the second quarter, primarily from AwesomenessTV.

The Company’s second quarter 2014 results were impacted by the reduction of the contingent consideration related to its prior acquisition of AwesomenessTV. The estimated fair value of the contingent consideration was reduced by $7.2 million to $91.8 million and resulted in a gain of $0.09 per share in the quarter.

Costs of revenue for the second quarter equaled $87.5 million. Selling, general and administrative expenses totaled $54.6 million, including $2.9 million of stock-based compensation expense.





The Company’s combined income tax expenses for the second quarter was approximately $900 thousand. 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 approximately negative 6% for the second quarter. 

The Company’s third quarter 2014 results are expected to be driven primarily by its feature film segment, including How to Train Your Dragon’s continued performance at the worldwide box office.
 
Items related to the earnings press release for the second quarter of 2014 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 Tuesday, July 29, 2014, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1074 in the U.S. and (612) 234-9960 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 Tuesday, July 29, 2014. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 329950 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 ranks #12 on the list. All of DreamWorks Animation’s feature films are produced in 3D. The Company has theatrically released a total of 29 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda, How to Train Your Dragon, Puss In Boots and The Croods.

Contact:
Shannon Olivas
DreamWorks Animation Investor Relations
(818) 695-3658
shannon.olivas@dreamworks.com

dwa-e

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.





DREAMWORKS ANIMATION SKG, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)


 
June 30,
2014
 
December 31,
2013
 
(in thousands, except par value and share amounts)
Assets
 
 
 
Cash and cash equivalents
$
32,196

 
$
95,467

Trade accounts receivable, net of allowance for doubtful accounts
146,991

 
130,744

Receivables from distributors, net of allowance for doubtful accounts
212,669

 
283,226

Film and other inventory costs, net
979,919

 
943,486

Prepaid expenses
22,133

 
20,555

Other assets
31,940

 
23,385

Investments in unconsolidated entities
49,300

 
38,542

Property, plant and equipment, net of accumulated depreciation and amortization
184,200

 
186,670

Deferred taxes, net
250,265

 
221,920

Intangible assets, net of accumulated amortization
197,438

 
150,511

Goodwill
189,667

 
179,722

Total assets
$
2,296,718

 
$
2,274,228

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Accounts payable
$
4,899

 
$
5,807

Accrued liabilities
232,317

 
263,668

Payable to former stockholder
261,694

 
262,309

Deferred revenue and other advances
35,082

 
36,425

Revolving credit facility
100,000

 
—

Senior unsecured notes
300,000

 
300,000

Total liabilities
933,992

 
868,209

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, 104,334,982 and 104,155,993 shares issued, as of June 30, 2014 and December 31, 2013, respectively
1,043

 
1,042

Class B common stock, par value $0.01 per share, 150,000,000 shares authorized, 7,838,731 shares issued and outstanding, as of June 30, 2014 and December 31, 2013
78

 
78

Additional paid-in capital
1,116,412

 
1,100,101

Accumulated other comprehensive income (loss)
95

 
(600
)
Retained earnings
1,014,075

 
1,072,398

Less: Class A Treasury common stock, at cost, 27,503,479 and 27,439,119 shares, as of June 30, 2014 and December 31, 2013, respectively
(770,037
)
 
(768,224
)
Total DreamWorks Animation SKG, Inc. stockholders' equity
1,361,666

 
1,404,795

Non-controlling interests
1,060

 
1,224

Total equity
1,362,726

 
1,406,019

Total liabilities and equity
$
2,296,718

 
$
2,274,228








DREAMWORKS ANIMATION SKG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands, except per share amounts)
Revenues
$
122,277

 
$
213,436

 
$
269,518

 
$
348,084

Costs of revenues
87,532

 
133,276

 
248,221

 
218,797

Gross profit
34,745

 
80,160

 
21,297

 
129,287

Product development
611

 
1,069

 
1,151

 
2,032

Selling, general and administrative expenses
54,595

 
49,711

 
101,774

 
92,500

Change in fair value of contingent consideration
(7,220
)
 
—

 
(4,720
)
 
—

Other operating income
(2,317
)
 
(2,859
)
 
(3,989
)
 
(2,859
)
Operating (loss) income
(10,924
)
 
32,239

 
(72,919
)
 
37,614

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Interest (expense) income, net
(2,484
)
 
777

 
(4,257
)
 
1,640

Other income, net
1,853

 
1,050

 
3,071

 
2,042

Decrease (increase) in income tax benefit payable to former stockholder
1,695

 
(371
)
 
2,622

 
(1,069
)
(Loss) income before loss from equity method investees and income taxes
(9,860
)
 
33,695

 
(71,483
)
 
40,227

 
 
 
 
 
 
 
 
Loss from equity method investees
3,467

 
1,329

 
6,727

 
1,329

(Loss) income before income taxes
(13,327
)
 
32,366

 
(78,210
)
 
38,898

Provision (benefit) for income taxes
2,601

 
10,118

 
(19,866
)
 
10,536

Net (loss) income
(15,928
)
 
22,248

 
(58,344
)
 
28,362

Less: Net (loss) income attributable to non-controlling interests
(541
)
 
(5
)
 
(21
)
 
532

Net (loss) income attributable to DreamWorks Animation SKG, Inc.
$
(15,387
)
 
$
22,253

 
$
(58,323
)
 
$
27,830

 
 
 
 
 
 
 
 
Net (loss) income per share of common stock attributable to DreamWorks Animation SKG, Inc.
 
 
 
 
 
 
 
Basic net (loss) income per share
$
(0.18
)
 
$
0.27

 
$
(0.69
)
 
$
0.33

Diluted net (loss) income per share
$
(0.18
)
 
$
0.26

 
$
(0.69
)
 
$
0.33

Shares used in computing net (loss) income per share
 
 
 
 
 
 
 
Basic
84,554

 
83,524

 
84,520

 
84,094

Diluted
84,554

 
84,533

 
84,520

 
84,898









DREAMWORKS ANIMATION SKG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended
 
June 30,
 
2014
 
2013
 
(in thousands)
Operating activities
 
 
 
Net (loss) income
$
(58,344
)
 
$
28,362

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
Amortization and write-off of film and other inventory costs(1)
206,493

 
178,023

Amortization of intangible assets
6,436

 
4,408

Stock-based compensation expense
8,421

 
9,837

Amortization of deferred financing costs
550

 
—

Depreciation and amortization
2,249

 
2,351

Change in fair value of contingent consideration
(4,720
)
 
—

Revenue earned against deferred revenue and other advances
(32,584
)
 
(39,061
)
Income related to investment contributions
(3,989
)
 
(10,700
)
Loss from equity method investees
6,727

 
1,329

Deferred taxes, net
(26,590
)
 
9,576

Changes in operating assets and liabilities, net of the effects of acquisitions:
 
 
 
Trade accounts receivable
(15,691
)
 
7,208

Receivables from distributors
70,315

 
(18,933
)
Film and other inventory costs
(236,376
)
 
(210,984
)
Intangible assets
—

 
1,015

Prepaid expenses and other assets
(14,312
)
 
(8,537
)
Accounts payable and accrued liabilities
(38,113
)
 
3,694

Payable to former stockholder
(615
)
 
(14,929
)
Income taxes payable/receivable, net
7,353

 
2,212

Deferred revenue and other advances
56,355

 
74,825

Net cash (used in) provided by operating activities
(66,435
)
 
19,696

Investing activities
 
 
 
Investments in unconsolidated entities
(13,365
)
 
(14,720
)
Purchases of property, plant and equipment
(17,653
)
 
(14,858
)
Acquisitions of character and distribution rights
(51,000
)
 
—

Acquisitions, net of cash acquired
(12,605
)
 
(30,093
)
Net cash used in investing activities
(94,623
)
 
(59,671
)
Financing activities
 
 
 
Proceeds from stock option exercises
261

 
—

Purchase of treasury stock
(1,956
)
 
(25,854
)
Borrowings from revolving credit facility
110,000

 
45,000

Repayments of borrowings from revolving credit facility
(10,000
)
 
(10,000
)
Net cash provided by financing activities
98,305

 
9,146

Effect of exchange rate changes on cash and cash equivalents
(518
)
 
428

Decrease in cash and cash equivalents
(63,271
)
 
(30,401
)
Cash and cash equivalents at beginning of period
95,467

 
59,246

Cash and cash equivalents at end of period
$
32,196

 
$
28,845

Non-cash investing activities:
 
 
 
Contingent consideration portion of business acquisition purchase price
$
—

 
$
95,000

Intellectual property and technology licenses granted in exchange for equity interest
3,395

 
10,129

Services provided in exchange for equity interest
600

 
571

Total non-cash investing activities
$
3,995

 
$
105,700

Supplemental disclosure of cash flow information:
 
 
 
Cash refunded during the period for income taxes, net
$
608

 
$
1,529

Cash paid during the period for interest, net of amounts capitalized
$
5,273

 
$
690

(1) Included within this amount is depreciation and amortization, interest expense and stock-based compensation previously capitalized to "Film and other inventory costs." During the six months ended June 30, 2014 and 2013, these amounts totaled $14,066 and $17,378, respectively.




Non-GAAP Financial Measures

In connection with our issuance of the 6.875% senior notes due 2020 (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 is not prepared in accordance with U.S. GAAP. We believe the use of this non-GAAP measure on a consolidated basis assists investors in comparing our ongoing operating performance between periods. Adjusted EBITDA provides a supplemental presentation of our operating performance and generally includes adjustments for unusual or non-operational activities. We may not determine Adjusted EBITDA in a manner consistent with the methodologies used by other companies. Adjusted EBITDA (a) does not represent our operating income or cash flows from operating activities as defined by U.S. GAAP; (b) does not include all of the adjustments used to compute consolidated cash flow for purposes of the covenants applicable to the Notes; (c) is not necessarily indicative of cash available to fund our cash flow needs; and (d) should not be considered as an alternative 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 EBITDA should not be construed as an implication that our future results will be unaffected by unusual or nonrecurring items. We believe that net income is the most directly comparable U.S. GAAP measure to Adjusted EBITDA. Accordingly, the following table presents a reconciliation of net income (or loss) to Adjusted EBITDA (in thousands):







DREAMWORKS ANIMATION SKG, INC.
ADJUSTED EBITDA RECONCILIATIONS
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2014
 
June 30, 2014
 
(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
 
 
 
Net loss
$
(15,928
)
 
$
(58,344
)
Provision (benefit) for income taxes
2,601

 
(19,866
)
Loss from equity method investees
3,467

 
6,727

Decrease in income tax benefit payable to former stockholder
(1,695
)
 
(2,622
)
Other income, net
(1,853
)
 
(3,071
)
Interest expense, net
2,484

 
4,257

Operating loss
(10,924
)
 
(72,919
)
Income related to investment contributions
(2,317
)
 
(3,989
)
Amounts included in amortization of film and other inventory costs(1)
5,245

 
14,066

Film impairment
—

 
57,074

Depreciation and amortization(2)
4,450

 
8,685

Stock-based compensation expense
3,112

 
8,421

Adjusted EBITDA
$
(434
)
 
$
11,338

 
 
 
 
Reconciliation of Adjusted EBITDA to Cash Used in Operating Activities:
 
 
 
Adjusted EBITDA
$
(434
)
 
$
11,338

Amortization and write-off of film and other inventory costs(3)
55,836

 
135,353

Revenue earned against deferred revenue and other advances
(16,396
)
 
(32,584
)
Change in fair value of contingent consideration
(7,220
)
 
(4,720
)
Other income, net
1,853

 
3,071

Interest expense, net
(2,484
)
 
(4,257
)
Net refund from income taxes and stockholder payable
1,101

 
2,599

Changes in certain operating asset and liability accounts
(86,204
)
 
(177,235
)
Cash used in operating activities
$
(53,948
)
 
$
(66,435
)

(1) Amortization of film and other inventory costs in any period includes 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 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 loss to Adjusted EBITDA).