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DreamWorks Animation reports Q4 loss of 263.2 mn

MUMBAI: Including the impact of the restructuring plan, DreamWorks Animation (DWA) reported an operating loss of $247.7 million and reported a net loss attributable to DWA of $263.2 million, or $3.08 per share for the quarter ended 31 December 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 capitalised 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.

DWA posted an adjusted operating loss for 2014 of $90 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 the fiscal 2014 was $300 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.

Adjusted net loss attributable to DWA for the fiscal 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.

Revenues for the quarter were $234.2 million, representing an increase of 14.7 per cent 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 the company’s restructuring plan announced on 22 January 2015.

The company’s results for the quarter ended 31 December 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.

DreamWorks Animation CEO Jeffrey Katzenberg said, “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. 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.”

Full Year

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 31 December 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 31 December 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 by 2.7 per cent to $103 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 by 71 per cent to $6.7 million, primarily due to write-downs of capitalised 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 by 3.9 per cent 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 per cent 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 per cent to 36.5 per cent. 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 per cent 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 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’.

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.

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.