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DreamWorks Animation posts loss of $248 million as ‘Penguins’ flop

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MUMBAI: DreamWorks Animation posted a massive loss of $247.7 million in the fourth quarter due to the company’s recent restructuring plans, the closure of its Northern California studio and changes in its film release strategy.

The company posted sales of $234.2 million for the quarter ended 31 December, 2014, which was up 14.7 per cent over the same period in 2013. The company’s adjusted operating loss came in at $37.6 million, while its net loss was $64.1 million.

The company’s adjusted financial results exclude a $210.1 million pre-tax charge associated with its 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.

As part of the reorganisation, which resulted in over 500 layoffs, DreamWorks Animation also said that it is selling its Glendale, Calif., campus for $185 million and will lease back the space.

Including the impact of the restructuring plan, DreamWorks Animation reported net loss of $263.2 million for the quarter ended 31 December, 2014. Of the restructuring-related charges totaling $210.1 million, $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. 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," said DreamWorks Animation CEO Jeffrey Katzenberg

For the full year, DreamWorks Animation’s 2014 revenues decreased 3.2 per cent to $684.6 million, while it posted an operating loss of $300 million. When adjusted, the loss was $90 million.

Fourth Quarter Review:

DreamWorks Animation's fourth quarter revenues of $234.2 million increased 14.7 per cent due to increases in revenues across each of the company's primary segments.

Feature Film Segment

Revenues for the quarter ended 31 December, 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 26 November, 2014, has reached $358 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 DreamWorks Animation 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 million in the quarter, primarily from home entertainment. The film was released into the domestic home entertainment market on 11 November, 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 14 October, 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 DreamWorks Animation 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 12 November, 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 1 October, 2013 and through the end of the fourth quarter, reached an estimated nine 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.

Television Series and Specials Segment

Revenues for the quarter ended 31 December, 2014 from the Television Series and Specials Segment increased 7.7 per cent 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.

Consumer Products Segment

Revenues from the Consumer Products Segment increased 77.5 per cent 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.

New Media Segment

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 31 December, 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, DreamWorks Animation entered into a joint venture agreement with Hearst Corporation under which Hearst purchased a 25 per cent ownership interest in ATV for $81.25 million. The company also 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, DreamWorks Animation recorded a gain in the quarter of $6.8 million to reflect the change in fair value of the contingent consideration liability. 

All Other Segments

Revenues for the quarter ended 31 December, 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 million attributable to the subscription video-on-demand (SVOD) release of the filmed version of Shrek the Musical. Segment gross profit decreased to $4 million, largely due to lower revenues and the write-off of capitalized costs in the amount of $5.4 million.

For the quarter ended 31 December, 2014, DreamWorks Animation 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.

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