DreamWorks Animation Reports Strong Third Quarter 2015 Results, With Revenues Increasing 43% To $259 Million And Segment Gross Profit Improving 37% To $99 Million Versus Prior Year

(b) operating income of $26.8 million. The increase in revenues and segment gross profit were partially offset by an increase in adjusted(b) general and administrative expenses. The increase in adjusted(b) general and administrative costs in the current quarter was primarily driven by a $15.4 million increase in incentive and stock-based compensation costs, which vary with changes in forecasts of the related performance metrics that will be achieved, as well as an increase of $5.1 million related to the growth and expansion of the AwesomenessTV business. These increases were partially offset by a decrease in salaries and benefits as a result of our 2015 Restructuring Plan. Lastly, for the quarter ended September 30, 2015, the amount of selling and marketing expenses not allocated to the operating segments but included in adjusted(b) operating income was $1.6 million. Operating income in the prior-year period included a $4.9 million benefit associated with a reduction in the fair value of the contingent consideration liability related to our acquisition of AwesomenessTV. Reported operating income for the quarter ended September 30, 2015, inclusive of restructuring-related charges, was $23.2 million.

Adjusted(b) net income attributable to DWA for the quarter ended September 30, 2015 was $1.4 million, or adjusted(b) income of $0.02 per share. Adjusted net income in the current quarter includes non-cash charges totaling $6.1 million in other expense, net, related to certain investments that were determined to not be recoverable.  Also, during the third quarter, the Company recorded a provision for income taxes of $2.5 million, or an effective rate of 20.3%.  When combined with an increase in income tax benefit payable to former stockholder of $13.8 million, it results in a combined effective tax rate of 133.1% for the quarter. Reported net loss attributable to DWA for the quarter ended September 30, 2015 was $(3.5) million, or $(0.04) per share.

Year to Date Review:

DWA's revenues for the nine months ended September 30, 2015 increased 32.5% to $596.5 million compared to $450.4 million in the prior-year period. The increase was driven by year-over-year growth across all operating segments.

Revenues for the nine months ended September 30, 2015 from the Feature Film segment increased to $373.7 million, primarily due to higher revenue from prior-year theatrical releases and contributions from the library. Segment gross profit increased to $127.0 million for the nine months ended September 30, 2015 compared to $62.8 million in the prior-year period. In the first nine months of 2014, DWA recorded impairment charges totaling $58.8 million, which were primarily related to the theatrical release of Mr. Peabody and Sherman.

Revenues from the Television Series and Specials segment for the nine months ended September 30, 2015 increased 135.6% to $123.2 million, due to a significantly higher number of episodes delivered under our episodic content licensing arrangements. Segment gross profit also increased to $37.9 million in the first nine months of 2015, up from $9.2 million in the same period of the prior year. The increase was primarily driven by higher revenue and favorable amortization rates associated with our episodic series relative to the prior-year period, partially offset by up-front marketing costs associated with the launch of our new television series. In addition, gross profit for the nine months ended September 30, 2014 was negatively impacted by higher than expected returns of seasonal and newly-released home entertainment product, as well as increased selling costs related to our Classic Media properties.

Revenues from the Consumer Products segment in the first nine months of 2015 increased to $54.8 million, from $42.7 million in the prior-year period. The increase was primarily driven by revenues earned from new and extended location based entertainment license arrangements in the current year period. In addition, segment revenues for each of the nine-month periods ended September 30, 2015 and 2014 included revenue associated with merchandise licensing arrangements related to a variety of intellectual property rights associated with the characters from our feature films and episodic television series. For the nine months ended September 30, 2015, segment gross profit increased to $24.1 million, from $17.6 million in the prior-year period, as revenues related to location based entertainment license arrangements have lower associated costs.

Revenues for the nine months ended September 30, 2015 from the Company's New Media segment increased to $39.8 million, from $24.1 million in the prior-year period. This increase was primarily attributable to revenue generated from brand sponsorship arrangements, licensing and distribution of content, as well as revenues generated by Big Frame, which was acquired in April 2014. In the prior-year period, the Company reported certain advertising and talent management revenues in this segment on a "gross" basis rather than on a "net" basis.  For comparative purposes, if the New Media segment's revenues had been reported on a "net" basis during the nine months ended September 30, 2014, revenues for the nine months ended September 30, 2015 would reflect an increase of approximately 146% compared with the prior-year period. Segment gross profit for the first nine months of 2015, which is not affected by this item, was $20.5 million, compared to $4.7 million during the same period last year, primarily due to higher revenue contributions from licensing and distribution of content, brand sponsorship agreements and reduced amortization of intangible assets.

Revenues from All Other segments for the nine months ended September 30, 2015 were $5.0 million compared to $9.2 million in the prior-year period. Gross profit was $3.3 million compared to a loss of $(1.0) million for the nine months ended September 30, 2014.

For the nine months ended September 30, 2015, DWA posted adjusted(b) operating income of $22.4 million. The increase in revenues and segment gross profit was partially offset by an increase in adjusted(b) general and administrative expenses. The increase in adjusted(b) general and administrative costs in the current year was driven by a $15.4 million increase in costs incurred to support the growth and expansion of the AwesomenessTV business, as well as a $12.1 million increase in incentive and stock-based compensation costs, which vary with changes in forecasts of the related performance metrics that will be achieved. The remaining increase was primarily attributable to salary and benefit costs related to headcount for certain new business initiatives which were higher during the nine months ended September 30, 2015 as these costs did not begin to occur until the second half of 2014 due to timing of hiring. Lastly, for the nine months ended September 30, 2015, the amount of selling and marketing expenses not allocated to the operating segments but included in adjusted(b) operating income was $5.1 million. The reported operating loss for the nine months ended September 30, 2015, inclusive of restructuring-related charges was $(34.0) million. This compares to an operating loss of $(52.3) million in the prior-year period, which included a $9.7 million benefit associated with a reduction in the fair value of the contingent consideration liability related to our acquisition of ATV.

Adjusted(b) net loss attributable to DWA for the nine months ended September 30, 2015 was $(18.6) million, or an adjusted(b) loss of $(0.23) per share. Adjusted net loss reflects higher interest expense related to a lease financing obligation associated with the Company's headquarters, as well as a decrease in the amount of interest that could be capitalized during the current year period. Adjusted net loss for the nine months ended September 30, 2015 also includes non-cash charges totaling $11.2 million in other expense, net that are attributable to certain investments that were deemed to not be recoverable. Additionally, during the nine months ended September 30, 2015, DWA recorded income tax expense of $27.5 million , which includes expense related to the Company's tax sharing agreement with former stockholder. As a result, the Company had a combined effective tax rate of (38.6)% for the nine months ended September 30, 2015. Reported net loss attributable to DWA for the nine months ended September 30, 2015 was $(96.9) million , or $(1.13) per share.

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