Adjusted EBITDA
In connection with our issuance of 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 Reconciliation
We believe that net income is the most directly comparable U.S. GAAP measure to Adjusted EBITDA. Accordingly, the table below presents a reconciliation of net income (or loss) to Adjusted EBITDA. The reconciliation also includes a further reconciliation of Adjusted EBITDA to exclude the charges associated with the 2015 Restructuring Plan (as described above). Lastly, as Adjusted EBITDA is also used as a liquidity measure, the table also presents a reconciliation of Adjusted EBITDA to cash flow provided by (used in) operating activities.
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DREAMWORKS ANIMATION SKG, INC. |
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ADJUSTED EBITDA RECONCILIATIONS |
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(Unaudited) |
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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(in thousands) | |||||||
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Reconciliation of Net (Loss) Income to Adjusted EBITDA: |
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Net (loss) income |
$ (4,044) |
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$ 11,864 |
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$ (98,973) |
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$ (46,480) |
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Provision (benefit) for income taxes |
2,480 |
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2,587 |
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6,642 |
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(17,279) |
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Loss from equity method investees |
486 |
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1,212 |
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9,623 |
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7,939 |
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Increase (decrease) in income tax benefit payable to former stockholder |
13,780 |
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2,384 |
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20,901 |
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(238) |
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Other expense (income), net |
6,679 |
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(298) |
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10,144 |
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(3,369) |
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Interest expense, net |
3,805 |
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2,840 |
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17,703 |
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7,097 |
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Operating income (loss) |
23,186 |
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20,589 |
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(33,960) |
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(52,330) |
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Income related to investment contributions |
(856) |
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(2,673) |
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(4,856) |
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(6,662) |
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Amounts included in amortization of film and other inventory costs (1) |
16,471 |
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10,508 |
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38,604 |
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24,574 |
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Film impairments |
- |
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2,104 |
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933 |
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59,178 |
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Depreciation and amortization (2)(3) |
5,052 |
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5,485 |
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40,831 |
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14,170 |
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Stock-based compensation expense |
5,463 |
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(34) |
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16,190 |
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8,387 |
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Adjusted EBITDA |
$ 49,316 |
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$ 35,979 |
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$ 57,742 |
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$ 47,317 |
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Reconciliation of Adjusted EBITDA to exclude 2015 Restructuring Plan: |
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Reverse 2015 Restructuring Plan charges (4) : |
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Employee-related termination costs |
$ (2,350) |
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$ - |
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$ 2,797 |
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$ - |
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Relocation and other employee-related costs |
1,306 |
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- |
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4,687 |
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- |
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Lease obligations and related charges |
1,110 |
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- |
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1,110 |
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- |
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Accelerated depreciation and amortization charges |
- |
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- |
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20,132 |
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- |
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Additional labor and other excess costs |
3,498 |
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- |
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27,598 |
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- |
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Total restructuring-related charges |
3,564 |
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- |
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56,324 |
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- |
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Adjusted EBITDA (excluding 2015 Restructuring Plan) |
$ 52,880 |
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$ 35,979 |
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$ 114,066 |
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$ 47,317 |
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Reconciliation of Adjusted EBITDA to Cash Used in Operating Activities: |
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Adjusted EBITDA |
$ 49,316 |
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$ 35,979 |
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$ 57,742 |
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$ 47,317 |
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Amortization and write-off of film and other inventory costs (5) |
106,087 |
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78,991 |
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265,260 |
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214,344 |
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Revenue earned against deferred revenue and other advances |
(27,404) |
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(10,559) |
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(63,012) |
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(43,143) |
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Change in fair value of contingent consideration |
- |
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(4,955) |
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- |
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(9,675) |
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Other expense/income, net |
(6,679) |
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298 |
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(10,144) |
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3,369 |
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Other impairments and write-offs |
6,097 |
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- |
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11,161 |
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- |
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Interest expense, net |
(3,805) |
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(2,840) |
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(17,703) |
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(7,097) |
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Net (payments of) refund from income taxes and payable to former stockholder |
(877) |
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(676) |
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(11,118) |
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1,923 |
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Changes in certain operating asset and liability accounts |
(136,590) |
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(170,449) |
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(238,700) |
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(347,684) |
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Cash used in operating activities |
$ (13,855) |
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$ (74,211) |
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$ (6,514) |
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$ (140,646) |
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