RealD Inc. Reports Financial Results For Second Quarter Of Fiscal 2013

About RealD Inc.

RealD is a leading global licensor of 3D technologies. RealD’s extensive intellectual property portfolio is used in applications that enable a premium 3D viewing experience in the theater, the home and elsewhere. RealD licenses its RealD Cinema Systems to motion picture exhibitors that show 3D motion pictures and alternative 3D content. RealD also provides its RealD Display, active and passive eyewear, and RealD Format technologies to consumer electronics manufacturers and content producers and distributors to enable the delivery and viewing of 3D content. RealD’s cutting-edge technologies have been used for applications such as piloting the Mars Rover.

RealD was founded in 2003 and has offices in Beverly Hills, California; Boulder, Colorado; London, United Kingdom; Shanghai, China; Hong Kong; Tokyo, Japan; and Moscow, Russia. For more information, please visit our website at www.reald.com.

© 2012 RealD Inc. All Rights Reserved.

RealD Inc. Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)
		Three months ended				Six months ended
		September 21,		September 23,		September 21,		September 23,
		2012		2011		2012		2011
Revenue:
License		$ 34,976		$ 51,981		$ 76,165		$ 87,692
Product and other		20,010		36,014		46,999		59,863
Total revenue		54,986		87,995		123,164		147,555
Cost of revenue:
License		14,283		14,703		24,296		21,119
Product and other		23,049		30,770		49,869		48,595
Total cost of revenue		37,332		45,473		74,165		69,714
Gross profit		17,654		42,522		48,999		77,841
Operating expenses:
Research and development		4,592		3,755		9,490		8,400
Selling and marketing		5,924		6,466		12,819		13,695
General and administrative		12,189		9,792		23,451		18,222
Total operating expenses		22,705		20,013		45,760		40,317
Operating income (loss)		(5,051)		22,509		3,239		37,524
Interest expense, net		(288)		(272)		(601)		(483)
Other income (loss)		(21)		1,099		(374)		949
Income (loss) before income taxes		(5,360)		23,336		2,264		37,990
Income tax expense (benefit)		(1,129)		4,159		3,548		9,411
Net income (loss)		(4,231)		19,177		(1,284)		28,579
Net (income) loss attributable to
noncontrolling interest		58		(272)		90		(79)
Net income (loss) attributable to RealD Inc.
common stockholders		$ (4,173)		$ 18,905		$ (1,194)		$ 28,500
Earnings (loss) per common share:
Basic		$ (0.08)		$ 0.35		$ (0.02)		$ 0.53
Diluted		$ (0.08)		$ 0.33		$ (0.02)		$ 0.50
Shares used in computing earnings (loss) per common share:
Basic		53,915		54,343		54,314		54,151
Diluted		53,915		56,788		54,314		57,287

RealD Inc. Consolidated Balance Sheets (In thousands)
	September 21,				March 23,
		2012				2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,238			$	24,894
Accounts receivable, net		50,195				59,212
Inventories		14,850				40,577
Deferred costs – eyewear		558				932
Prepaid expenses and other current assets		3,696				2,630
Total current assets		94,537				128,245
Property and equipment, net		16,696				12,713
Cinema systems, net		131,691				141,024
Digital projectors, net-held for sale		1,002				1,078
Goodwill		10,657				10,657
Other intangibles, net		1,662				1,746
Deferred income taxes		3,049				3,049
Other assets		6,038				3,663
Total assets	$	265,332			$	302,175
Liabilities and equity
Current liabilities:
Accounts payable	$	15,343			$	22,617
Accrued expenses and other liabilities		29,154				28,870
Deferred revenue		8,924				7,201
Income taxes payable		1,570				1,121
Deferred income taxes		3,093				3,149
Total current liabilities		58,084				62,958
Credit facility agreement		12,500				25,000
Deferred revenue, net of current portion		12,485				13,920
Other long-term liabilities, customer deposits and virtual print fee liability		2,999				2,691
Commitments and contingencies
Equity (deficit)
Common stock		320,071				309,894
Accumulated deficit		(140,140	)			(112,711	)
Total RealD Inc. stockholders’ equity		179,931				197,183
Noncontrolling interest		(667	)			423
Total equity		179,264				197,606
Total liabilities and equity	$	265,332			$	302,175

RealD Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
	Six months ended
	September 21,		September 23,
	2012		2011
Cash flows from operating activities
Net income (loss)	$ (1,284)		$ 28,579
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization	15,936		13,152
Deferred income tax	(56)		(180)
Non-cash interest expense	157		133
Non-cash stock compensation	9,094		7,632
Gain on sale of digital projectors	–		(1,156)
Loss on disposal of property and equipment	44		–
Impairment of long-lived assets and related purchase commitments	5,901		7,828
Changes in operating assets and liabilities:
Accounts receivable	6,541		(3,086)
Inventories	25,720		(725)
Prepaid expenses and other current assets	(676)		150
Deferred costs - eyewear	374		(162)
Other assets	(1,598)		(1,822)
Accounts payable	(7,256)		(17,818)
Accrued expenses and other liabilities	(3,323)		(12,772)
Other long-term liabilities, customer deposits and virtual print fee liability	308		1,223
Income taxes receivable/payable	449		7,030
Deferred revenue	288		136
Net cash provided by operating activities	50,619		28,142
Cash flows from investing activities
Purchases of property and equipment	(6,266)		(1,993)
Purchases of cinema systems and related components	(6,664)		(38,011)
Proceeds from sale of digital projectors	2,474		3,999
Net cash used in investing activities	(10,456)		(36,005)
Cash flows from financing activities
Repayments of long-term debt	–		(2,311)
Proceeds from credit facility	25,000		30,000
Repayments on credit facility	(37,500)		(5,000)
Payments of debt issuance costs	(1,167)		–
Proceeds from exercise of stock options	782		479
Proceeds from employee stock purchase plan	301		–
Proceeds from exercise of warrants	–		271
Proceeds from exercise of motion picture exhibitor options	–		3
Purchases of treasury stock	(26,235)		–
Distributions to noncontrolling interests	(1,000)		–
Net cash (used) provided by financing activities	(39,819)		23,442
Net increase in cash and cash equivalents	344		15,579
Cash and cash equivalents, beginning of period	24,894		16,936
Cash and cash equivalents, end of period	$ 25,238		$ 32,515

RealD Inc. Schedule of Non-GAAP Reconciliations (In thousands) (Unaudited)   Reconciliation of Net Income (Loss) to Adjusted EBITDA
		Three months ended				Six months ended
		September 21,		September 23,		September 21,		September 23,
(in thousands)		2012		2011		2012		2011
Net income (loss)		$ (4,231)		$ 19,177		$ (1,284)		$ 28,579
Add (deduct):
Interest expense, net		288		272		601		483
Income tax expense (benefit)		(1,129)		4,159		3,548		9,411
Depreciation and amortization		8,086		7,054		15,936		13,152
Other (income) loss (1)		21		(1,099)		374		(949)
Share-based compensation expense (2)		4,812		4,733		9,094		7,632
Impairment of assets and intangibles (3)		4,327		7,710		5,901		7,828
Sales and use tax (4)		1,309		2,017		2,162		3,507
Property tax (5)		291		330		611		766
Adjusted EBITDA		$ 13,774		$ 44,353		$ 36,943		$ 70,409

(1) Includes gains and losses from foreign currency exchange and foreign currency forward contracts.(2) Represents share-based compensation expense of nonstatutory and incentive stock options and restricted stock units to employees, officers and directors.(3) Represents impairment of long-lived assets, such as fixed assets, theatrical equipment and identifiable intangibles.(4) Represents taxes incurred by us for cinema license and product revenue.(5) Represents property taxes on RealD Cinema Systems and digital projectors.

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
		Six months ended
		September 21,		September 23,
		2012		2011
(in thousands)
Net cash provided by operating activities		$ 50,619		$ 28,142
Purchases of property and equipment		(6,266)		(1,993)
Purchases of cinema systems and related components		(6,664)		(38,011)
Free cash flow		$ 37,689		$ (11,862)

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