Saturday, November 29, 2014

This Day in Pixar History: A Day in the Life of La Luna Director Enrico Casarosa

If you're like me,  not only do you like seeing films on the big screen, you like the behind-the-scene looks at the making of the films. I love listening to director commentaries and watching bonus features on the DVD or Blu-ray. I've mentioned this before, but a critical event in my love of Pixar came with the Monsters, Inc. DVD. I've spent hours in the "For Humans" section of the bonus DVD. This was my first in-depth look at the new Emeryville studio and I sat in awe watching the Production Tour and other features that focused on the people and building. Watching all the different aspects of making the film - story, animation, sound, the artwork, just blew me away. And then there were the fun features - the Fun Factory Tour, riding around the studio on scooters, the chimp, the first annual International Air Show, the Easter Eggs! I already knew this was a special company, but these bonus features started me down the road of learning more about Pixar's culture and how they managed to have fun, work hard and continued to put out amazing films.

Enrico, middle, at the 8th annual
Cartoon Art Museum Benefit
Fortunately, now with the Internet there are a number of ways to learn about how films are made and the artists that make them.  From podcasts like The Pixar Post and their Pixar Pipeline Project, to artists live-tweeting throughout their work day or answering questions via Twitter or Reddit. And on this day back in 2011, Pixar's Enrico Casarosa took us on a visual tour of one of his days while directing the beautiful short film La Luna. From the moment he arrived at the studios via bicycle, through meetings and reviews, Casarosa gives a great, personal look at what occurred during development of the film. I really enjoyed seeing the antics and effort that went into making the film, and would love to see more of these day-in-the-life features.

Saturday, November 8, 2014

This Day in Pixar History: Pixar Earnings Report, 2nd Quarter 1998

I'm back with another look at one of Pixar's quarterly earnings reports from when they were an independent public company. In this post we'll look at their second quarter (April - June) of 1998.

© Disney/Pixar
The middle of 1998 was a quiet period for Pixar, at least in terms of revenues and earnings. Revenues from the home video release of Toy Story continued to drop, and there wouldn't be an increase in revenue until the first quarter of 1999 when money from A Bug's Life began to come in. Revenue for the quarter was only $3.8 million compared to over $14 million in the second quarter of 1997. Of the $3.8 million, $2.9 million was from Toy Story film revenues and $850,000 from RenderMan sales.

While revenues were decreasing, expenses were increasing, growing from $2.8 million in 1997 to $3.2 million in 1998. Much of this was due to general and administrative expenses, which grew over 73%. Pixar had both A Bug's Life and Toy Story 2 in production, and were in the early stages of developing Film Four (Monsters, Inc.). In the report, Pixar pointed out production hadn't started yet on Monsters, Inc. as the story treatment hadn't been approved. They also stated if the story treatment and budget were approved, it was not expected to be released until late 2000 at the earliest. As we all know, it would be a year later before it hit theaters.

Net income was a little over $2 million ($0.05/share) compared to almost $9 million ($0.22/share) in the year before quarter. You might ask, if revenue was $3.8 million and $3.2 million went into expenses, how did Pixar end up with over $2 million in net income? The answer comes in the category of Other Income which totaled close to $2.2 million. This income was basically interest Pixar earned on their short-term investments - the large cash hoard Pixar still had from their IPO in 1995.

The impact of lower earnings was more apparent by looking at their cash flow statement. For the first 6 months of 1998, Pixar generated $4.4 million of cash from their operations, but they spent $5.9 million on new equipment and $15.1 million on the production of A Bug's Life, Toy Story 2 and Monsters, Inc., for a cash outflow of $16.6 million. Remember, with the Co-Production Agreement with Disney, Pixar was now responsible for financing half of their film costs. With those higher costs and no expected revenue from A Bug's Life coming until early 1999, Pixar would be burning through a significant amount of cash for the next couple of quarters. Fortunately, they had over $160 million in the bank so they were well prepared to handle these expenditures.

David Baraff
© Disney/Pixar
One item I noticed in the quarterly report was that on June 16, 1998, Pixar had purchased Physical Effects, Inc. ("PEI") for $3 million in Pixar stock (over 60,000 shares) and the assumption of $300,000 in liabilities. PEI was co-founded by David Baraff and had been working on simulation technology, which they had licensed to a third party. I'm guessing Pixar bought the company primarily in preparation for the fur and cloth simulations they would need in Monsters, Inc. In fact, Baraff is credited with creating Boo's shirt in the film, and he continued to enhance the simulation tools Pixar would use for later films like Brave and Monsters University. Baraff is now a Senior Animation Scientist at Pixar and received a Scientific and Technical Academy Award for his work on cloth simulation in 2006.

Pixar's stock had had a good run-up through the first half of 1998, going over $63/share early in July. But after these results were announced their price began to drop, going down to around $50 by months end and getting as low as $28 near the end of August, 1998. Pixar was always known to be conservative in their earnings estimates and often beat expectations, as I discussed in my post for their first quarter of 1998 earnings report. I think analysts were somehow expecting revenues and earnings would continue to grow even in the absence of a recent film release. As a long term investor I wasn't concerned with the quarterly gyrations of revenues and earnings, but most analysts are only concerned with short term results. I think this quarterly report woke those analysts up and they realized it would be months before revenues would start to grow again.