DreamWorks Animation Reports Fourth Quarter and Full Year 2004 Financial Results

DreamWorks Animation Reports Fourth Quarter and Full Year 2004 Financial Results

GLENDALE, Calif., March 17 /PRNewswire-FirstCall/ -- DreamWorks Animation SKG, Inc. (NYSE:DWA), today announced financial results for its fourth quarter and full year ended December 31, 2004.

For the fourth quarter 2004, revenue totaled $495.7 million, costs of revenue were $171.7 million, and net income totaled $192.0 million or $1.99 per share on a fully diluted basis, using a weighted average share count of 96.3 million for the quarter. These results, reflecting the impact of a distribution agreement with DreamWorks Studios effective on October 1, 2004, compare to the same period in 2003 when the company recorded revenue of $134.6 million, costs of revenue of $171.3 million, and a net loss of ($36.6) million, or $(0.48) net loss per diluted share.

For the year ended December 31, 2004, revenue totaled $1.078 billion, costs of revenue were $566.2 million, and net income was $333.0 million or $4.05 per diluted share. These results incorporate the impact of the distribution agreement effective on October 1, 2004.

"Our first quarter as a public company was a great success by any measure," said CEO Jeffrey Katzenberg. "With the tremendous performance of the Shark Tale theatrical release and the blockbuster introduction of Shrek 2 into the worldwide home video markets, we had a strong quarter, established excellent momentum, and reinforced our brand."

Katzenberg noted that Shrek 2 generated over $360 million in revenue for the fourth quarter and totaled over $900 million in worldwide box office in 2004. In addition, Shark Tale, released domestically on October 1, 2004, generated $62 million of fourth quarter revenue and achieved worldwide box office of approximately $316 million through the end of 2004.

The company's next film, Madagascar will be released on May 27, 2005. "We believe Madagascar is not only a great story but it also features visual imagery that is really unique for CG animation," noted Katzenberg. "This is a release that we are very excited about and we think audiences will enjoy the same sophisticated humor and broad appeal that they have come to expect from DreamWorks Animation."

Pro Forma Results

Pro forma results for the fourth quarter ended December 31, 2004, which assume the company's distribution agreement with DreamWorks Studios had been in effect for the entire year, were as follows: revenue totaled $445.2 million, costs of revenues were $144.8 million and net income was $168.1 million or $1.61 per diluted share on a pro forma basis using the average weighted share count of 104.5 million shares. The difference between actual results and pro forma results is driven primarily by the recoupment of marketing and distribution costs for Shark Tale incurred in the third quarter prior to the film's release.

Pro forma results for the year ended December 31, 2004, were as follows: revenue totaled $804.4 million, costs of revenue were $275.4 million and net income was $340.4 million, or $3.26 per diluted share on a pro forma basis using an average weighted share count of 104.5 million shares.

Both actual and pro forma results reflect several items that generally relate to the company's separation and its October, 27th IPO including transaction costs, stock and compensation expense, and income tax related items. These include adjustments that reduced the company's tax provision in the fourth quarter on both an actual and pro forma basis due to a number of factors related to the separation and IPO. Going forward the company anticipates an effective tax rate of approximately 38%.

In addition, the company incurred incremental expenses related to the separation and IPO including the cost for issuing of fully vested stock and restricted shares issued at the time of the IPO of approximately $21.0 million, general costs related to the separation and IPO of approximately $5 million, as well as a special all employee bonus related to the company's IPO and strong performance in 2004 which totaled approximately $8 million. These items are included in the company's reported SG&A in both actual and pro forma results for the fourth quarter of 2004.

These and other items related to the fourth quarter as well as certain estimates and the on-going business performance will be discussed in more detail on the company's fourth quarter 2004 earnings conference call.

Conference Call Information

The company will discuss its fourth quarter and full year 2004 earnings results during a conference call to be held today, March 17, 2005, at 5:30 p.m. EST/2:30 p.m. PST. Investors can access the call by dialing 888-338-6461 in the U.S. and 973-935-8509 internationally or via live webcast at www.dreamworksanimation.com.

A replay of the conference call will also be available shortly after the call ends through March 31, 2005. To access the replay, dial 877-519-4471 in the U.S. and 973-341-3080 internationally and enter 5625931 as the conference ID number. The archived webcast will be available on the Company's website at www.dreamworksanimation.com.

About DreamWorks Animation SKG

DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films. With world-class creative talent, a strong and experienced management team and advanced CG filmmaking technology and techniques, DreamWorks Animation makes high quality CG animated films meant for a broad movie-going audience. The company has theatrically released a total of twelve animated feature films, including Antz, Shrek, Shrek 2 and Shark Tale. DreamWorks Animation's next release will be Madagascar, scheduled to open in May 2005.

Caution Concerning Forward-Looking Statements

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of DreamWorks Animation SKG, Inc. These risks and uncertainties include: audience acceptance of our films, our dependence on the success of a limited number of releases each year, the increasing cost of producing and marketing feature films, piracy of motion pictures, the effect of rapid technological change or alternative forms of entertainment and our need to protect our proprietary technology and enhance or develop new technology. In addition, due to the uncertainties involved in the development and production of animated feature films, the release dates for the films described in this document may be delayed and the voice talent may change. For a further list and description of such risks and uncertainties, see our filings with the Securities and Exchange Commission (SEC) including our quarterly report on Form 10-Q for the third quarter of 2004 and, when filed with the SEC, our annual report on Form 10-K for fiscal year 2004. DreamWorks Animation is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Balance Sheets

December 31, December 31,
2004 2003
In thousands
Assets
Cash and cash equivalents $63,134 $41
Accounts receivable, net of
allowance for doubtful accounts 14,015 132,329
Receivable from affiliate 372,116 --
Receivables from employees 1,634 2,480
Film inventories 519,926 427,463
Property, plant, and equipment, net of
accumulated depreciation and amortization 85,997 89,777
Deferred costs, net of accumulated
amortization 3,741 1,641
Deferred taxes, net 28,231 --
Goodwill 34,216 26,462
Other assets 11,881 1,644
Total assets $1,134,891 $681,837

Liabilities and stockholder's and
owner's equity (deficiency)
Liabilities
Accounts payable $4,414 $1,615
Accrued liabilities 64,499 101,993
Advances and unearned revenue 93,892 89,009
Obligations under capital leases 2,993 3,732
Debt allocated by DreamWorks Studios -- 418,379
Other debt 93,234 76,612
Subordinated debt, net of discount 45,973 --
Total liabilities 305,005 691,340
Commitments and contingencies
Non-controlling minority interest 2,941 2,941
Stockholder's and owner's equity
(deficiency) 826,945 (12,444)
Total liabilities and stockholder's
and owner's equity (deficiency) $1,134,891 $681,837

DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Operations

Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
In thousands In thousands
Operating revenue $495,699 $134,634 $1,078,160 $300,986
Costs of revenue 171,683 171,282 566,209 438,959
Gross profit (loss) 324,016 (36,648) 511,951 (137,973)

Selling, general and
administrative expenses 41,914 6,517 73,608 29,322
Operating income (loss) 282,102 (43,165) 438,343 (167,295)

Interest expense, net of
interest income (2,174) (2,377) (15,402) (12,360)
Other income (expense), net 623 12,124 385 (3,145)
Income (loss) before income
taxes and cumulative effect
of accounting changes 280,551 (33,418) 423,326 (182,800)

Provision for income taxes 88,542 629 90,326 1,839
Income (loss) before cumulative
effect in accounting change 192,009 (34,047) 333,000 (184,639)
Cumulative effect in accounting
change -- (2,522) -- (2,522)

Net income (loss) $192,009 $(36,569) $333,000 $(187,161)

Diluted per share data
Income (loss) before cumulative
effect of accounting changes $1.99 $(0.44) $4.05 $(2.41)
Cumulative effect of accounting
changes -- (0.03) -- (0.03)
Net income (loss) per share -
diluted $1.99 $(0.48) $4.05 $(2.44)

Shares used in per share
calculation - diluted (1) 96,304 76,636 82,151 76,636

Unaudited pro forma statement
of operations data (2)
Income (loss) before income
taxes and cumulative effect
of accounting changes $280,551 $(33,418) $423,326 $(182,800)
Pro forma provision for
income taxes 98,652 629 124,642 1,839
Income (loss) before cumulative
effect of accounting changes 181,899 (34,047) 298,684 (184,639)
Cumulative effect of accounting
changes, net of tax -- (2,522) -- (2,522)
Pro forma net income (loss) $181,899 $(36,569) $298,684 $(187,161)

Unaudited pro forma diluted net
income (loss) per share
data (2)
Income (loss) before
cumulative effect of
accounting changes $1.89 $(0.44) $3.64 $(2.41)
Cumulative effect of
accounting changes -- (0.03) -- (0.03)
Net income (loss) $1.89 $(0.48) $3.64 $(2.44)

Shares used in per share
calculation - diluted 96,304 76,636 82,151 76,636

(1)Unless the effects are anti-dilutive, diluted per share amounts reflect
the potential reduction in earnings per share that could occur if
equity based awards were exercised or converted into common stock. The
number of diluted common shares for the three months and year ended
December 31, 2003 are calculated assuming the number of shares of
common stock outstanding immediately following the Company's separation
from DreamWorks Studios were outstanding for all periods presented,
excluding because their effect would be anti-dilutive, the impact of
equity based compensation awards converted at the separation that
underlie 487,000 shares of Class A common stock. The number of diluted
common shares for the three months and year ended December 31, 2004 are
calculated assuming the number of shares of common stock outstanding
immediately following the Company's separation from DreamWorks Studios
were outstanding for all periods presented, diluted by the impact of
equity based compensation awards that underlie 1,418,000 and 720,000
shares for the three months and year ended December 31, 2004,
respectively, of Class A common stock which assumes that equity based
compensation awards converted at the separation that underlie 487,000
shares of Class A common stock were outstanding for all periods.

(2)The unaudited proforma consolidated statement of operations data
includes proforma adjustments for income taxes that would have been
recorded if the Company had been a taxable corporation historically.

DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Operations
Pro Forma Adjustments

Three months ended Year ended
December 31, December 31,
2004 2004
In thousands In thousands
Operating revenue $495,699 $1,078,160
Proforma adjustments to operating
revenue (1) (50,499) (273,763)
Pro forma operating revenue 445,200 804,397

Costs of revenue 171,683 566,209
Proforma adjustments to costs of
revenue (2) (26,859) (290,794)
Pro forma costs of revenue 144,824 275,415

Gross profit 324,016 511,951
Total adjustments to gross profit (23,640) 17,031
Pro forma gross profit 300,376 528,982

Selling, general and administrative
expenses 41,914 73,608
Proforma adjustments to selling,
general and administrative expenses(3) -- (12,160)
Pro forma selling, general and
administrative expenses 41,914 61,448

Operating income 282,102 438,343
Total adjustments to operating income (23,640) 29,191
Pro forma operating income 258,462 467,534

Interest expense, net of interest
income (2,174) (15,402)
Other income (expense), net 623 385

Provision for income taxes 88,542 90,326
Proforma adjustments to income taxes (4) 289 21,746
Pro forma provision for income taxes 88,831 112,072

Net income 192,009 333,000
Total adjustments to net income (23,929) 7,445
Pro forma net income $168,080 $340,445

Pro forma diluted net income per
share (5) $1.61 $3.26

Shares used in pro forma per share
calculation - diluted 104,520 104,520

Notes To Pro Forma Unaudited Condensed Consolidated Statement of Operations

The proforma unaudited condensed consolidated statement of operations was prepared (i) as if the Distribution Agreement with Dream Works Studios which became effective on October 1, 2004 had become effective on January 1, 2004 and (ii) as if we had been taxable as a corporation since January 1, 2004 for all periods presented. The proforma unaudited condensed consolidated statement of operations are presented in addition to and in conjunction with our results presented in accordance with generally accepted accounting principles ("GAAP"). This proforma financial information should be considered as a supplement to, and not as a substitute for, revenues, gross profit, operating income, or net income calculated in accordance with GAAP.

(1) Reflects the reduction in operating revenue that would have occurred
if the Distribution Agreement had been in effect as of January 1, 2004
instead of October 1, 2004. Under the terms of the Distribution
Agreement, Dream Works Studios is entitled to retain a distribution
fee equal to 8.0% of revenue (without deduction for any distribution
and marketing costs or third party distribution and fulfillment
service fees) with respect to our films. Dream Works Studios is also
entitled to recoup distribution and marketing costs out of this
revenue. For the three months ended December 31, 2004 the pro forma
reduction to operating revenue is $50.5 million. This primarily
resulted from distribution and marketing costs incurred for Shark
Tale, that were incurred prior to October 1, 2004 that would have been
recouped by Dream Works Studios in the fourth quarter of 2004 if the
Distribution Agreement had been in effect on January 1, 2004. For the
year ended December 31, 2004, the pro forma reduction to operating
revenue reflects $43.1 million for the distribution fee and $230.6
million in distribution and marketing costs that Dream Works Studios
would have been entitled to recoup if the Distribution Agreement had
been in effect on January 1, 2004.

(2) The pro forma adjustment for cost of revenue for the three months
ended December 31, 2004 is $26.9 million and primarily resulted from a
reduction in production cost amortization for Shark Tale, as, under
the individual-film forecast-computation-method, the revenue that
would have been recognized in this period if the Distribution
Agreement had been effective as of January 1, 2004, would have
represented a lower portion of the total revenue that we would have
estimated this film to ultimately produce. For the year ended
December 31, 2004 the pro forma adjustment for cost of revenues
reflects a reduction in distribution and marketing costs of
$233.5 million, as these costs would have been borne by Dream Works
Studios under the Distribution Agreement. In addition, the proforma
adjustments to cost of revenues for the year ended December 31, 2004
reflects the elimination of distribution and fulfillment service fees
paid to Universal Studios and CJ Entertainment, in the amount of
approximately $21.5 million, as these costs are solely borne by
Dream Works Studios pursuant to the Distribution Agreement. In
addition the proforma adjustments to cost of revenues for the year
ended December 31, 2004 reflects a decrease in production costs
amortization of approximately $35.7 million , as, under the
individual-film-forecast-computation-method, the revenue that we would
have recognized in this period would have represented a lower
proportion of the total revenue that we would have estimated our films
to ultimately produce.

(3) Reflects the elimination of overhead costs allocated to us by
Dream Works Studios related to the salaries and benefits of employees
in Dream Works Studios' distribution and marketing departments, as
these costs are solely borne by Dream Works Studios' pursuant to the
Distribution Agreement.

(4) Reflects federal and state income taxes that we would have been
required to pay, if any, if we had been a taxable corporation for the
entire year.

(5) Proforma diluted net income per share is calculated using the number
of shares of common stock that were outstanding immediately following
our separation from Dream Works Studios and our initial public
offering as if such shares were outstanding for all periods presented,
diluted by 1,710,000 shares of our Class A common stock equivalents
that underlie the Company equity based awards issued at our separation
from Dream Works Studios and our initial public offering as if such
common stock equivalents were outstanding for all periods presented.

Source: DreamWorks Animation SKG, Inc.

CONTACT: Investors, Rich Sullivan, DreamWorks Animation Investor
Relations, ir@dreamworksanimation.com; or Media, Jim Barron or Carrie Bloom,
+1-212-687-8080, dwa@sardverb.com, both of Citigate Sard Verbinnen, for
DreamWorks Animation SKG, Inc.

Web site: http://www.dreamworksanimation.com/

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