DreamWorks Animation Reports Third Quarter 2005 Financial Results

DreamWorks Animation Reports Third Quarter 2005 Financial Results

GLENDALE, Calif., Nov. 10 /PRNewswire-FirstCall/ -- DreamWorks Animation SKG, Inc. (NYSE:DWA), today announced financial results for its third quarter ended September 30, 2005.

Revenue for the third quarter 2005 totaled $87.1 million resulting in a net loss of $0.7 million or ($0.01) per share on a fully diluted basis. This compares to revenue of $241.3 million and a net income of $20.3 million, or $0.26 per diluted share for the same period in 2004. The third quarter 2004 results do not reflect the distribution agreement with DreamWorks Studios, which became effective on October 1, 2004. The Company ended the period with $433.6 million of cash, cash equivalents and short-term investments.

The Company recorded several charges which reduced earnings in the quarter, including a charge related to taxes which had a net impact of approximately $8.0 million or $0.08 per share, as well as a $3.9 million or $0.04 per share charge for the partial write off of film inventory for Wallace & Gromit: The Curse of the Were-Rabbit.

"This quarter's results, driven largely by the strong performance of Madagascar, demonstrate our continued ability to deliver highly successful CG animated movies," said Jeffrey Katzenberg, DreamWorks Animation's CEO. "Madagascar has generated over $525 million in worldwide box office, making it our highest grossing non-sequel to date. Now with the plan for a sequel underway, we believe Madagascar has the potential to become our next great franchise."

For the third quarter, Madagascar contributed approximately $64.6 million of revenue. Shark Tale contributed $10.3 million in revenue driven primarily from pay television licensing. Shrek 2 produced $2.6 million in the quarter resulting from consumer products. Library and other films contributed approximately $9.6 million in revenue for the quarter.

Looking at the remainder of the year, the Company expects results for the fourth quarter to be primarily driven by the performance of the Madagascar home video, which is set for domestic release on November 15, 2005.

The Company's latest release, Wallace & Gromit: The Curse of the Were-Rabbit, a stop motion picture produced in conjunction with Aardman Animation, hit theatres on October 7, 2005. The film has reached over $160 million in worldwide box office to date. "Wallace & Gromit has been one of the best reviewed films of the year and, as anticipated, has done exceptionally well with its fan base overseas," commented Katzenberg. "That said, the movie has yet to draw the same level of attention in the domestic market. While we are hopeful that the film will continue its strong international run, given its overall performance to date we were required to make the adjustments we have reported today."

Items related to the third quarter, as well as certain estimates and the on-going business performance, will be discussed in more detail on the Company's third quarter 2005 earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Thursday, November 10, 2005, at 5:30 p.m. (EST). Investors can access the call by dialing 800-473-6123 in the U.S. and 973-582-2745 internationally or via live webcast at www.dreamworksanimation.com.

A replay of the conference call will also be available shortly after the call ends on November 10, 2005 through November 24, 2005. To access the replay, dial 877-519-4471 in the U.S. and 973-341-3080 internationally and enter 6631207 as the conference ID number. Both the earnings release and 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 nine animated feature films, including Antz, Shrek, Shrek 2, Shark Tale and Madagascar. DreamWorks Animation's newest release, Wallace & Gromit: The Curse of the Were-Rabbit, opened in theaters October 7, 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. Our guidance for the remainder of 2005 as well as our proposals and plans for sequels and our beliefs and expectations concerning performance of our current and future releases, constitute forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, management's beliefs and assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. 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. Additional factors that could cause actual results for the full year of 2005 to differ from our guidance include: differences between management's estimates based on currently available information and the final operating results for full year of 2005, potential accounting adjustments that may be made to our financial statements as part of the close of the books for the full year of 2005, the box-office performance of our release of "Wallace & Gromit: Curse of the Were-Rabbit" and any additional write-offs, the home video performance of "Madagascar", and the timing, accuracy and sufficiency of the information we receive from our distributors to determine our revenues. 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. For a further list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission, including our annual report on Form 10-K for fiscal year 2004, our quarterly reports on Form 10-Q for the first and second quarters of 2005, and, when filed, our quarterly report on Form 10-Q for the third quarter of 2005. 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.

**FINANCIAL TABLES ATTACHED**

Contacts:
Investors
Rich Sullivan
DreamWorks Animation Investor Relations
(818) 695-3900
ir@dreamworksanimation.com

Media
Bob Feldman
DreamWorks Animation Public Relations
(818) 695-6677

DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Balance Sheets

September 30, December 31,
2005 2004
In thousands
Assets
Cash and cash equivalents $412,385 $63,134
Short term investments 21,250 --
Accounts receivable, net of allowance
for doubtful accounts 8,413 14,015
Receivable from affiliate -- 385,449
Receivables from employees 1,160 1,634
Film inventories, net 565,787 519,926
Property, plant and equipment,
net of accumulated depreciation and
amortization 85,433 85,997
Deferred costs, net of amortization 2,635 3,741
Income taxes receivable 28,140 6,569
Deferred taxes, net 70,641 93,343
Goodwill 34,216 34,216
Other assets 30,815 11,881
Total assets $1,260,875 $1,219,905

Liabilities and stockholder's equity
Liabilities
Accounts payable $7,386 $4,414
Payable to affiliate 30,814 --
Payable to stockholder 75,931 70,643
Accrued liabilities 49,469 65,537
Other advances and unearned revenue 20,433 32,225
Obligations under capital leases 2,400 2,993
Universal Studios advance 75,000 75,000
Other debt 116,945 139,207
Total liabilities 378,378 390,019
Commitments and contingencies
Non-controlling minority interest 2,941 2,941
Stockholders' equity 879,556 826,945
Total liabilities and stockholders' equity $1,260,875 $1,219,905

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

Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
In thousands In thousands
Operating revenue $87,107 $241,343 $289,421 $582,461
Costs of revenue 55,559 196,311 161,903 394,526
Gross profit 31,548 45,032 127,518 187,935

Selling, general and
administrative expenses 22,780 12,659 60,783 31,694
Operating income 8,768 32,373 66,735 156,241

Interest income
(expense), net 3,351 (6,439) 5,501 (13,228)
Other income (expense), net 1,454 (4,365) 2,581 (238)
Decrease (increase) in
income tax benefit
payable to stockholder 2,677 -- (8,682) --

Income before income taxes 16,250 21,569 66,135 142,775

Provision for income taxes 16,906 1,256 24,784 1,784

Net income (loss) $(656) $20,313 $41,351 $140,991

Basic net income
(loss) per share $(0.01) $0.27 $0.40 $1.84
Diluted net income
(loss) per share $(0.01) $0.26 $0.40 $1.83
Shares used in
computing net income
(loss) per share

Basic 103,092 76,636 103,055 76,636
Diluted 103,092 77,123 104,327 77,123

DreamWorks Animation SKG, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows

Nine months ended
September 30,
2005 2004
In thousands
Operating activities
Net income $41,351 $140,991
Adjustments to reconcile net income to
net cash provided by (used by) operating
activities:
Amortization and write off of film
inventories 155,755 139,890
Stock compensation expense 15,187 409
Depreciation and amortization 6,316 4,214
Change in operating assets and liabilities:
Trade accounts receivable 5,602 32,621
Receivables from employees 474 657
Receivable from affiliate, net 416,263 --
Film inventories (201,616) (373,760)
Other assets (18,934) (3,756)
Deferred taxes, net 27,359 --
Accounts payable and accrued expenses (13,095) 69,339
Income taxes payable, net (21,571) --
Unearned revenue (11,792) (23,218)
Net cash provided by (used in) operating
activities 401,299 (12,613)
Investing activities
Purchases of property, plant,
and equipment $(3,733) $ (270)
Purchase of short-term investments (21,250) --
Net cash used in investing activities (24,983) (270)
Financing activities
Net transfers to DreamWorks Studios -- (82,497)
Bank borrowings and other debt (23,175) --
Increase in debt allocated from
DreamWorks Studios -- 44,086
Payments on capital leases (593) (487)
Receipts from exercise of stock options 2,822 --
Purchase of treasury stock (6,119) --
Universal Studios and HBO advances -- 51,744
Net cash provided by (used in) financing
activities (27,065) 12,846
Increase (decrease) in cash and cash
equivalents 349,251 (37)
Cash and cash equivalents at beginning
of period 63,134 41
Cash and cash equivalents at end of period $412,385 $4

Source: DreamWorks Animation SKG, Inc.

CONTACT: Investors, Rich Sullivan of DreamWorks Animation Investor
Relations, +1-818-695-3900, ir@dreamworksanimation.com, or Media, Bob Feldman,
DreamWorks Animation Public Relations, +1-818-695-6677

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

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