DreamWorks Animation Reports Second Quarter 2011 Financial Results

GLENDALE, Calif., July 26, 2011 — (PRNewswire) — DreamWorks Animation SKG, Inc. (Nasdaq: DWA) today announced financial results for its second quarter ended June 30, 2011. For the quarter, the Company reported total revenue of $218.3 million and net income of $34.1 million, or $0.40 per share on a fully diluted basis. This compares to revenue of $158.1 million and net income of $24.0 million, or $0.27 per share on a fully diluted basis, for the same period in 2010.

"Kung Fu Panda 2 is currently the fifth highest-grossing film of 2011 on a global basis and has exceeded $600 million at the worldwide box office to date," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. "We are looking forward to the next two big events for the Company during the second half of the year: the November 4th theatrical release of Puss In Boots and the release of Kung Fu Panda 2 into the home video market in the fourth quarter."

Kung Fu Panda 2, which was released on May 26, 2011, contributed $55.8 million of revenue in the quarter, generated by its worldwide box office performance as well as merchandising and licensing activities. It has grossed approximately $160 million in domestic box office and approximately $440 million in international box office to date.

Megamind contributed $19.7 million of revenue in the quarter, driven primarily by home entertainment. The film reached an estimated 4.3 million home entertainment units sold worldwide through the end of the second quarter, net of actual and estimated future returns.

Shrek Forever After and How to Train Your Dragon contributed $34.9 million and $41.4 million of revenue in the quarter, respectively, driven primarily by worldwide pay television and home entertainment. These films reached an estimated 8.8 million and 8.7 million home entertainment units, respectively, sold worldwide through the end of the second quarter, net of actual and estimated future returns.

Library and other items, including non-film businesses, contributed approximately $66.5 million of revenue to the quarter.

Costs of revenue for the quarter equaled $141.3 million. Selling, general and administrative expenses totaled $29.6 million, including approximately $8.4 million of stock-based compensation expense.

The Company's income tax expense for the second quarter was $15.3 million. The Company's combined effective tax rate – the actual tax rate coupled with the effect of the Company's tax sharing agreement with a former stockholder – was approximately 31% for the second quarter.

The Company's third quarter results are expected to be driven primarily by the continued international box office performance of Kung Fu Panda 2, in addition to domestic pay television revenue from Megamind. In the fourth quarter, the Company will release Puss In Boots into theaters on November 4th and Kung Fu Panda 2 into the home entertainment market.

Items related to the earnings press release for the second quarter of 2011 will be discussed in more detail on the Company's earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, July 26, 2011, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1059 in the U.S. and (612) 234-9959 internationally and identifying "DreamWorks Animation Earnings" to the operator. The call will also be available via live webcast at www.dreamworksanimation.com.

A replay of the conference call will be available shortly after the call ends on Tuesday, July 26, 2011. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 208016 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

DreamWorks Animation creates high-quality entertainment, including CG animated feature films, television specials and series, live entertainment properties and online virtual worlds, meant for audiences around the world. The Company has world-class creative talent, a strong and experienced management team and advanced filmmaking technology and techniques. DreamWorks Animation has been named one of the "100 Best Companies to Work For" by FORTUNE® Magazine for three consecutive years. In 2011, DreamWorks Animation ranks #10 on the list. All of DreamWorks Animation's feature films are now being produced in 3D. The Company has theatrically released a total of 22 animated feature films, including the franchise properties of Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon.

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Caution Concerning Forward-Looking Statements

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company's plans, prospects, strategies, proposals and our beliefs and expectations concerning performance of our current and future releases and anticipated talent, directors and storyline for our upcoming films and other projects, constitute forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management's beliefs and assumptions. 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. In addition, due to the uncertainties and risks involved in the development and production of animated feature projects, the release dates for the projects 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 most recent annual report on Form 10-K and our most recent quarterly reports on Form 10-Q. 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**




DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


June 30,

December 31,


2011

2010


(in thousands,


except par value and share


amounts)

Assets



Cash and cash equivalents

$    113,164

$     163,819

Trade accounts receivable, net of allowance for doubtful accounts

25,120

40,136

Income taxes receivable

8,999

310

Receivable from Paramount, net of allowance for doubtful accounts

230,180

242,629

Film and other inventory costs, net

853,941

772,668

Prepaid expenses

21,886

21,795

Other assets

8,678

9,889

Property, plant and equipment, net of accumulated depreciation and amortization

176,269

174,803

Deferred taxes, net

268,900

295,602

Goodwill

34,216

34,216

Total assets

$ 1,741,353

$  1,755,867




Liabilities and Equity



Liabilities:



Accounts payable

$        3,916

$         3,515

Accrued liabilities

107,393

143,098

Payable to former stockholder

296,925

329,590

Deferred revenue and other advances

32,964

20,793

Total liabilities

441,198

496,996

Commitments and contingencies



Stockholders’ equity:



Class A common stock, par value $.01 per share, 350,000,000 shares authorized, 97,478,074 and 97,436,947 shares issued, as of June 30, 2011 and December 31, 2010, respectively

975

975

Class B common stock, par value $.01 per share, 150,000,000 shares authorized, 10,838,731 and 10,838,731 shares issued and outstanding, as of June 30, 2011 and December 31, 2010, respectively

108

108

Additional paid-in capital

1,003,286

979,177

Retained earnings

1,009,802

966,935

Less: Class A Treasury common stock, at cost, 24,798,951 and 23,834,081 shares, as of June 30, 2011 and December 31, 2010, respectively

(714,016)

(688,324)

Total stockholders’ equity

1,300,155

1,258,871

Total liabilities and equity

$ 1,741,353

$  1,755,867



DREAMWORKS ANIMATION SKG

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)












Three Months Ended

Six Months Ended


June 30,

June 30,


2011

2010

2011

2010


(in thousands, except per share amounts)

Revenues

$ 218,255

$ 158,095

$ 326,292

$ 320,238

Costs of revenues

141,311

98,734

213,338

204,917

Gross profit

76,944

59,361

112,954

115,321

Product development

255

422

423

607

Selling, general and administrative expenses

29,554

27,751

59,683

51,261

Operating income

47,135

31,188

52,848

63,453

Interest income, net

44

171

260

230

Other income, net

2,060

2,004

4,060

4,097

Decrease (increase) in income tax benefit payable to former stockholder

175

(8,668)

4,764

(16,856)

Income before income taxes

49,414

24,695

61,932

50,924

Provision for income taxes

15,341

720

19,065

5,280

Net income

$   34,073

$   23,975

$   42,867

$   45,644






Basic net income per share

$       0.41

$       0.28

$       0.51

$       0.53

Diluted net income per share

$       0.40

$       0.27

$       0.51

$       0.51

Shares used in computing net income per share





Basic

83,384

85,709

83,759

86,741

Diluted

84,565

87,582

84,854

88,972



DREAMWORKS ANIMATION SKG

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)








Six Months Ended


June 30,


2011

2010


(in thousands)

Operating activities



Net income

$   42,867

$  45,644

Adjustments to reconcile net income to net cash used in operating activities:



Amortization and write-off of film and other inventory costs

172,568

183,295

Stock-based compensation expense

15,546

15,210

Depreciation and amortization

1,689

2,526

Revenue earned against deferred revenue and other advances

(49,360)

(53,499)

Deferred taxes, net

26,702

563

Changes in operating assets and liabilities:



Trade accounts receivable

15,016

(4,383)

Receivable from Paramount

12,449

10,033

Film and other inventory costs

(233,973)

(223,418)

Prepaid expenses and other assets

(1,374)

(15,540)

Accounts payable and accrued liabilities

(35,202)

(9,347)

Payable to former stockholder

(32,665)

(5,712)

Income taxes payable/receivable, net

(8,739)

(4,851)

Deferred revenue and other advances

71,166

35,549

Net cash used in operating activities

(3,310)

(23,930)




Investing activities



Purchases of property, plant and equipment

(21,347)

(26,590)

Net cash used in investing activities

(21,347)

(26,590)




Financing Activities



Receipts from exercise of stock options

8

8,786

Excess tax benefits from employee equity awards

24

673

Deferred financing costs

(338)

Purchase of treasury stock

(25,692)

(113,266)

Net cash used in financing activities

(25,998)

(103,807)

Decrease in cash and cash equivalents

(50,655)

(154,327)

Cash and cash equivalents at beginning of period

163,819

231,245

Cash and cash equivalents at end of period

$ 113,164

$  76,918




Supplemental disclosure of cash flow information:



Cash paid during the period for income taxes, net of amounts refunded

$     1,384

$    8,891

Cash paid during the period for interest, net of amounts capitalized

$        290

$       281




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