DreamWorks Animation Reports First Quarter 2005 Financial Results

DreamWorks Animation Reports First Quarter 2005 Financial Results

GLENDALE, Calif., May 10 /PRNewswire-FirstCall/ -- DreamWorks Animation SKG, Inc. (NYSE:DWA), today announced financial results for its first quarter ended March 31, 2005.

For the first quarter 2005, revenue totaled $167 million, costs of revenue were $80 million, and net income totaled $46 million or $0.44 per share on a fully diluted basis. This compares to revenue of $41 million, and a net loss of $25 million, or $0.33 net loss per diluted share for the same period in 2004.

The company also generated in the period cash from operations of $377 million, primarily driven by the success of its 2004 releases, and ended the period with $445 million in cash and cash equivalents.

The year over year improvement in both profit and revenue was driven primarily by Shark Tale. The film generated approximately $142 million of revenue in the quarter from its success in international theatrical and worldwide home video markets. To date, the film has reached over $204 million in international box office bringing its worldwide theatrical to over $365 million, ahead of the company's previous estimate of $350 million.

Shrek 2, despite being on track to become one of the biggest selling home video releases of all time, did not meet the company's retail sales expectations for the first quarter. This sales shortfall resulted in a higher level of returns than expected. As a result, DWA recorded no revenue from Shrek 2 in the quarter other than from licensing and merchandising.

"While we firmly believe that the Shrek franchise continues to be very strong, it is clear in retrospect that the unique blockbuster characteristics of Shrek 2 caused us to overestimate first quarter retail sales," said Jeffrey Katzenberg, DreamWorks Animation's CEO. "I think it is also clear that when we deliver successful films, our business model, which is based on producing two CG animated movies per year, will generate significant returns for the company and its shareholders as evidenced by the profitability we have achieved with our 2004 releases."

Commenting on the full year earnings outlook, the company now expects to achieve full year EPS of between $1.00 and $1.25. Substantially all of this total, less the EPS recognized in the first quarter, will come in the fourth quarter of 2005.

"Looking forward, we are especially excited about our next film, Madagascar, which comes out on Memorial Day weekend, the highest grossing box office weekend for two out of the last three years. Reaction to the movie so far has been very encouraging and we think there is something in it for the entire family to enjoy," stated Katzenberg.

Madagascar opens May 27th when it is released in over 3,700 theaters across the United States.

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

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, May 10, 2005, at 5:30 p.m. (EDT). 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 on May 10, 2005 through May 24, 2005. To access the replay, dial 877-519-4471 in the U.S. and 973-341-3080 internationally and enter 5958376 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 eight animated feature films, including Antz, Shrek, Shrek 2 and Shark Tale. DreamWorks Animation's next release is Madagascar, scheduled to open on May 27, 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. For a further list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission (SEC), including 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.

**FINANCIAL TABLES ATTACHED**

DreamWorks Animation SKG, Inc. Unaudited Condensed Consolidated Balance Sheets

March 31, December 31, 2005 2004 In thousands Assets Cash and cash equivalents $445,003 $63,134 Accounts receivable, net of allowance for doubtful accounts 5,578 14,015 Receivable from affiliate 77,143 385,449 Receivables from employees 1,449 1,634 Film inventories, net 532,760 519,926 Property, plant and equipment, net of accumulated depreciation and amortization 86,397 85,997 Deferred costs, net of amortization 3,435 3,741 Income taxes receivable -- 6,569 Deferred taxes, net 93,343 93,343 Goodwill 34,216 34,216 Other assets 27,008 11,881 Total assets $1,306,332 $1,219,905

Liabilities and stockholder's equity Liabilities Accounts payable $8,083 $4,414 Payable to stockholder 70,643 70,643 Accrued liabilities 56,132 65,537 Income taxes payable 16,413 -- Other advances and unearned revenue 51,009 32,225 Obligations under capital leases 2,798 2,993 Universal Studios advance 75,000 75,000 Other debt 144,348 139,207 Total liabilities 424,426 390,019 Commitments and contingencies Non-controlling minority interest 2,941 2,941 Stockholder's equity 878,965 826,945 Total liabilities and stockholder's equity $1,306,332 $1,219,905

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

Three months ended March 31, 2005 2004 In thousands Operating revenue $166,959 $40,814 Costs of revenue 80,419 45,426 Gross profit (loss) 86,540 (4,612)

Selling, general and administrative expenses 18,071 7,767 Operating income (loss) 68,469 (12,379)

Interest income (expense), net 669 (3,541) Other expense net of other income (287) (9,232)

Income (loss) before income taxes 68,851 (25,152) Provision for income taxes 23,178 303

Net income (loss) $45,673 $(25,455)

Basic net income (loss) per share $0.44 $(0.33) Diluted net income (loss) per share $0.44 $(0.33) Shares used in computing net income (loss) per share Basic 102,985 76,636 Diluted 104,616 76,636

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

Three months ended March 31, 2005 2004 In thousands Operating activities Net income (loss) $45,673 $(25,921) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization and write off of film inventories 77,269 14,945 Stock compensation expense 4,556 (1,149) Depreciation and amortization 1,947 1,387 Change in operating assets and liabilities: Trade accounts receivable 8,437 86,139 Receivables from employees 185 220 Receivable from affiliate 308,306 -- Film inventories (90,103) (67,718) Other assets (15,154) (550) Accounts payable and accrued expenses (5,645) (7,589) Income taxes, net 22,982 -- Unearned revenue 18,784 5,650 Net cash provided by operating activities 377,237 5,414

Investing activities Purchases of property, plant, and equipment $(1,737) $(179) Net cash used in investing activities (1,737) (179)

Financing activities Net transfers to DreamWorks Studios -- (20,659) Bank borrowings and other debt 4,837 5,072 Decrease in debt allocated from DreamWorks Studios -- (38,317) Payments on capital leases (195) (180) Receipts from exercise of stock options 1,769 -- Purchase of treasury stock (42) -- Universal Studios and other advances -- 48,849 Net cash provided by (used in) financing activities 6,369 (5,235) Increase in cash and cash equivalents 381,869 -- Cash and cash equivalents at beginning of period 63,134 41 Cash and cash equivalents at end of period $445,003 $41

Source: DreamWorks Animation SKG, Inc.

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

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

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