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DVD Sales Spur DreamWorks Animation to Withdrawal Secondary Offering

DreamWorks Animation SKG Inc. confirmed that it has been informed by its principal shareholders that they will not proceed at this time with the secondary offering of $500 million of Class A common stock which was filed in a preliminary registration statement with the Securities and Exchange Commission on March 28, 2005.

"With the release of MADAGASCAR, the company has delivered another highly successful film at the box office. To date it has grossed approximately $180 million domestically making it one of the top 10 animated films of all time," stated Jeffrey Katzenberg, ceo of DreamWorks Animation. "However, based on the current valuation of our shares, we believe it is in the best interest of all parties, including the company and its current shareholders, to withdraw the offering at this time."

In addition, the company updated its guidance of "no profit" for the second quarter of 2005 and now anticipates that results will show a loss in the range of $.07 to $.09 per share for the quarter. Based on an extensive review of current sales and retail inventory data received from its distributors, the company has also updated its previous full year guidance of $1.00-$1.25 per share and now expects to earn approximately $0.80 to $0.90 per share for the full year 2005. This adjustment was primarily driven by an increase in return reserves for its 2004 titles.

"After our first quarter earnings announcement in May, the company has been working closely with our distribution partners to conduct an extensive review domestically and in several major international territories to gather more information about the performance of our home video titles, including their sales movement, inventory levels at retail as well as actual and anticipated returns," said Kris Leslie, DreamWorks Animation's cfo. "As part of this review, we have observed changes in the marketplace that appear to have impacted our titles. While it is too early to determine if these changes are temporary or permanent, we think it is prudent at this time to adjust our guidance to reflect higher than expected returns as well as revisions to our video forecasts."

This is the second time in two months that DreamWorks has revised its earnings forecast due to slumping DVD sales. In June, a proposed class-action lawsuit was filed in federal court in Los Angeles, seeking unspecified damages from DreamWorks Animation for allegedly misleading stockholders about sales prospects for SHREK 2 DVDs. Five additional class action lawsuits have been filed in recent weeks against DreamWorks Animation and certain officers and directors.

In addition, DreamWorks Animation has received a request from the staff of the Securities and Exchange Commission and is voluntarily complying with an informal inquiry concerning trading in its securities and the disclosure of its financial results on May 10, 2005. The SEC has informed DreamWorks Animation that the informal investigation should not be construed as an indication that any violations of law have occurred. The company intends to cooperate fully with the inquiry.

The company believes these lawsuits are without merit and intends to vigorously defend itself against them.

At the time of the company's IPO, DreamWorks Animation agreed to execute, when requested, a follow-on secondary offering on behalf of its principal shareholders. As a result, upon the future request of Jeffrey Katzenberg and David Geffen acting together, or of Vulcan Capital, the private investment group of Vulcan Inc., the company will facilitate a potential follow-on offering of shares currently owned by its principal shareholders. Each party has advised the company that they expect to revisit the potential follow-on offering when market conditions warrant a transaction. While Katzenberg and Geffen acting together can trigger an offering, they cannot participate in the selling of shares until their IPO lock-up expires on October 27, 2005.

DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films.

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