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Madagascar Drives DreamWorks Animation Profit

For the third quarter of 2006, DreamWorks Animation SKG Inc. reported total revenue of $55.6 million and net income of $10.5 million, or $0.10 per share on a fully diluted basis. This compares to revenue of $87.1 million and net loss of $0.7 million, or $(0.01) per share on a fully diluted basis, for the same period in 2005. The studio ended the third quarter of 2006 with $536.0 million of cash and cash equivalents.

For the period, MADAGASCAR contributed approximately $24.1 million of revenue driven primarily by home entertainment catalog sales, as well as a benefit due to a partial reduction of reserves established for returns and costs associated with the transition of its home entertainment distribution. In total, the film has reached an estimated 20.4 million units shipped through the third quarter of 2006, net of actual returns and estimated future returns. WALLACE AND GROMIT: CURSE OF THE WERE-RABBIT generated revenue of approximately $17.2 million, as the film was made available in the domestic pay television market in the quarter. Since its home entertainment release in the first quarter of this year, the film has reached an estimated 5.1 million units shipped through the third quarter of 2006, net of actual returns and estimated future returns. SHARK TALE recorded revenue of approximately $5.8 million in the quarter. Library and other titles contributed $8.5 million of revenue for the period. The company's distributor remained in an unrecouped position of approximately $7.1 million on the SHREK 2 title at the end of the third quarter.

The company's revenues for the third quarter of 2006 included a benefit resulting from the renegotiation of a vendor contract for services provided as part of Paramount's distribution of its titles. This resulted in higher net revenue of approximately $6.4 million due to a distribution cost credit from Paramount, predominantly impacting the net revenue of the company's 2005 theatrical releases. The benefit resulted in $0.01 of earnings per share in the quarter on a fully diluted basis.

DreamWork's latest release, OVER THE HEDGE, has reached approximately $325 million at box office as of Oct. 30 on a worldwide basis, making it the eighth highest grossing film of 2006. As expected, the company's distributor remains in an un-recouped position at the end of the quarter. The title contributed approximately $2.1 million in revenue to the company in the quarter.

Looking ahead, the DreamWorks Animation reiterated its expectation that revenue for the remainder of the year will be driven by the home entertainment performance of OVER THE HEDGE, which was released domestically on Oct. 17.

The studioâs next release, FLUSHED AWAY, opens domestically in theaters on Nov. 3. As is typical in the quarter of a film's theatrical release, the company does not anticipate generating significant revenue in the fourth quarter from the title, as its distributor will likely not have recouped its upfront marketing and distribution costs.

"We are excited about the upcoming release of FLUSHED AWAY, our latest collaboration with Aardman Animation," stated Jeffrey Katzenberg, ceo of DreamWorks Animation. "By combining Aardman's signature look with cutting-edge CG technology, we believe we've created a new visual style âand ultimately, a unique film experience."

In addition to results for the third quarter, the company provided updates on several future projects, including DreamWorks Animation's PUSS IN BOOTS, based on the beloved character from the SHREK franchise. Originally planned as a direct-to-DVD title, the property is now being slated as a future theatrical release. Due to current market conditions, the company has decided to shift away from its direct-to-DVD strategy in favor of new opportunities with Paramount and Nickelodeon.

"PUSS IN BOOTS is a unique creative property that has the potential to be a valuable extension of the SHREK franchise," stated Katzenberg. "We are excited to be developing this into a feature film where we think it has the greatest opportunity."

The company also announced that its new partnership with Nickelodeon has identified its first two creative concepts for ongoing television series based on DreamWorks Animation theatrical properties. The first will be based on the hit penguin characters from MADAGASCAR and the second series will be derived from DreamWorks' 2008 theatrical release KUNG FU PANDA.

DreamWorks Animation also revealed its theatrical release slate for 2009. MONSTERS VS. ALIENS is scheduled for release during the summer season. HOW TO TRAIN YOUR DRAGON, based on the book by Cressida Cowell, is scheduled for the all/holiday season.

Lastly, DreamWorks Animation revealed that SHREK 4 would be released in 2010.

DreamWorks Animation (www.dreamworksanimation.com) is principally devoted to developing and producing 3D-animated feature films. The company has theatrically released a total of 12 animated feature films, including ANTZ, SHREK, SHREK 2, SHARK TALE, MADAGASCAR, WALLACE & GROMIT: THE CURSE OF THE WERE-RABBIT and OVER THE HEDGE. The latest, FLUSHED AWAY, opens Nov. 3.

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