Shrek 2 DVD Sales Slump DreamWorks Ani 1st Quarter

DreamWorks Animations first quarter of 2005 was not as stellar as many had hoped. Despite being on track to become one of the biggest selling home video releases of all time, SHREK 2 did not meet the company's retail sales expectations. 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."

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 more than $204 million in international box office bringing its worldwide theatrical to more than $365 million, ahead of the company's previous estimate of $350 million.

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 27 when it is released in more than 3,700 theaters across the U.S.

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

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