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DreamWorks Animation Reports Third Quarter 2008 Financial Results

October 28, 2008

GLENDALE, Calif., Oct. 28 /PRNewswire-FirstCall/ — For the quarter ended September 30, 2008, DreamWorks Animation SKG, Inc. reported total revenue of $151.5 million and net income of $37.4 million, or $0.41 per share on a fully diluted basis. This compares to revenue of $160.8 million and net income of $47.0 million, or $0.47 per share on a fully diluted basis, for the same period in 2007.

To date, Kung Fu Panda has reached approximately $415 million in international box office and over $630 million worldwide, making it DreamWorks Animation’s most successful original film of all time.

“Driven by the film’s exceptional theatrical performance on a worldwide basis, the Company has found in Kung Fu Panda its third franchise,” said Jeffrey Katzenberg, CEO of DreamWorks Animation. “We look forward to continuing our 2008 success with our next theatrical release, Madagascar: Escape 2 Africa, which comes to theaters in the U.S. on November 7th and across the globe this holiday season.”

For the quarter, Kung Fu Panda contributed approximately $63.3 million in revenue, primarily from international box office receipts in the period.

The Company’s 2007 summer blockbuster, Shrek the Third, contributed approximately $32.5 million of revenue to the quarter, driven primarily by international pay television. Through the third quarter, the film reached an estimated 20.5 million home entertainment units shipped worldwide, net of actual and estimated future returns.

Bee Movie, the Company’s 2007 fall release, contributed approximately $27.3 million of revenue to the quarter, driven primarily by domestic pay television. The film reached an estimated 7.5 million units shipped worldwide through the third quarter, net of actual and estimated future returns.

Flushed Away, the Company’s 2006 fall release, and Over the Hedge, the Company’s 2006 summer release, delivered $2.6 million and $2.4 million of revenue, respectively, primarily from international pay and free television.

Library and other revenue contributed approximately $23.4 million to the third quarter, driven by continued catalogue home entertainment performance and international free television.

Cost of revenue for the quarter equaled $75.5 million. Selling, general and administrative expenses totaled $29.9 million (including approximately $10.0 million of stock compensation expense) as compared to $23.8 million (including $6.3 million of stock compensation expense) for the comparable period of 2007. Selling, general and administrative expenses were higher in the third quarter of 2008 as compared to the third quarter of 2007 due to the ongoing cost of new business initiatives and continued growth of the Company’s annual equity grant program. SG&A for the quarter also included non-cash items of approximately $2.0 million resulting from Roger Enrico’s transition to non-Executive Chairman and the acceleration of depreciation related to the remodeling of the Company’s Glendale campus.

Results for the quarter also included a tax benefit of $0.03 per share on a fully diluted basis, attributable to the combination of the Company’s tax sharing agreement with a stockholder and finalization of prior year tax returns.

Looking ahead to the remainder of the year, the Company’s fourth quarter results are expected to be driven primarily by the home entertainment performance of Kung Fu Panda, which will be released on DVD and Blu-ray domestically on November 9, 2008.

The Company’s next theatrical release, Madagascar: Escape 2 Africa, is scheduled to open domestically on November 7, 2008. The Company does not expect to generate significant revenue in the fourth quarter from the distribution of this title, as its distributor may not have recouped its upfront marketing and distribution costs.

In addition to results for the quarter, the Company provided an update to its share repurchase program. Year to date, the Company has purchased approximately $185 million, or 6.8 million shares, at an average per-share price of approximately $27.20. The Company has approximately $53 million remaining under its current program.

Items related to the earnings press release for the third quarter of 2008 will be discussed in more detail on the Company’s third quarter 2008 earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, October 28, 2008, at 4:30 p.m. (ET). Investors can access the call by dialing (800) 230-1093 in the U.S. and (612) 332-0228 internationally and identifying “DreamWorks Animation Earnings” to the operator. The call will also be available via live webcast at http://www.dreamworksanimation.com/.

A replay of the conference call will be available shortly after the call ends on Tuesday, October 28, 2008. To access the replay, dial (800) 475-6701 in the U.S. and (320) 365-3844 internationally and enter 961531 as the conference ID number. Both the earnings press release and archived webcast will be available on the Company’s website at http://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 anticipates releasing its feature films into both conventional and IMAX(R) theatres worldwide. The Company has theatrically released a total of sixteen animated feature films, including Shrek, Shrek 2, Shark Tale, Madagascar, Over the Hedge, Shrek the Third, Bee Movie and Kung Fu Panda. Madagascar: Escape 2 Africa opens in theaters on November 7, 2008 and Monsters vs. Aliens on March 27, 2009. Beginning in 2009, all of the Company’s feature films will be produced in stereoscopic 3D technology.

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                                           September 30,      December 31,                                               2008              2007                                           (unaudited)                                                   (in thousands,                                             except par value and share                                                      amounts)   Assets   Cash and cash equivalents                  $337,905          $292,489     Trade accounts receivable, net of      allowance for doubtful accounts           14,967             3,470     Receivable from Paramount, net of      reserve for returns and allowance for      doubtful accounts                         71,967           272,647     Film costs, net                           622,970           541,917     Prepaid expenses and other assets          37,030            47,609     Property, plant, and equipment, net of      accumulated depreciation and      amortization                             103,951            86,772     Deferred taxes, net                        48,073            48,664     Goodwill                                   34,216            34,216     Total assets                           $1,271,079        $1,327,784      Liabilities and Stockholders' Equity     Liabilities:       Accounts payable                         $6,162            $3,169       Accrued liabilities                     108,496           108,457       Payable to stockholder                   55,927            68,371       Income taxes payable                     14,832            31,651       Deferred revenue and other advances      46,985            24,561       Borrowings and other debt                70,059            70,059     Total liabilities                         302,461           306,268     Commitments and contingencies     Minority interest                           2,941             2,941     Stockholders' equity:       Class A common stock, par value $.01        per share, 350,000,000 shares        authorized, 95,211,372 and 93,547,321        shares issued, as of September 30, 2008        and December 31, 2007, respectively        952               935       Class B common stock, par value $.01        per share, 150,000,000 shares        authorized, 11,419,461 and 12,984,461        shares issued and outstanding, as of        September 30, 2008 and December 31, 2007,        respectively                               114               130       Additional paid-in capital              865,113           831,115       Retained earnings                       593,706           502,763       Less: Class A Treasury common stock,        at cost, 17,027,042 and 10,445,278        shares, as of September 30, 2008 and        December 31, 2007, respectively       (494,208)         (316,368)     Total stockholders' equity                965,677         1,018,575      Total liabilities and stockholders'      equity                                $1,271,079        $1,327,784                          DREAMWORKS ANIMATION SKG, INC.                     CONSOLIDATED STATEMENTS OF INCOME                                (Unaudited)                                        Three Months Ended   Nine Months Ended                                          September 30,       September 30,                                         2008      2007      2008      2007                                     (in thousands, except per share amounts)   Revenues                           $151,525  $160,751  $450,227  $476,950   Costs of revenues                    75,518    70,028   248,101   234,152   Gross profit                         76,007    90,723   202,126   242,798   Selling, general and administrative    expenses                            29,872    23,826    84,043    77,062   Operating income                     46,135    66,897   118,083   165,736   Interest income, net                  2,312     6,571     7,769    19,224   Other income, net                     1,444     1,478     3,301     4,361   Increase in income tax benefit    payable to stockholder              (7,760)  (21,968)  (25,200)  (51,694)   Income before income taxes           42,131    52,978   103,953   137,627   Provision for income taxes            4,780     5,936    13,010    13,407   Net income                          $37,351   $47,042   $90,943  $124,220    Basic net income per share            $0.42     $0.47     $1.00     $1.22   Diluted net income per share          $0.41     $0.47     $0.99     $1.22    Shares used in computing net income    per share   Basic                                89,281    99,367    90,667   101,593   Diluted                              90,665    99,891    91,755   102,043                          DREAMWORKS ANIMATION SKG, INC.                   CONSOLIDATED STATEMENTS OF CASH FLOWS                                (Unaudited)                                                       Nine Months Ended                                                        September 30,                                                    2008              2007                                                        (in thousands)   Operating activities   Net income                                     $90,943          $124,220   Adjustments to reconcile net income to net    cash provided by operating activities:   Amortization and write off of film costs       225,884           219,949   Stock compensation expense                      28,533            25,467   Depreciation and amortization                   10,381             6,829   Revenue earned against deferred revenue and    other advances                                (58,419)          (65,478)   Deferred taxes, net                                591           (26,953)   Change in operating assets and liabilities:   Trade accounts receivable                      (11,497)           (3,049)   Receivable from Paramount                      200,680           105,307   Film costs                                    (303,704)         (289,035)   Prepaid expenses and other assets               11,120           (29,999)   Accounts payable and accrued liabilities         2,910            52,714   Payable to stockholder                         (12,444)           29,852   Income taxes payable, net                      (16,991)           25,249   Deferred revenue and other advances             88,877            60,512   Net cash provided by operating activities      256,864           235,585    Investing activities   Purchases of property, plant and equipment     (34,088)           (5,466)   Net cash used in investing activities          (34,088)           (5,466)    Financing Activities   Purchase of treasury stock                    (177,840)         (194,356)   Other                                              480             1,617   Net cash used in financing activities         (177,360)         (192,739)   Increase in cash and cash equivalents           45,416            37,380   Cash and cash equivalents at beginning of    period                                        292,489           506,304   Cash and cash equivalents at end of period    $337,905          $543,684    Supplemental disclosure of cash flow    information:   Cash paid during the period for income taxes,    net                                           $29,271           $14,835   Cash paid during the period for interest, net    of amounts capitalized                           $719                $-  

DreamWorks Animation SKG, Inc.

CONTACT: DreamWorks Animation Investor Relations, +1-818-695-3900,ir@dreamworksanimation.com

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




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