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DreamWorks Profits Flushed Away

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DreamWorks Profits Flushed Away

DreamWorks Animation SKG reported operating revenue of $204.3 million and a net loss of approximately $21.3 million for its fourth quarter. The loss is largely chalked up to a pre-tax charge of approximately $109 million for the partial write-off of costs incurred in making Flushed Away, which scored with critics but didn’t quite catch on with North American audiences.

“Looking at our 2006 releases overall, Over the Hedge finished as one of the top performing domestic theatrical releases of the year and is performing well in home video,” says DreamWorks Animation CEO Jeffrey Katzenberg. “Flushed Away, however, did not meet financial expectations despite critical acclaim. Its performance offset what was otherwise a strong year for the rest of our titles, especially in the home video market.”

Flushed Away has earned approximately $175 million worldwide, which would be impressive if the film didn’t cost around $149 million to make. The movie was released on home video just last week but DreamWorks isn’t expecting sales to mirror those of its last feature, Over The Hedge.

For the quarter, Over the Hedge contributed approximately $104.1 million of revenue, driven primarily by its initial home video release. Through the end of 2006, the company shipped approximately 9.8 million units of the comedy worldwide. Madagascar kicked in an additional $36.2 million from international pay television and continues to sell well on home video with 22.2 million units shipped to date. Shrek 2 provided $31.1 million of revenue in the quarter from television and home video catalogue sales, while Shark Tale and Wallace & Gromit: Curse of the Were-Rabbit brought in approximately $9.5 million and $8.6 million, respectively. Flushed Away only contributed $6.2 million, driven by consumer products and the reimbursement payment from Paramount as part of the distribution agreement.

With home video sales of Flushed Away expected to make little impact on financial results for 2007, DreamWorks Animation is looking to an established franchise to drive profits this year. Shrek the Third is set to hit theaters on May 18, but won’t contribute significant revenue until the second half of the year, after distribution and marketing costs have been recouped by Paramount. Bee Movie, which follows on Nov. 2, won’t generate meaningful revenue until 2008.

“We have made a lot of progress this past year improving several aspects of the business and are entering a very exciting time for DreamWorks Animation,” Katzenberg adds. “With the next chapter in our Shrek franchise, as well as Bee Movie, we have a unique slate of one sequel and one original film that I believe captures the business model that we had envisioned for the company.”

DreamWorks Animation also announced that its board of directors has approved a share repurchase program of $150 million for the company to execute at its discretion over the next 18 months. ‘The Company is now in a very strong cash position and we believe this repurchase program is an appropriate use for this cash and in the best interest of shareholders,” says Lew Coleman, president of DreamWorks Animation.

The fourth-quarter financial results bring DreamWorks Animation’s reported revenue for all of 2006 to $394.8 million, and net income to $15.1 million. Details were discussed on Tuesday, Feb. 27, during a conference call that can be heard via webcast replays at www.dreamworksanimation.com.

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