DWA 2009 Q1 Earnings Call Transcript.docx

7/23/2019 DWA 2009 Q1 Earnings Call Transcript.docx

http://slidepdf.com/reader/full/dwa-2009-q1-earnings-call-transcriptdocx 1/26

Operator

Welcome to the DreamWorks Animation earnings conference. (Operator Instructions) I would

now like to turn the conference over to our host, DreamWorks Animation’s Investor

elations, !r. ich "ullivan.

Rich Sullivan

#hank $ou. %ood afternoon, ever$one and welcome to DreamWorks Animation’s &rst 'uarter

* earnings conference call. With me toda$ is our +hief -ecutive Ocer, /e0re$

1at2en3erg and our 4resident and +hief 5inancial Ocer, 6ew +oleman and our +hief

Operating Ocer, Ann Dal$. #his call will 3egin with a 3rief discussion of the 'uarterl$

&nancials disclosed in toda$’s press release followed 3$ an opportunit$ for $ou to ask

'uestions.

I would like to remind ever$one that the press release is availa3le on our we3site,

www.dreamworksanimation.com.

7efore we 3egin, we need to remind $ou that certain statements made on this call ma$

constitute forward8looking statements. 5orward8looking statements can var$ materiall$ from

actual results and are su39ect to a num3er of risks and uncertainties, including those

contained in the compan$’s annual and 'uarterl$ reports, as well as other &lings with the

"+. I would encourage all of $ou to review the risk factors listed in these documents. #he

compan$ undertakes no o3ligation to update an$ of its forward8looking statements.

With that, I would like to now hand the call over to DreamWorks Animation 4resident and

+hief -ecutive Ocer, /e0re$ 1at2en3erg. /e0re$:

Jefrey Katzenberg

#hanks ich and good afternoon ever$one. I will 3egin with a few comments a3out our

recent performance 3efore 6ew discusses our 'uarterl$ results and Ann sheds some insight

into our home video 3usiness. #hen we will get to $our 'uestions.

With our strongest &rst 'uarter ever, * is o0 to a great start. !adagascar scape to

Africa is a 3lock3uster 3$ ever$ measure and our results for the 'uarter were primaril$driven 3$ its performance in international 3o- oce and domestic home video. It’s

international 3o- oce has reached appro-imatel$ ;<=> million 3ringing worldwide 3o-

oce totals to nearl$ ;>*> million. ven in the face of the recession our titles continue to

perform ver$ well in home video. !adagascar II was released on D?D and 7lue a$

domesticall$ on 5e3ruar$ @th and was one of the top two titles for the 'uarter in revenue and

sales and rentals com3ined.



7oth !adagascar II and 1ung 5u 4anda are among the 3est performing titles in the past =

months. On the feature &lm side, our most recent release, !onsters v. Aliens, opened on

!arch in 3oth BD and traditional +% and having passed ;=> million is on track to reach

around ; million in domestic 3o- oce. In fact, it will 3e the single highest grossing

movie domesticall$ of =< new &lms that have 3een released since the end of /ul$ last $ear.

#ogether with !adagascar II, the third highest grossing movie domesticall$ in that same

time frame, it is clear that DreamWorks Animation is performing at the top of the charts.

!?A marks our third consecutive 3lock3uster theatrical release in under a $ear’s time. We

made progress towards our goal of averaging appro-imatel$ ; million in the domestic

market for our releases and attaining a level of theatrical consistenc$ that we strive for as a

compan$.

As evidenced 3$ the strength of our &rst 'uarter results, our &nancial performance is

3eginning reCect consistenc$. Internationall$, !onsters v. Aliens has grossed appro-imatel$

;=<> million to date achieving mi-ed results in various territories, some positive and othersdisappointing. It has had a ver$ strong showing in several ke$ territories such as the nited

1ingdom, Australia and "pain. On the Cip side, in %erman$, 5rance and Ital$ it hasn’t

delivered the level of performance we have come to e-pect from our &lms.

While we acknowledge its overall international 3o- oce results remain 3elow our

e-pectations to date, !onsters v. Aliens does remain among the highest grossing &lms in

* overseas.

!oving 3e$ond our core 3usiness, we are making a great deal of progress on our new

initiatives. /ust last month our &rst #? series, #he 4enguins of !adagascar, 3ecame the most

watched series premiere in Eickelodeon’s histor$ and its ratings continue to 3e e-cellent

since then. Among kids 8== and kids @8==, it is the second highest rated program on #?

since its premiere 3ehind onl$ "ponge3o3 "'uarepants. 6ooking to 3uild on this success,

Eickelodeon has alread$ ordered a pilot for a second series 3ased on 1ung 5u 4anda.

!oving on to 7roadwa$, we are thrilled that 9ust $esterda$ "hrek the !usical received =

Drama Desk nominations added to the = nominations it received last week for Outer +ritic

+ircle awards including 3est musical, t$ing with 7ill$ lliot for the most nominations of an$

show this season. Additionall$, the show’s original cast recording de3uted on 3ill3oards

original cast chart at num3er one and remains the 3est selling recording for an$ new show

this season.

On the heels of several ver$ high grossing weekends at the 7roadwa$ 3o- oce we

announced last week plans to 3ring the &rst national performing show of "hrek the !usical

to +hicago ne-t summer.



In 7roadwa$, #? specials and #? series we have identi&ed meaningful opportunities for our

content to generate incremental revenue outside of our theatrical releases.

I will now turn the call over to 6ew to walk $ou through our 'uarterl$ results in greater detail.

6ew:

Lewis Coleman

#hank $ou /e0re$. %ood afternoon ever$one. 5or the &rst 'uarter the compan$ reported total

revenue of ;<@ million, resulting in net income of ;@ million or ;.= per share on a full$

diluted 3asis. #his marks the compan$’s 3est 'uarter ever driven 3$ the success of

!adagascar II’s international 3o- oce and domestic home video and is a great e-ample of

the economic 3ene&t pro&ta3le fall &lms can provide for the following $ear.

In the 'uarter the title recorded ;=<F million of revenue or >@G of the total revenue earned

3$ the compan$. #his amount was partl$ driven 3$ the &lm’s performance in international3o- oce where it recorded appro-imatel$ ;B< million in the 'uarter. #he theatrical

success was also aided 3$ a =G reduction in anticipated marketing costs from 3oth the

foreign e-change 3ene&t and an advantageous advertising market. As $ou know, marketing

e-penses are paid 3$ our distri3utor and netted against gross revenue so the lower cost had

a positive impact on 3oth the &rst 'uarter’s revenue and the overall pro&ta3ilit$ of the &lm.

!adagascar II was released to the domestic home video market on 5e3ruar$ @th and the title

has sold @. million units worldwide in the 'uarter making it one of the two most successful

D?D’s of the $ear so far. #hen overwhelming ma9orit$ of these units was from the domestic

market due to the &lm’s release date.

1ung 5u 4anda, the compan$’s F summer release contri3uted ;B< million of revenue in

the &rst 'uarter primaril$ from international home video. 7$ the end of the 'uarter the title

reached =<. million units sold on a worldwide 3asis.

!onsters v. Aliens, the compan$’s * release, contri3uted ;== million in the 'uarter

mostl$ from consumer products. eleased domesticall$ on !arch , the &lm, not

surprisingl$, did not recoup the up front marketing e-pense 3$ month’s end. #o date

!onsters has reached appro-imatel$ ;B million of worldwide 3o- oce. "peaking of

which, we would like $ou to note that 3eginning this $ear the compan$ no longer recogni2es

international 3o- oce received from its distri3utors under HB da$s or less. %iven !?A’s

release schedule in the last of the fall &lms the e0ect of this change on revenue timing this

$ear will 3e minimal.

#he compan$’s &lms contri3uted ; million of revenue in the &rst 'uarter driven 3$

7ee !ovie international Hand television, It’s @ &lms contri3uted ;= million of revenue

from domestic and international free television.



#he remaining &lm catalog and other items contri3uted appro-imatel$ ;< million in

revenue including ;= million from "hrek the !usical. As anticipated, this production is still

operating at a loss, appro-imatel$ ;. in this case, which we e-pect will continue into the

second 'uarter. %iven our current e-pectations we continue to 3elieve it will have little

impact on revenue for the $ear.

!oving on to the remainder of the income statement, cost of revenue for the 'uarter

e'ualed ;=>@ million resulting in gross pro&t of ;= million or a <=G margin. "elling,

general and administrative e-penses for the 'uarter totaled ;= million including

appro-imatel$ ;@ million of stock compensation. #his "%JA amount is down from the

compan$’s run rate 3ut we e-pect it to return to a more normali2ed level going forward.

#a-es, including the ;=@ million pa$a3le under our ta- agreement with Hinaudi3le was ;<

million. #his $ields a FG e0ective ta- rate which we e-pect to maintain for the 3alance of

the $ear.

#otal diluted shares outstanding for the 'uarter were appro-imatel$ FF million reCecting =.B

million shares repurchased for appro-imatel$ ;> million. #o date the compan$ has now

repurchased .B million shares for ;<@ million. We announced toda$ our 7oard has

authori2ed a 3u$3ack of up to ;=> million worth of additional shares.

#he compan$ ended the 'uarter with ;@= million of cash and cash e'uivalents. 6ooking

ahead, the remainder of the $ear’s earnings will 3e driven 3$ !adagascar II’s international

home video, !onster vs. Alien’s worldwide home video and paid television from our F

&lms.

!adagascar II’s international home video release will provide revenue for the title for the

second and third 'uarter’s of the $ear although at slightl$ lower margin per unit than the

domestic release. At its current level of theatrical performance, !onsters v. Aliens will 3egin

to contri3ute to earnings in the second half of the $ear around its release into the home

video market.

We also e-pect to see contri3utions from the television specials, !onster v. Aliens Kalloween

and !adagascar "anta in the fourth 'uarter.

6astl$, I am pleased to announce on 3ehalf of the 7oard that /e0re$ has e-tended his

emplo$ment contract through =B. #he 7oard 3elieves that his continued leadership and

strategic vision are e-tremel$ valua3le to the long8term success of DreamWorks Animation.

/e0re$ will continue to work for ;= of annual cash compensation. Ke will also receive an

additional grant of *, shares of restricted stock and =.@ million shares of stock

appreciation earnings issued at market strike price covering compensation for * and

=. One half of the stock options vest when DreamWorks Animation’s stock price averages



;B.B=> in a one8$ear period within the ne-t three $ears and the other half will vest when

DreamWorks Animation’s stock prices averages ;B@.>B for a one8$ear period in the ne-t

three $ears. /e0re$ must also 3e emplo$ed for a three $ear period to receive the grant.

If we assume that the stock was issued at a price of ;=F.**, $esterda$’s closing price,

shareholders must achieve an appreciation of G 3efore /e0re$ gets paid more than ;= per

$ear and *G 3efore he receives the entire grant. Additionall$, the emplo$ment agreement

speci&es there are no e-cise ta- gross up provisions. Our compensation committee 3elieves

that t$ing /e0re$’s compensation directl$ to producing value for the shareholders &rst was

appropriate.

With that I will turn it 3ack to /e0re$.

Jefrey Katzenberg

#hanks 6ew. I have a few additional items 3efore we turn to $our 'uestions. As our &rstrelease in the new format and 3$ far the highest grossing BD release in histor$, !onsters v.

Aliens in BD has 3een and continues to 3e hugel$ successful for DreamWorks Animation and

the industr$ as a whole.

Eearl$ @G of its worldwide 3o- oce has come from BD. As BD esta3lishes itself as an

e-citing new growth opportunit$, there is no 'uestion that !onsters v. Aliens is serving as a

catal$st that the industr$ needs on the cost, revenue and distri3ution side.

!ost importantl$ it is giving increasing momentum to the movement and accelerated the

installation of BD screens on a worldwide 3asis. Despite not reaching the num3er of BD

screens we had hoped we would see, due primaril$ to the state of the econom$, !onsters v.

Aliens’ performance in BD has 3een nothing short of outstanding.

On the Hinaudi3le side it e-ceeded almost ever$one’s e-pectations proving that consumers

are de&nitel$ willing to pa$ a premium price for a 'ualit$ in8theater e-perience. In fact, FFG

of those polled who saw the &lm in BD agreed that the premium e-perience was worth the

additional cost of admission. "o while ticket prices didn’t reach the levels we had initiall$

anticipated, we continue to 3elieve that ticket premiums on future releases will 3e higher as

more consumers appreciate the enhanced BD e-perience.

7efore turning to LJA, Ann and I would like to address a couple of issues that ma$ 3e top of

mind for man$ of $ou. #he &rst two deal with !onsters v. Aliens and the third was our overall

home video 3usiness.

5irst, will there 3e a se'uel to !onsters v. Aliens. #heatricall$ it is too earl$ to tell. We will

wait until it concludes its remaining weeks at the 3o- oce including its release in /apan.

7ecause it is a 3lock 3uster domesticall$ and in several important international territories we



have alread$ 3egun working on ancillar$ value creation opportunities that will 3egin to

esta3lish it as a franchise. We alread$ have a commitment for a prime time television

special, !onsters v. Aliens !utant 4umpkins from Outer "pace which will air on E7+ this

Octo3er and then 3e released in home video ne-t $ear.

In addition, we have interest in and have 3egun development on a #? series 3ased upon its

characters. Whether or not it will 3ecome a theatrical se'uel for us like "hrek, !adagascar

or 1ung 5u 4anda has $et to 3e determined. I would like to put this international performance

into perspective 3$ 9ust looking 3ack at our &rst "hrek &lm.

After grossing appro-imatel$ ;= million in the international 3o- oce, "hrek did go on to

3ecome a 3lock3uster, glo3al franchise for us.

#he second issue is our e-pectations for !onsters v. Aliens in home video. +learl$ BD has

allowed theaters to once again di0erentiate themselves from the home viewing e-perience.

"ome have e-pressed concern that this higher 'ualit$ theatrical e-perience will somehowadversel$ impact consumers’ desire to own the title or that BD might make the D?D less

attractive.

"peci&call$, some have taken a dire point of view as to how !onsters v. Aliens 3o- oce

results will translate to home video. We don’t agree. In fairness, this is somewhat new

territor$ and the truth is no3od$ knows for sure 3ut the opinion we hold toda$ is 3ased upon

ver$ current research as well as a few historical facts.

7oth e-it polls and reviews for !onsters v. Aliens have 3een compara3le or 3etter than our

most recent hit !adagascar II. As we have done on each of our feature &lms, we conducted

e-tensive focus group research following the release of !onsters v. Aliens to gauge

consumer reaction and their purchase intent.

According to that research, people who saw it in BD have the same level of interest in

owning the D?D as those who saw it in traditional +%. Additionall$, more than half of the

consumers who have purchased our D?D’s over the last three $ears have actuall$ never

seen the &lm in the theater to 3egin with. Kistoricall$, the large ma9orit$ of our D?D’s are

purchased 3$ moms and dads who recogni2e the uni'ue value of our products.

7ecause of the dura3ilit$, repeata3ilit$ and porta3ilit$ of our hit titles DreamWorks

Animation’s D?D’s more closel$ resem3le to$ purchases than movie purchases. #his fact

gives us con&dence that the ma9orit$ of our consumers instead of looking to replicate the

theatrical e-perience are purchasing an item that kids will literall$ watch do2ens and do2ens

of times in a variet$ of locations.

We do not have an$ reason to 3elieve toda$ that the introduction of BD will alter the

d$namics of our home video 3usiness. 5urthermore, we e-pect !onsters v. Aliens to perform



in a similar fashion and at a compara3le tie ratio as our past titles after ad9ustments have

3een made for the BD premium.

Eow to discuss the issue of our home video 3usiness relative to the overall industr$ I would

like to turn the call over to Ann Dal$. Ann:

Ann Daly

#hanks /e0re$. In addressing the strength of our home video 3usiness I hope to provide some

insight on two ke$ metrics in particularM our unit sales volume and our average net revenue.

We are coming o0 two ver$ successful home video releases in the past si- months which

together with our solid performance of our titles in the theatrical market place demonstrate

the continued strength of +% &lm content across the 3oard.

Near8end F and &rst 'uarter * industr$ reports 3oth show a decline in consumer

spending on D?D purchases and rentals. Kowever, our content seems to stand apart fromthe rest of the market as we have continued to see strong results for our products.

While consumers are spending less on home video products across most genres, animation

and our titles in particular continue to out perform the market. As has 3een reported, in the

&rst 'uarter of * !adagascar II was one of the top two D?D’s in consumer spending in

the domestic market. In terms of units sold, +% animation titles consistentl$ have the

highest sales through conversion ratios and 3oth 1ung 5u 4anda and !adagascar II

performed 3etter than the average for all animation titles.

We use the term conversion ratio in the domestic market to mean the estimated num3er of

units sold to consumers over a @ week initial release period divided 3$ the &lm’s domestic

3o- oce. 5or e-ample, in the &rst 'uarter of * conversion ratios for most &lm genres

have decreased 3$ dou3le digits $ear8over8$ear 3ut animation continues to 3e the 3est

performing genre in this market with !adagascar II performing at appro-imatel$ the same

level as last $ear’s animation ratio.

In addition to the strong unit sales volume on 1ung 5u 4anda and !adagascar II our average

net revenue per unit remains in line with historical levels. #hese results conCict with recent

reports concerting that our D?D sales performance is singularl$ driven 3$ deep discounting

on our titles which negativel$ impacts our margin and 3rand image. #his is simpl$ not the

case with our products.

DreamWorks Animation titles continue to command premium pricing on the market. A

review of average retail pricing for standard de&nition D?D’s shows that for the past three

consecutive $ears there is less than a G price di0erence 3etween our titles and other

premium animation titles from Disne$ and 4i-ar. As $ou know, we do not control the retail

pricing of our products. etailers make pricing decisions 3ased on a variet$ of factors



including an assessment of their own &nancial goals as well as how customers will respond

to their product and promotional o0erings.

#hat said, 3oth DreamWorks Animation and 4i-ar’s new release titles enter the market with

similar pricing. 6ast 'uarter’s 1ung 5u 4anda and Wall8 had average retail pricing of 9ust

under ;=. In the &rst 'uarter of * average retail pricing for !adagascar II and Disne$’s

7olt was 9ust also under ;=. 7oth 3rands maintain ver$ similar, non8promotional pricing

usuall$ 9ust under ; as well as similar traditional promotional pricing of appro-imatel$

;=>.

In addition, we have found it highl$ valua3le to take advantage of special event retail

programs designed to provide consumers with e-traordinar$ value on a wide variet$ of

3rand name products particularl$ around the #hanksgiving and aster shopping holida$s.

Our D?D titles have 3een selectivel$ featured as part of these retail programs along with

other high demand D?D titles and as with an$ other program we do not control retail pricing

on our titles when the$ are included in these events.

We have e-perienced meaningful sales lift on our titles when the$ are part of these all8store

consumer shopping events and most importantl$ despite these events our average net

revenue per unit is in line with historical levels. In fact in our domestic 3usiness which

represents appro-imatel$ @8G of our total new release sales, we have 3een a3le to

maintain or improve our net revenue per unit on a $ear8over8$ear 3asis.

"peci&call$, we maintained appro-imatel$ the same average net revenue per unit for F’s

1ung 5u 4anda as we did on ’s "hrek the #hird. 7etter $et, on !adagascar II we have

seen an FG increase in average net revenue per unit compared to 1ung 5u 4anda. #his is

one of the most important aspects of our domestic D?D 3usiness toda$. #he strong sales

performance of !adagascar II and 1ung 5u 4anda was delivered while maintaining or

improving net revenue per unit.

We attri3ute this increase to a variet$ of factors including maintaining overall marketing

spending to remain in line with our recent historical percentages as well as high consumer

demand for our premium priced product con&gurations which accounted for over G of unit

sales in 1ung 5u 4anda and appro-imatel$ B>G on !adagascar II. We 3elieve that no other

animated title in recent histor$ has generated a higher percentage of its unit volume from

premium priced "1’s than !adagascar II which demonstrates the strength of our titles and

our 3rand particularl$ in this economic climate.

#urning to the international side of our 3usiness, however, when we compare 1ung 5u 4anda

and !adagascar II to "hrek the #hird we are seeing lower average net revenue per unit. #his

is primaril$ driven 3$ foreign e-change which has had a signi&cant impact on the dollars we

are generating per unit even though our wholesale pricing at the local currenc$ level has

remained constant.



5or e-ample, the 7ritish 4ound declined in value 3$ almost *G against the .". dollar

3etween the time we released "hrek the #hird and 1ung 5u 4anda on D?D in the .1. During

the same time period the uro declined 3$ =>G and when we released the title in territories

such as %erman$, "pain and the Eetherlands in the fourth 'uarter of F these changes in

foreign e-change clearl$ had an adverse impact on 1ung 5u 4anda versus our average net

revenue per unit on "hrek the #hird.

When we release !adagascar II in these territories we e-pect to see a continuing impact

from foreign e-change on our results in the second half of this $ear.

egarding our international D?D 3usiness it is also worth noting that while we have seen

e-plosive growth in the theatrical 3o- oce from territories such as ussia and +hina these

markets do not generate home video revenue at levels similar to more esta3lished

territories. 5or e-ample, ussia and +hina together accounted for appro-imatel$ ==G of our

international 3o- oce on 1ung 5u 4anda 3ut together generated less than BG of our

international D?D 3usiness.

#hese and other licensee territories delivered lower revenue per unit and although our

3usiness in these territories is increasing it has the e0ect of lowering our average net

revenue per title. 5or e-ample when looking at 1ung 5u 4anda in the fourth 'uarter we had a

larger than t$pical contri3ution from these licensee countries in that time frame which

clearl$ had the e0ect of presenting a lower average revenue per unit in our $ear8end results.

Kowever, 1ung 5u 4anda was released in Australia, /apan, Ital$, 5rance and the Eordic

regions during the &rst 'uarter and with these territor$ results now included we have seen

its revenue per unit increase from $ear8end.

#hrough the end of the &rst 'uarter 1ung 5u 4anda’s revenue per unit is now on par with

"hrek the #hird at the same point in time in its initial release after factoring the impact of

foreign e-change.

"o, our domestic 3usiness remains in line with last $ear’s in 3oth volume and net revenue

per unit and our international 3usiness earned less on a per unit 3asis than our domestic

3usiness primaril$ due to foreign e-change and growing licensee volumes. While it is likel$

that the econom$ is going to present some short8term ups and downs we have continued to

see DreamWorks Animation D?D’s perform at the top of the market in line with our prior

$ear results.

With that let’s get started with $our 'uestions.

uestion!an"!Answer Session

Operator



(Operator Instructions) #he &rst 'uestion comes from the line of /essica eif8+ohen 7ank of

AmericaP!errill 6$nch.

Jessica Rei#!Cohen $ %an& o# America'(errill Lynch

"hrek the !usical when should we see the touring compan$ impact the &nancials:

Jefrey Katzenberg

It won’t launch until the second 'uarter of ne-t $ear. I don’t know 6ew when it willQ

Lewis Coleman

Nou won’t see much of an impact from the touring show 3ecause we will essentiall$

capitali2e the e-penses. We estimate the e-penses will 3e su3stantiall$ less than the

e-penses incurred on 7roadwa$ and can pro3a3l$ give $ou some information on that as weget into the &rst and second 'uarter ne-t $ear and have a 3etter idea of what it is. It should

have minimal impact until we release the show in +hicago.


"o when the touring show &nall$ starts to a0ect would it 3e like after more than one tour:

Kow man$ touring shows do $ou need 3efore $ou see an impact:

Lewis Coleman

What we have decided to do is 3ring up one touring show. It’s &rst stop is in +hicago. It will

pla$ during the summer of = and then it will start its tour around the countr$ for at least

the ne-t two $ears. We haven’t made a decision on the second touring show $et nor have

we made a decision on the sit down show. I think the 3est thing to do in thinking a3out the

touring show 3$ itself is to think a3out it having no signi&cant impact in = and a positive

impact in ==.


Nou said something a3out "%JA will normali2e in coming 'uarters. I’m 9ust curious if $ou can

'uantif$ that:

Lewis Coleman

I can 'uantif$ it a little 3it for $ou. At the end of the fourth 'uarter we had some large stock

grants that were granted at the I4O which essentiall$ vested and therefore were no longer

carried as a =B e-pense. +onversel$, we have a new stock grant that I 9ust told $ou a3out

in renewing /e0re$’s contract which will start to accrues a =B e-pense this 'uarter. !$



statement I think was that essentiall$ the "%JA 3lipped down in the &rst 'uarter. A good

chunk of that was the e0ect of no stock comp e-penses or lower stock comp e-penses. It

will sort of make up that di0erence in the second 'uarter so we are urging $ou to sort of

think a3out a traditional run rate, not the &rst 'uarter run rate in "%JA.


Kow long does $our D?D deal with K7O run:

Jefrey Katzenberg

I think =<.


#he #? pilot $ou 9ust announced is that !onsters v. Aliens:

Jefrey Katzenberg

Eo there were two di0erent things. We are actuall$ well into production on the pilot for 1ung

5u 4anda for Eickelodeon. What I said is we have had interest e-pressed 3$ a couple of

companies to do a series on !?A and we have actuall$ 3egun development on it. "o that is

in the works.

Operator

#he ne-t 'uestion comes from Drew +rum 8 "tifel Eicolaus.

Drew Crum ! Sti#el )icolaus

/e0re$ I wonder if $ou could give us some additional color on !onsters v. Aliens in the

international territories: What happened in some of the markets $ou highlighted: Was it

fewer BD screens or it 9ust didn’t resonate with movie goers: An$ additional color there:

Jefrey Katzenberg

I will tell $ou we are a little 3efuddled. I cant tell $ou we have an answer on this one. It is sofascinating 3ecause it is not even like a pattern of one area of the world we are seeing where

1ung 5u 4anda performed e-tremel$ well, out performed in Asia, for instance. #his is a mi-

within actuall$ regions in the world. "o how do $ou have "pain which pla$ed e-tremel$ well

ne-t door to 5rance which didn’t: We had astern urope and places where it pla$ed

e-tremel$ well. "o we are still digging in and tr$ing to reall$ understand it. 7oth %erman$

and 5rance were 3ig disappointments for us. Our distri3utor and our partners in those



countries loved the movie, had 3ig e-pectations for them and were genuinel$ surprised.

nfortunatel$ we don’t have an answer for it $et 3ut 3elieve me we are on the case.


!oving on to 4enguins and !adagascar, can $ou ma$3e discuss how $ou intend to moneti2e

that propert$ and as far as timing what we should look for there:

Jefrey Katzenberg

I think $ou will see 3eginning in the &rst 'uarter of = in partnership with Eickelodeon a

rollout of a ver$ am3itious merchandising and licensing program to support it. It reall$ has

3een e-plosive. #he reaction to the show has 9ust 3een outstanding and Eickelodeon 9ust

simpl$ could not 3e more e-cited and enthusiastic a3out it. We share that merchandising

and licensing revenue on a >P> split with them. DreamWorks handles the distri3ution of

that if $ou will and we share together in the pro&ts of it.


Nou have a3out ;@ million of cash on the 3alance sheet and I know in the past $ou have

said $ou are more comforta3le with keeping a3out two &lm’s worth on the 3alance sheet.

Nour thoughts on uses of cash going forward:

Lewis Coleman

I think our thoughts on uses of cash is the same as the$ have alwa$s 3een. We are happ$ to

keep a fairl$ low risk 3alance sheet 3ecause our operating model is a 3it risk$ and as we get

e-cess cash we continue to 3elieve things like share repurchases are a good wa$ to use the

cash for the shareholders.

Operator

#he ne-t 'uestion comes from /ames !arsh 4iper /a0ra$.

James (arsh $ *iper Jafray

Is there an$ plan to tr$ to provide some t$pe of BD solution in the home video market: Italked to another pla$er to discuss providing color code or Hinaudi3le glasses along with the

D?D to provide some t$pe of BD e-perience. "econdl$, if 4enguins is so popular wh$ not 9ust

tr$ to spin that o0 and have an original movie there: Is that something $ou would consider:

6astl$, if $ou could remind us what was left on that previous 3u$3ack authori2ation:

Jefrey Katzenberg



I’ll do the &rst two and let 6ew do the third. In terms of BD solution in the home, there are

some ver$, ver$ e-citing things that are coming from the consumer electronics companies.

ecentl$ we saw some work coming out of 1orea in particular that reall$ sort of set up a new

high 3ar for this. #he roll out of that will 3e over an e-tended period of time 3ut there is 3ig

am3ition and I think a lot of enthusiasm for it. I think this will 3e driven &rst and foremost 3$

sports and video gaming 3ut clearl$ our product is going to have ver$ high value as these

companies start to enter into the market.

We have a couple of fun ideas up our sleeve which we are going to sta$ m$sterious a3out in

terms of some things that we are going to look to do when !onsters v. Aliens comes to

home video later this $ear and a wa$ in which we might 3e a3le to do some fun things with

BD in the home.

"o we see promise in it. I think it is long8term 3efore $ou see the high 'ualit$ e-perience on

a mass 3asis in the home.

In terms of the 4enguins going now from movie to #? and 3ack to movie, an$thing is

possi3le. We have onl$ 3een on the air at Eick now for a3out >8@ weeks so we are all 9ust

catching our 3reath on 9ust how overwhelming the success has 3een for that. "o we will see.

Lewis Coleman

As I mentioned, we repurchased a3out ;<@ million worth of stock $ear8to8date. #hat left us

with a3out ; million unused in our last ;=> million commitment which we got last /ul$.

#hat was the unused portion that rolled into the new ;=> million authori2ation that we

discussed.

Operator

#he ne-t 'uestion comes from Doug +reut2 8 +owen J +ompan$.

Doug Creutz ! Cowen + Company

/e0re$, 3ack at the Anal$st Da$ $ou had indicated $ou e-pected to grow earnings in *

over F. %iven ever$thing $ou said toda$ are $ou willing to rearm that:

Jefrey Katzenberg

Nes.

Operator

#he ne-t 'uestion comes from 7en9amin "win3urne !organ "tanle$.



%en,amin Swinburne $ (organ Stanley

I wanted to go 3ack to some of the home video net revenue $ou were making in $our

prepared remarks. It sounded like on 4anda there was a se'uential increase. I was

wondering if $ou could 'uantif$ that for us relative to <L and then secondl$ 6ew $ou

mentioned, I don’t know if it was an accounting change, 3ut 7ee !ovie and 5lushed Awa$

were 3oth up se'uentiall$ 'uite a 3it and those pa$ windows and free windows hit earlier

than we thought. Was there an$ change in the accrual timing on the accounting for either of

those two &lms in the 'uarter:

Lewis Coleman

#he answer to $our second 'uestion &rst, no. We get that revenue reported sometimes

earlier than anticipated. #hat was the case with 7ee !ovie.

Jefrey Katzenberg

#here was no change in accounting as far as those windows. We onl$ changed the

international 3o- oce timing. We didn’t change an$ of the other international or domestic

things.

Ann Daly

#o $our &rst 'uestion, the issue with the home video results on 1ung 5u 4anda in the fourth

'uarter of F largel$ has to do with the release pattern of that title. "o those results

included a signi&cant num3er of licensee territories reporting in addition to the domestic. We

had the overall e0ect of depressing the net revenue per unit in those results. Once $ou have

the entire world reporting as $ou do now for this 'uarter $ou see that average had an

increase in line with historical levels.


Was the timing of the releases in those markets somewhat uni'ue to 4anda given the

international &eld or is that prett$ standard for $ou:

Ann Daly

4rett$ standard.


#he industr$ data ever$one is focused on the D?D front which shows sell through under

pressure 3ut rental holding up relativel$ well, to pla$ that out over the ne-t several $ears I

reali2e +% and animation is doing ver$ well in a relative sense 3ut I’m wondering if $ou can



talk a3out the a3ilit$ of the studios and DreamWorks to a0ect the economics of those two

channels for $ou: If the EetCi- of the world and the rental 3usiness continues to out perform

and take share overall can $ou go 3ack: What is $our a3ilit$ to go 3ack and sort of readdress

the split as that 3usiness evolves:

Jefrey Katzenberg

Again I can onl$ respond to our segment of the 3usiness. All of those trends are not trends

that are a0ecting us. It is wh$ frankl$ we took as much time toda$ 3ecause to tr$ and frame

for $ou as we talked a3out a num3er of times over this last $ear our D?D 3usiness is 9ust

simpl$ performing at a di0erent sort of metrics than the rest of the industr$. 7$ the wa$ for

the other high end D?D titles, it is not singularl$ us alone. It is our categor$. #he fact that

$ou have !adagascar performing FG up from 1ung 5u 4anda, that $ou see our categor$ as a

whole has not declined at all $ear8over8$ear I think goes to this larger idea that we have

3een tr$ing to articulate here which is our purchases 3$ mom and dad and it is more

analogous to the wa$ the$ look at and value purchases in the to$ 3ecause it is going to 3eseen = times 3$ kids and it is ver$ dura3le and porta3le and all of those things.

I’d have to sa$ we have now 3een through one of the most dicult, challenging and

tur3ulent times in the home video 3usiness over these last * months. We have two

3lock3uster titles that 9ust simpl$ have not 3een impacted in the same wa$ the industr$ has

3een. We think that is uni'ue to our categor$ and our product.

Operator

#he ne-t 'uestion comes from Ingrid +hung 8 %oldman "achs.

-ngri" Chung ! .ol"man Sachs

I have a couple of 'uestions on BD. Nou said that @G of $our worldwide 3o- oce came

from BD for !?A. I was wondering if $ou could give us the percentage in the .". 3asicall$

tr$ing to 3ack into attendance statistics for !?A. I was wondering if $ou could give us some

attendance statistics and compare that with past DWA &lms. #he last 'uestion on BD now

that $ou have proof of concept for BD I was wondering if $ou could get the e-hi3itors to pa$

for the glasses going forward:

Jefrey Katzenberg

I think one is that it is @G of our domestic 3o- oce came from BD so if I said @G from

worldwide which I do think I said let me correct it and sa$ it is @G from domestic. I don’t

have the percentage at hand on the international num3er. It is not that high. #he second

thing is to admission we 9ust don’t have that data at hand $et. Our distri3utor knows that we

o3viousl$ are interested to get it and it is too soon and the$ don’t have enough data in to 3e



a3le to translate this to admission. It is not on hand $et and we can’t do that translation for

$ou.

In terms of the glasses, I think $ou are going to continue to see the whole economic

e'uation here is going to perfect itself should I sa$ over the ne-t = months. I think 3etween

p, the Ice Age in BD, the Remeckis movie, A +hristmas +arol and the /ames +ameron movie

Avatar through the release of these mega titles the e'uation of these economics are going

to continue to improve and perfect themselves. #he 'uestion of pricing at the 3o- oce we

anticipate it will continue to go up and eventuall$ reach the ;> premium that we talked

a3out. We think that the wa$ in which these costs, the glasses cost, fees, etc. are things that

are going to still 3e in Cuctuation 3ut I think will 3ecome more and more favora3le. #he cost

of the glasses alone $ou should know are pro9ected to go from ;.F= down to closer to ;.>

in the ne-t = months. "o even the issue of what we are arguing over is going to decline

<G.

-ngri" Chung ! .ol"man Sachs

"o $ou said it would go down to ;.>:

Jefrey Katzenberg

Nes from ;.F= to ;.> in the ne-t = months.

Operator

#he ne-t 'uestion comes from ichard %reen&eld 8 4ali +apital.

Richar" .reen/el" ! *ali Capital

Ann $ou said the ;F.** price point that a lot of us saw on !adagascar II 3asicall$ two

months after it was released on D?D $ou are 3asicall$ impl$ing that was an internal store

decision, 3asicall$ using it as a loss leader rather than $our decision to drive volume 3$

reducing wholesale to retailers: I 9ust want to make sure I have that right. /e0re$, as $ou

create more franchises where consumers have alread$ 3ought a D?D in a franchise how do

$ou think a3out the dramatic rise in ed 7o- and EetCi- on the 3usiness and the whole trade

o0 3etween consumers deciding to rent versus purchase when $ou look at how man$ ed

7o-’s are planning to 3e installed around the countr$ over the ne-t = months versus a $earor two ago: An$ changes, there has 3een various speculation, 3ut an$ changes or plans to

change the = release schedule or is the free movie locked and loaded for ne-t $ear:

Ann Daly



6et me address the &rst 'uestion. We participate in those programs 3ut the thing I would sa$

is the pricing to consumers does not alwa$s indicate what revenue we are making on a per

unit 3asis. #$picall$ what happens is there are promotional marketing funds of a &nite

amount that are provided to our customers and there are some guidelines for those usage.

#here is also freedom within those programs for the retailer to appl$ those funds as the$ see

&t. I think that is what $ou are seeing there.

Jefrey Katzenberg

Onto the issue of ed3o- and EetCi-, even digital downloads, I think these all are changing

d$namics for the D?D 3usiness as a whole and for general movie releases as a whole. I think

the$ are miniscule in terms of their value or their impact either in the positive or the

negative for our titles. 4eople are not interested in renting our titles. #he$ have never 3een

interested. It is a ver$ small part of our 3usiness. #he$ either don’t want them or the$ want

to own them. It is wh$ when $ou look at the percentage of our 3usiness in terms of rental

and other downloads through Apple and EetCi- and ever$thing else it is tin$ compared tothe rest of the industr$ 3ecause the$ know that if the$ want it the$ want it in order to 3e

a3le to run it >8= times and to 3e a3le to have the porta3ilit$ of it. We constantl$ ask this

in our research. I talked a3out these focus groups we 9ust did on !onsters v. Aliens. #his was

less than two weeks ago.

We were reall$ 3uo$ed is the onl$ wa$ I can sa$ it 3$ the enthusiasm of our customers who

want to own our products. #he$ continue to see it as a ver$, ver$, ver$ high value. As to our

release pla$ for = it is locked and loaded and no plans for an$ changes and we are ver$

pleased with the development of the pla$ and we would look to pro3a3l$ have some kind of

presentation of the pla$ in the earl$ fall to our investors.

Operator

#he ne-t 'uestion comes from David !iller 8 +aris J +ompan$.

Davi" (iller ! Caris + Company

According to m$ models here it looks like the theatrical contri3ution for !adagascar II was

roughl$ ;B million ahead of what I had estimated and I’m wondering if the 4JA e-pense

num3er was ;B.> million less than what I should have estimated: I’m wondering with that if

$ou would 3e willing to disclose what the glo3al 4JA e-pense num3er was for !adagascar

II:

Jefrey Katzenberg

I think I came close to doing it. I think I said that it was =G lower than we had given $ou

guidance for. Our last guidance was ;=> less =G will a3out get $ou there.



Operator

#he ne-t 'uestion comes from !ichael !orris 7".

(ichael (orris ! 0%S

On !adagascar II could $ou share with us the split on the revenue side 3etween what came

from the international 3o- oce and what came from $our home video: Also, on that

marketing e-pense thank $ou for that num3er, the ;= million. What are $ou seeing on the

marketing e-pense for !onsters v. Aliens: Are $ou seeing a similar =G reduction there:

Kow should we think a3out that relative to the ;=> in our models going forward: Also, how

did that impact the margins: Is $our ultimate revenue 3oosted now 3$ =.>: Is that the

same margin as $ou amorti2ed negative or did $ou recogni2e that entire =.>:

Jefrey Katzenberg

Wh$ don’t I take the middle 'uestion which is on !?A I think that we saw a more normali2ed

4JA cost on !?A, a com3ination of the &rst BD &lm and the uni'ueness of 3ringing that to

the worldwide market and so we should see our costs reall$ sort of more in line with what we

have traditionall$ seen. Also the original titles tend to usuall$ 3e a little 3it more challenged

for us in marketing and ma$3e we are a little 3it more insecure is pro3a3l$ a 3etter wa$ of

sa$ing it. We don’t want to leave an$ stone unturned on it. "o to answer $our 'uestion, $es

we saw some nice savings on !ad II. !?A returns to more normali2ed levels. When we look

out to = right now toda$ 3ased on where the market place would seem to 3e 3oth in

currenc$ and in media 3u$ing opportunities we think there is a 3etter opportunit$ for

savings for us on our three titles ne-t $ear.

"o we think we will see improvement in that margin ne-t $ear. Eow I’m going to let someone

who is smarter than me answer num3er one and three.

Lewis Coleman

#he 'uestion related to the disclosure of the I7O as $ou know our distri3utor doesn’t report

our revenue to us in that fashion. #he$ report it to us 3$ title which means $ou are taking all

the costs of distri3ution through multiple channels and netting against all the revenue

coming in from multiple channels. What I can tell $ou which will give $ou the a3ilit$ to make

a rough estimate is that of the ;<=> million of international 3o- oce that !ad II received,

;B< million of it was essentiall$ used this 'uarter in terms of generating for the compan$.

#hat should give $ou a rough estimate of how much I7O is there. #hen the ma9orit$ of the

remainder is home video.

Jefrey Katzenberg



On the savings on the prints and ads which I think was the third 'uestion, most of that, in

fact all of it Cows through to us. ssentiall$ what happens is that 4aramount pa$s for the

prints and the ads, pa$s 3ack itself from its share of the rentals or the total share of the

rentals and then gives us the net amount. "o o3viousl$ if $ou reduce the prints and ads and

increase the revenue we receive from 4aramount.


Does that revenue come through, whatever the margin is sa$ roughl$ >G of what $ou

recogni2e on the 3ottom line or is that kind of a surprise:

Jefrey Katzenberg

It is essentiall$ treated as an$ other revenue coming in. What $ou are essentiall$ doing is

lowering $our cost of distri3ution which indirectl$ increases the amount of revenue $ou

generate on receipts. eceipts then appl$ the same amorti2ation rate of an$ other revenuescoming in the 3usiness. "o $ou would appl$ the same amorti2ation rate to match the

revenue regardless of Hinaudi3le.

Lewis Coleman

7ut it is essentiall$ more revenue than $ou would have gotten otherwise which improves the

margins.


"o the margin did improve se'uentiall$ 9ust 3ased on the surprisingl$ higherQ

Jefrey Katzenberg

Nes.

Operator

#he ne-t 'uestion comes from 7arton +rockett 8 6a2ard +apital !arkets.

%arton Croc&ett ! Lazar" Capital (ar&ets

I wanted to ask a little 3it more color a3out how we should think a3out the D?D’s for

!onsters v. Aliens: #here is a lot of cross talk here in terms of attendance lower than $ou

would have otherwise thought for 3o- oce at this level 3ecause of the 3ene&t of the BD up

charge domesticall$. When all is said and done do $ou think the D?D units for !?A are going

to 3e closer to what the$ were for 1ung 5u 4anda level or closer to a 7ee !ovie level: +an

$ou give us at least that level of color:



Jefrey Katzenberg

Again, I think it would 3e wrong for us to speculate on that. Again all I can sa$ is that what

we have seen from our additional research we have done is a ver$ high rating of the movie,

in terms of the am3ition to own it, of !adagascar II. Kow that is going to reCect itself in

actual volume we don’t know. Eew territor$ for us.


It sounds like from what $ou are sa$ing it feels closer to the 1ung 5u 4anda and !adagascar

level than a 7ee !ovie level.

Jefrey Katzenberg

I did not sa$ those words. Nou said those words.


I was also wondering in terms of last 'uarter $ou had a 3ig disparit$ in terms of cash Cow

from operations versus net income where cash Cow was negative. 4art of that I thought was

an issue with timing of receipts for 1ung 5u 4anda D?D’s. I thought that would kind of

reverse itself this 'uarter. I’m not sure we reall$ saw it. Did we see it: Is there some cash

Cow that is $et to come or did come in the 'uarter from the 1ung 5u 4anda D?D:

Lewis Coleman

I think $ou are thinking a3out the cash Cow right. O3viousl$ there was a 3ig change in

working capital related to the Hinaudi3le that sits in our 3alance sheet in the fourth 'uarter.

Nou also have to remem3er that we did spend cash this 'uarter to 3u$ 3ack shares in the

amount of a3out ;> million, a little sh$ of that, and we also had some e-penditures related

to the campus as well that we also spent in the 'uarter. "o there are a couple of things

o0setting that 3ut $ou are right, the receiva3le is deferred, reCected in the &rst 'uarter and

o0set 3$ other purchases.

Jefrey Katzenberg

Also a little more e-pense having pre8production right now for ne-t $ear. Nou have toremem3er we are spending most of our mone$ this $ear.


#he share repurchase is there a duration on that:

Jefrey Katzenberg



Eo.

Operator

#he ne-t 'uestion comes from #una Amo3i 8 "tandard J 4oor’s.

1una Amobi ! Stan"ar" + *oor2s

With regard to the overall BD 3uild out do $ou think the performance of !onsters v. Aliens

domesticall$ are $ou still optimistic on the ,> total screen pro9ection a $ear out from now

or do $ou think that !onster’s strong performance domesticall$ could make that num3er

conservative:

Jefrey Katzenberg

I don’t know if that num3er is conservative 3ut I still have a lot of con&dence we will see thatkind of roll out. I can tell $ou that a report I got $esterda$ is 3$ the end of the month of !a$

the$ will 3e up to B, screens. #here continues to 3e a ver$ steep rate of deplo$ment out

there. I think $ou will see it through this $ear and going into ne-t summer again with some

ma9or 3lock3uster releases including Dragons and "hrek, the ne-t #o$ "tor$. It will 3e a 3ig

$ear for = and I think e-hi3itions has seen 9ust as loud and clear as the$ possi3l$ can

what the rewards are for it. #heir 3usiness is in great shape toda$. It would 3e great to 3e an

e-hi3itor right now.


"o what do $ou think is the ma9or hurdle: It seems like the capital markets are starting to

open up now and $ou 9ust alluded to the strong $ear8to8date performance at the 3o- oce. I

would think that with !onsters having performed the wa$ it should the roll out should start

to pick up pace from where we are toda$.

Jefrey Katzenberg

I think $ou will see a lot of momentum on this starting in /une and /ul$. #he deals are in place

on D+I# from the studios and I think ever$3od$ is ver$ enthusiastic a3out it. #he$ e-pect the

capital to actuall$ again I talked to the 3ankers in the last couple of da$s and the$ remain

optimistic the$ will 3e a3le to deliver the capital for these deals in the second 'uarter andwe will see deplo$ment go ver$ 'uickl$. I think right now toda$ eal D alone has F,

screens on order.


6et me switch gears to some of the longer8term initiatives $ou outlined on Anal$st Da$. I

don’t know if $ou have an$thing to report $et. #he online virtual world, parks, live



entertainment, I think $ou mentioned India and Intel as well. Are those still on the radar:

An$thing we should 3e e-pecting on those fronts an$ time soon:

Jefrey Katzenberg

#he$ are all progressing and we will 3e reporting on them each and ever$ one of those over

the ne-t couple of months as plans solidif$ on them, as dates are set for the roll out of them

3ut all of those plans we outlined to $ou are progressing nicel$.


I’m 9ust tr$ing to understand the reason 3ehind the change in the international 3o- oce

revenue recognition. I think I heard $ou said it was going to have a minimal impact this $ear.

5irst, was that a change in estimate and also do $ou e-pect that to have an impact 3e$ond

this $ear: Kow should we 3e thinking a3out the impact of that change on other titles:

Lewis Coleman

We 3asicall$ had a one8month lag in getting our num3ers from 4aramount mostl$ 3ecause

we needed to check them fairl$ 'uickl$ given the nature of those num3ers. We have 3een

ver$ happ$ with sort of the 'ualit$ of the num3ers coming out of 4aramount and felt that it

was no longer worth having a one8month lag. #he e0ects of that internationall$ is that we

essentiall$ will have =B months 3ut the fact of the matter is onl$ having one &lm released

earl$ in the $ear it will have no particular e0ect. It could have a modest e0ect in = for

our fall &lms in that we might pick up some international 3o- oce in = at the end of the

$ear that we would normall$ pick up in == 3ut I don’t e-pect that to 3e particularl$

signi&cant.

Operator

#he ne-t 'uestion comes from #on$ Wi3le 8 /anne$ !ontgomer$.

1ony 3ible ! Janney (ontgomery

I was wondering if $ou could descri3e an$ of the 3ene&ts from !adagascar II to the earlier

release and if so what are $our thoughts on the 4D release timing for !onsters v. Aliens:

Ann Daly

I would sa$ domestic release was ver$ advantageous for us 9ust given what was happening

in the market place and the competitive set and I also think we got e-traordinaril$ high and

as was mentioned earlier aggressive marketing 3ehind the release. "o $es I think that was of

signi&cant value. It is also something we have historicall$ seen in the &rst 'uarter so I

wouldn’t characteri2e it as 3eing something that was a &rst 3ut it certainl$ was helpful.



#hen as we look towards the fall with !onsters v. Aliens it has also 3een a ver$ good D?D

release time frame and so I think that releasing in the fall is going to give us also an

advantage.

Jefrey Katzenberg

#o answer $our 'uestion, for the &rst time ever for us our window is slightl$ shorter on

!adagascar II. #hat was singularl$ uni'ue to this $ear, that title and where the holida$s fell

and 3$ the wa$ it was onl$ a week or two under whereQwe will 3e 3ack to a normali2ed

release on !?A and don’t see an$ changes to the release window. I think that is what $ou

were asking.


On the other side, with the special coming up would $ou see an opportunit$ of releasing it

closer to the special to 3etter capitali2e on the 4JA e-pense:

Jefrey Katzenberg

Are $ou talking a3out !adagascar "anta:


Eo, the !onsters v. Aliens D?D release.

Ann Daly

Eo, we would keep those separate events.


+an we get an$ sense for what the &nal 3udget was on !onsters v. Aliens and speci&call$ I

guess there have 3een reports that it was closer to ;=> which is running higher than the

generic &lm model would suggest. +an we get an$ color:

Lewis Coleman

Nou are referring to the 4JA on !onsters v. Aliens:


Eot the 4JA, the negative costs.

Lewis Coleman



#he negative costs for the &lm were in line with our generic model assuming $ou added the

additional ;=> million for the additional H+D’s. "o the model we laid out on Anal$st Da$,

roughl$ topping going from ;=B8=<> is the generic range we have given in !onsters v.

Aliens at this time.


5or the #? special revenue, how much of the compensation will 3e ad time versus cash

compensation:

Jefrey Katzenberg

We haven’t 3roken it out. I actuall$ don’t thinkQI don’t even know how to give it to $ou as a

percentage and we would have to 3e speculating on what the sales are going to 3e a3out

the D?D. If $ou can tell me how man$ units we are going to sell I will tell $ou what the

percentage will 3e.

Operator

#he ne-t 'uestion comes from ?asil$ 1aras$ov 8 /.4. !organ.

4asily Karasyov ! J5*5 (organ

I have a 'uestion a3out $our #? series. Did $ou think a3out taking it to the international

market and if $ou did would $ou care to 3allpark the potential revenue opportunit$ there:

Jefrey Katzenberg

#he series will 3e taken to the international market 3$ Eickelodeon.

4asily Karasyov ! J5*5 (organ

"o it is part of the current deal:

Jefrey Katzenberg

Nes the$ have worldwide distri3ution rights on it. As $ou know Eickelodeon operates in man$international territories and we would e-pect to see a roll out, the merchandising and

licensing program which is where our revenue comes from will 3e on a worldwide 3asis. As

$ou know, the performance of the &lm internationall$ has 3een ver$, ver$, ver$ high. One of

the 3etter performing ratios of our movies I think a3out =.> or something like that over

domestic. We e-pect to see a great reception for the series internationall$. I know

Eickelodeon is ver$ e-cited a3out it as well.



Operator

#he ne-t 'uestion is a follow8up from ichard %reen&eld 8 4ali +apital.


6ew $ou gave a prett$ detailed discussion of /e0re$’s new emplo$ment contract. I was 9ust

wondering, not that $ou are activel$ looking to sell the compan$ 3ut if a change in control

did occur prior to the 8*G stock increases $ou mentioned that would need to occur for

the stock to vest what happens to those stock grants or restricted stock grants under a

change of control and how does that all work:

Lewis Coleman

/e0re$’s contract has got a dou3le trigger, what is known as a dou3le trigger. On a change of

control we vest the performance side he needs to remain emplo$ed for the then total periodof three $ears to get the stock. If he in a change of control is su3se'uentl$ &red we will get

the stockQ

Jefrey Katzenberg

I don’t like where this conversation has gone.

Lewis Coleman

Ke will not get reim3ursed for an$ e-cise ta-es and o3viousl$ in /e0re$’s case where he

works for nothing for so long his e-cise ta- di0erentiates.


"o 9ust to 3e clearQ

Lewis Coleman

#here are incentives and dis8incentives is what I am sa$ing.


"o if the compan$ was 3ought tomorrow for a signi&cant price his stock would still not all

vest unless the performance issues were hit: Am I understanding that right:

Lewis Coleman



It depends on what price the compan$ was sold for and a variet$ of other things. #his is

fairl$ h$pothetical.

Jefrey Katzenberg

Eice ich. #hanks.

Operator

#here are no further 'uestions in 'ueue at this time. 4lease continue.

httpSPPseekingalpha.comParticleP=BBF>8dreamworks8animation8skg8inc8'=8*8

earnings8call8transcript:partT'anda

http://seekingalpha.com/article/133785-dreamworks-animation-skg-inc-q1-2009-earnings-call-transcript?part=qanda




DWA 2009 Q1 Earnings Call Transcript.docx

Documents