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<HEAD>
<TITLE>FORM S-1</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">As filed with the Securities and Exchange
Commission on July&nbsp;21, 2004</FONT></B>
</DIV>

<DIV align="right">
<B><FONT size="2">Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B>
</DIV>

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -5px">
</DIV>

<DIV align="left">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</DIV>

<P align="center">
<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>

<DIV align="center">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="5">Form&nbsp;S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center">
<B>UNDER</B>
</DIV>

<DIV align="center">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="5">DREAMWORKS ANIMATION, INC.</FONT></B>

<DIV align="center">
<I><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Delaware</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">7812</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">68-0589190</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or other jurisdiction of<BR>
    incorporation or organization)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Primary Standard Industrial<BR>
    Classification Code Number)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer Identification No.)</FONT></I></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<B><FONT size="2">1000 Flower Street</FONT></B>

<DIV align="center">
<B><FONT size="2">Glendale, CA 91201</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(818)&nbsp;695-5000</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Address, including zip code, and telephone
number, including area code, of registrant&#146;s principal
executive offices)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">Jeffrey Katzenberg</FONT></B>

<DIV align="center">
<B><FONT size="2">Chief Executive Officer</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">DreamWorks Animation, Inc.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">1000 Flower Street</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Glendale, California 91201</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(818)&nbsp;695-5000</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Name and address, including zip code, and
telephone number, including area code, of agent for
service)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><I><FONT size="2">Copies to:</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Faiza J. Saeed,&nbsp;Esq.<BR>
    John W. White,&nbsp;Esq.<BR>
    Cravath, Swaine&nbsp;&#38; Moore LLP<BR>
    Worldwide Plaza<BR>
    825 Eighth Avenue<BR>
    New York, New York 10019<BR>
    (212) 474-1000<BR>
    Fax: (212)&nbsp;474-3700</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Katherine Kendrick,&nbsp;Esq.<BR>
    DreamWorks Animation, Inc.<BR>
    1000 Flower Street<BR>
    Glendale, California 91201<BR>
    (818) 695-5000</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Michael D. Nathan,&nbsp;Esq.<BR>
    Simpson Thacher&nbsp;&#38; Bartlett LLP<BR>
    425 Lexington Avenue<BR>
    New York, New York 10017<BR>
    (212) 455-2000<BR>
    Fax: (212)&nbsp;455-2502</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Approximate date of commencement of proposed sale
to the public: As soon as practicable after the effective date
of this Registration Statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule&nbsp;415 under the Securities Act of 1933, check the
following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is filed to register additional
securities for an offering pursuant to Rule&nbsp;462(b) under
the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If delivery of the prospectus is expected to be
made pursuant to Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">CALCULATION OF REGISTRATION FEE</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="26%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Each Class of</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum Aggregate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Securities to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price(1)(2)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registration Fee</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A Common Stock, par value
    $.01&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$650,000,000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$82,355
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes shares to be sold upon exercise of the
    underwriters&#146; over-allotment option. See
    &#147;Underwriting.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Estimated solely for the purposes of calculating
    the registration fee pursuant to Rule&nbsp;457(o) of
    Regulation&nbsp;C under the Securities Act of 1933, as amended.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section&nbsp;8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as
the commission acting pursuant to said Section&nbsp;8(a), may
determine.</FONT></B>

<P align="left">
<HR size="1" noshade color="#000000" style="margin-top: -2px">

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">EXPLANATORY NOTE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This registration statement contains two forms of
prospectus: one to be used in connection with an underwritten
public offering in the United States and Canada (the &#147;IPO
Prospectus&#148;) and one to be used in a concurrent conversion
(the &#147;Concurrent Conversion&#148;) of the common stock held
by minority stockholders of one of our subsidiaries into shares
of our Class&nbsp;A common stock, which will not be
underwritten. The two prospectuses are identical except for the
front and back pages and certain additional pages for use in the
prospectus relating to the Concurrent Conversion. The form of
IPO Prospectus is included herein and is followed by the
alternative pages to be used in the prospectus related to the
Concurrent Conversion. Each of the alternative pages for the
prospectus used in the Concurrent Conversion is labeled
&#147;Concurrent Conversion&nbsp;&#151; Alternative Page.&#148;
Final forms of each prospectus will be filed with the Securities
and Exchange Commission under Rule&nbsp;424(b) under the
Securities Act of 1933.
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<FONT size="2" color="#E8112D">The information in this
preliminary prospectus is not complete and may be changed. We
may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.</FONT><FONT size="2"> <BR>
</FONT>
</TD></TR></TABLE>

<P align="center">
<FONT size="2">Subject to Completion. Dated July&nbsp;21, 2004.
</FONT>

<P align="center">
<FONT size="4">Shares
</FONT>

<P align="center">
<FONT size="4">[LOGO]
</FONT>

<P align="center">
<FONT size="6">DreamWorks Animation, Inc.
</FONT>

<P align="center">
<FONT size="4">Class&nbsp;A Common Stock
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is an initial
public offering of Class&nbsp;A common stock of DreamWorks
Animation, Inc. We are
offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the shares to be sold in the offering. The selling stockholders
named in this prospectus are offering an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
We will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholders.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Class&nbsp;A
common stock, Class&nbsp;B common stock and Class&nbsp;C common
stock vote as a single class on all matters, except as otherwise
provided in our restated certificate of incorporation or as
required by law, with each share of Class&nbsp;A common stock
entitling its holder to one vote, each share of Class&nbsp;B
common stock entitling its holder to fifteen votes and each
share of Class&nbsp;C common stock entitling its holder to one
vote.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this
offering, there has been no public market for our common stock.
It is currently estimated that the initial public offering price
will be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. We intend to apply for listing of our Class&nbsp;A common
stock
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;under
the symbol
&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.&#148;
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>See &#147;Risk
Factors&#148; beginning on page&nbsp;11 to read about factors
you should consider before buying shares of our Class&nbsp;A
common stock.</B>
</FONT>

<P align="left">
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any other regulatory body has approved or disapproved of
these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underwriting</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proceeds to</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Discounts and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proceeds</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">the Selling</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Public</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Commissions</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to Us</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per Share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent the
underwriters sell more
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock, the underwriters have an option to purchase up
to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock from us and the selling
stockholders at the initial public offering price less the
underwriting discount.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters
expect to deliver the shares against payment in New York, New
York
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="5">Goldman, Sachs &#38; Co.</FONT></B></TD>
    <TD align="right"><B><FONT size="5">JPMorgan</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<FONT size="2">Prospectus
dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">[GRAPHICS TO COME]</FONT></B>

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<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#101'>Prospectus Summary</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Risk Factors</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Forward-Looking
    Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Dividend Policy</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Dilution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Capitalization</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Unaudited Pro Forma
    Financial Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Selected Financial Data</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#110'>Management&#146;s Discussion
    and Analysis of Financial Condition and Results of Operations</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Industry Overview</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Business</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Management</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>Related Party Agreements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Principal and Selling
    Stockholders</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>Description of Capital
    Stock</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>Shares Eligible for Future
    Sale</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#118'>Material United States
    Federal Tax Consequences for Non-United States Stockholders</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#119'>Underwriting</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#120'>Legal Matters</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#121'>Experts</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#122'>Additional Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#123'>Index to Financial
    Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv23w1.htm">CONSENT OF ERNST & YOUNG LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv24w1.htm">POWER OF ATTORNEY</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w1.htm">CONSENT OF PAUL ALLEN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w2.htm">CONSENT OF LEWIS W. COLEMAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w3.htm">CONSENT OF ROGER A. ENRICO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w4.htm">CONSENT OF DAVID GEFFEN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w5.htm">CONSENT OF JEFFREY KATZENBERG</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w6.htm">CONSENT OF NATHAN MYHRVOLD</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98977exv99w7.htm">CONSENT OF HOWARD SCHULTZ</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center">
<B><FONT size="2">MARKET DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Market data used in this prospectus is based upon
our good faith estimates, which are based upon our review of
internal surveys, independent industry publications, and other
publicly available information, including data made publicly
available by the Motion Picture Association of America
(&#147;MPAA&#148;) and the industry trade publication Variety.
In particular, when we cite individual film box office receipts,
we have used data that has been made publicly available by
Variety. Although we believe that these sources are reliable, we
have not independently verified the information and cannot
guarantee its accuracy and completeness.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Throughout this prospectus, and in accordance
with industry practice, we use the term &#147;domestic&#148; to
refer to the United States, Canada, each of their respective
territories and possessions, The Bahamas and Bermuda. We use the
term &#147;international&#148; to refer to all territories
outside of the domestic territory, and the term
&#147;worldwide&#148; encompasses all territories&nbsp;&#151;
both international and domestic.
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "PROSPECTUS SUMMARY" -->

<P align="center">
<B><FONT size="2">PROSPECTUS SUMMARY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The following is a summary of some of the
information contained in this prospectus. It may not contain all
the information that is important to you. To understand this
offering fully, you should read carefully the entire prospectus,
including the risk factors and the financial
statements.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We describe in this prospectus the business
that will be contributed to us by DreamWorks L.L.C.
(&#147;DreamWorks Studios&#148;) as part of our separation from
DreamWorks Studios as if it were our business for all purposes
for all periods described. Following the separation, we will be
a holding company with two operating subsidiaries. Please see
&#147;Related Party Agreements&nbsp;&#151; Separation
Agreement&#148; for a description of the separation. Unless the
context otherwise requires, the terms &#147;DreamWorks
Animation,&#148; the &#147;Company,&#148; &#147;we,&#148;
&#147;us&#148; and &#147;our&#148; refer to DreamWorks
Animation, Inc., its predecessors in interest, and the
subsidiaries and assets and liabilities that will be contributed
to it by DreamWorks Studios. In addition, in connection with our
separation from DreamWorks Studios, we will enter into a
distribution agreement with DreamWorks Studios whereby
DreamWorks Studios will generally distribute all of our films.
Please see &#147;Related Party Agreements&nbsp;&#151;
Distribution Agreement&#148; for a description of this
agreement. Our combined historical financial results as part of
DreamWorks Studios contained in this prospectus do not reflect
what our financial results will be in the future as a
stand-alone company or what our financial results would have
been had we been a stand-alone company during the periods
presented.</FONT></I>

<P align="center">
<B><FONT size="2">Business</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, we make high quality CG animated
films meant for a broad movie-going audience. We believe we
currently have more CG animated feature films in development and
production than any other animation studio. We employ a core
staff of artists, technology personnel and production staff who
have been creating, developing and applying CG techniques for
over 20&nbsp;years. We have theatrically released a total of
eight animated feature films, three of which have been CG-only,
and one direct-to-video title. Our CG animated feature films
have achieved domestic box office success, with <I>Antz, Shrek
</I>and <I>Shrek&nbsp;2 </I>grossing approximately
$90.2&nbsp;million, $267.7&nbsp;million and $425.0&nbsp;million
(<I>Shrek&nbsp;2&#146;s </I>results are through July&nbsp;18,
2004), respectively, and collectively selling approximately
56&nbsp;million home video units worldwide (<I>Shrek&nbsp;2
</I>is scheduled to be released on home video in November 2004).
<I>Shrek&nbsp;2</I>, which opened on May&nbsp;18, 2004, was the
most widely distributed film ever in the domestic theatrical
market (playing in 4,223&nbsp;theaters at its peak), achieved
the highest domestic box office gross of any animated film, had
the most successful three-day opening weekend of any animated
film and broke the single-day box office sales record for any
film by grossing $44.8&nbsp;million. Our five non-CG animated
feature films have achieved total domestic box office receipts
of approximately $358.7&nbsp;million and have sold approximately
44&nbsp;million home video units worldwide. We believe our
experience, creative talent, scale of operations, technology and
animation proficiency enable us to release two high quality CG
animated feature films per year. We are scheduled to release our
second CG animated feature film for the year, <I>Shark Tale</I>,
into the domestic theatrical market on October&nbsp;1, 2004. We
are in various stages of pre-production and production on five
additional feature films that we expect to release through 2006.
In addition, we have a substantial number of projects in
creative and story development that are expected to fill the
release schedule in 2007 and beyond.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our feature films are the source of substantially
all of our revenue. We derive revenue from the worldwide
exploitation of our feature films in theaters and in markets
such as home video, pay and free broadcast television and
ancillary markets. We retain the exclusive copyright and other
intellectual property rights to all of our films and characters,
excluding Aardman Animation films and characters (some of which
we co-own), and we have access to an established distribution
and marketing network to fully exploit our films and characters
in theatrical, home video, television and ancillary markets
throughout the world. We have important strategic relationships
with retailers, promotional partners and licensees around the
world that significantly enhance consumer awareness of our films
and their revenue-producing potential. In addition to producing
feature films for theatrical release, we intend to develop and
produce CG animated films for initial
</FONT>

<P align="center"><FONT size="2">1
</FONT>

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<DIV align="left">
<FONT size="2">distribution directly into the home entertainment
market (&#147;direct-to-video films&#148;). We have also
developed and are currently producing a CG animated television
series for NBC called <I>Father of the Pride</I>, which is
scheduled to air in primetime in the fall of 2004.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering, we
will enter into a distribution agreement (the &#147;Distribution
Agreement&#148;) with DreamWorks Studios. Under the terms of
that agreement, DreamWorks Studios will generally be responsible
for the distribution, marketing and servicing of all of our
completed animated films, including our previously released
films, and direct-to-video pictures. DreamWorks Studios
currently distributes, and we expect will continue to
distribute, our motion pictures in international theatrical
markets through distribution agreements with Universal Studios,
Inc. (&#147;Universal Studios&#148;), an industry leading
distributor and fulfillment services provider, Cheil Jedang
Corporation, and its affiliate CJ&nbsp;Entertainment, Inc.
(collectively &#147;CJ Entertainment&#148;) (in Korea and the
People&#146;s Republic of China) and Kadokawa Entertainment Inc.
(&#147;Kadokawa Entertainment&#148;) (in Japan). DreamWorks
Studios has engaged Universal Studios to be our worldwide
principal fulfillment services provider for our home videos,
excluding only Korea and Japan, where CJ&nbsp;Entertainment and
Kadokawa Entertainment, respectively, will perform such
functions. The Distribution Agreement will cover the
distribution of our films and pictures in all media and markets
on a worldwide basis that are available for delivery through the
later of (i)&nbsp;delivery of 12 animated feature films,
beginning with <I>Shark Tale</I>, and
(ii)&nbsp;December&nbsp;31, 2010. In general, the term of the
Distribution Agreement will be extended to the extent of the
term, if longer, of any of DreamWorks Studios&#146;
sub-distribution, servicing and licensing agreements that cover
our films and that we pre-approve (such as DreamWorks
Studios&#146; existing arrangements with Universal Studios,
Inc., CJ Entertainment and Kadokawa Entertainment). Even if we
terminate our distribution relationship with DreamWorks Studios,
our existing and future films generally will be subject to the
terms of those pre-approved agreements. We will retain the
copyrights and other intellectual property related to our films
and the right to directly exploit certain ancillary rights, such
as commercial tie-ins, and promotional, literary publishing,
music publishing, soundtrack, radio, legitimate stage and
merchandising rights. We believe our relationship with
DreamWorks Studios provides us with many advantages, including
the ability to create consumer awareness and demand for our
films through DreamWorks Studios&#146; seasoned theatrical
marketing, distribution and home video teams. Please see
&#147;Related Party Agreements&nbsp;&#151; Distribution
Agreement&#148; for a more detailed description of the
Distribution Agreement.
</FONT>

<P align="left">
<B><FONT size="2">Our Strengths</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe our competitive strengths to be as
follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strong Management Team with a Successful Track
    Record.</FONT></I><FONT size="2"> Our creative and production
    management team, led by Jeffrey Katzenberg, consists of some of
    the most experienced individuals in the CG animation industry,
    with an average of over 12&nbsp;years of experience in the
    animation field and 18&nbsp;years in the entertainment industry.
    Mr.&nbsp;Katzenberg, as Chairman of The Walt Disney Studios, was
    one of the key architects responsible for building Disney&#146;s
    filmed entertainment business from approximately
    $245&nbsp;million in revenue in 1984 to one that generated
    revenue exceeding $4.7&nbsp;billion in 1994. Driving this
    tremendous growth was Disney&#146;s animated film division,
    which, under Mr.&nbsp;Katzenberg&#146;s leadership, produced
    such successful films as <I>The Lion King, Aladdin </I>and
    <I>Beauty and the Beast</I>. Mr.&nbsp;Katzenberg and his
    management team have led DreamWorks Studios&#146; animation
    division since its formation and have overseen the successful
    release of a number of animated films, including <I>Antz, Shrek
    </I>and <I>Shrek 2</I>.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Creative and Experienced
    Talent.</FONT></I><FONT size="2"> Our producers, directors and
    production executives, many of whom are signed to long-term
    contracts, are among the most experienced in the CG animation
    industry, having produced, directed or otherwise overseen highly
    successful animated feature films such as <I>Shrek,
    Shrek&nbsp;2, The Lion King, Toy Story, Beauty and the Beast
    </I>and <I>Aladdin.</I> Our dedicated artists, technology
    personnel and production staff, numbering approximately 1,000
    employees, are also among the most talented and creative in the
    industry. We emphasize the importance of quality scripts when
    considering film ideas, and generally engage proven
    screenwriters, comedians and other writers to develop and
    produce our storylines. In addition, these writers are deeply
    involved throughout the production process so that our story
    department and technical personnel can directly collaborate with
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">2
</FONT>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">the creative talent that develops a story.
    Finally, our commitment to investing in our people and
    technology helps ensure that our films continue to represent the
    cutting edge in CG animated filmmaking. We attract and retain
    our animators and creative and technical staff with competitive
    compensation packages and an artist friendly environment that
    emphasizes ongoing training in animation artistry and technology.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strong and Adaptable Technology
    Foundation.</FONT></I><FONT size="2"> Our technology plays an
    important role in the production of our films. Our technology
    development staff has been responsible for many award-winning
    innovations that continue to advance the art of CG animated
    film-making. We also continue to innovate in the application of
    new technologies to the production process, which has enabled us
    to produce progressively richer and more visually sophisticated
    imagery in our films. Our focus on user interface and tool
    development enables our animators to adeptly use existing and
    emerging CG technologies, allowing us to maximize our artistic
    talent within a CG environment. In addition, we have strategic
    relationships with leading technology companies that allow us to
    leverage third-party advancements and technology innovation
    substantially before they are available to the open market,
    which gives us a valuable advantage in the rapidly changing
    landscape of technology.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Exclusive Ownership of Our Films and
    Characters.</FONT></I><FONT size="2"> We exclusively own the
    copyright and other property rights to all of our films and
    characters, including the animated films released prior to this
    offering, with the exception of certain films that we produce
    with Aardman Animations. Because of our exclusive ownership, we
    control the creative direction and the exploitation of our films
    and characters and retain the sole right to create sequels and
    other derivative products such as direct-to-video films and
    consumer products. We believe that our ability to control the
    continued exploitation of our properties is a competitive
    advantage and allows us to capitalize on an already existing
    audience base for our films.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Established Distribution and Promotion
    Infrastructure.</FONT></I><FONT size="2"> Our films have been
    distributed through DreamWorks Studios since we released our
    first film in 1998, and we and DreamWorks Studios have developed
    strong relationships with a host of prominent companies to help
    promote our films. In addition, DreamWorks Studios has worked
    with Universal Studios, the principal international theatrical
    distributor and principal home video fulfillment services
    provider of our films, since 1995. We believe our relationship
    with DreamWorks Studios and its international distributors and
    fulfillment services providers have created proven distribution
    channels and marketing networks for our films, particularly with
    respect to home video. In addition, we believe that our
    established merchandising and promotions group is among the most
    capable in the industry, with the ability to leverage our strong
    relationships with retailers and other consumer products
    companies to maximize the ways in which we promote and profit
    from our films.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Our Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to maintain our position as one of the
leading developers and producers of CG animated feature films.
To accomplish this goal, we are pursuing the major strategies
described below.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Focus on Maintaining Broad Audience Appeal for
    Our Films Through the Unique Identity of DreamWorks
    Animation.</FONT></I><FONT size="2"> We believe that DreamWorks
    has developed a unique identity that the public associates with
    innovative and popular movies such as the <I>Shrek </I>films. We
    intend to build on DreamWorks&#146; brand recognition by
    continuing to make unique, high quality, CG animated films that
    have a sophisticated tone and visual style. We believe our style
    and our appeal to a broad-based audience of families, teens and
    adults set us apart from traditional animated films and film
    companies.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Use Our Existing Scale of Operations to
    Release Two CG&nbsp;Animated Feature Films Per
    Year.</FONT></I><FONT size="2"> We intend to release two
    CG&nbsp;animated feature films per year. We believe this exceeds
    the current production schedule of any other CG animation studio
    and allows us to leverage our infrastructure and spread overhead
    costs over a greater number of films than our current
    competitors. We believe that, although other studios may have
    the financial or technical capacity to match our output of two
    high-
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">3
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">quality CG animated feature film releases per
    year, the time that it takes to develop and produce CG animated
    feature films makes it unlikely that any other studio will do so
    within the near future.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Use Star Talent to Increase Popular
    Appeal.</FONT></I><FONT size="2"> Our films feature the voice
    talent of some of the most celebrated actors in the
    entertainment industry. We believe that using the voices of
    today&#146;s top feature film and television actors in both
    domestic and international markets enhances our films as their
    unique voices and talent help bring our characters to life. We
    have strong relationships with our star talent. In addition to
    providing their voices in our films, these actors commit to
    promoting our films for both theatrical and home video release.
    We believe this commitment enhances the event status of each
    release and increases consumer awareness of the film.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Take Advantage of Franchise
    Opportunities.</FONT></I><FONT size="2"> We intend to take
    advantage of our ownership rights and the broad marketability of
    animated films to create franchise films and characters that can
    generate prequels, sequels and other derivative works and
    licensing opportunities in several different markets, including
    theme park attractions, stage plays, interactive games and the
    direct-to-video market. We believe the direct-to-video market,
    in particular, is receptive to animated films, especially in
    expanding characters that have become part of popular culture.
    We expect the production costs associated with direct-to-video
    titles will be significantly less than those associated with our
    animated feature films. We believe the relatively low costs of
    producing direct-to-video titles, and the significant unit
    volumes generated by even moderately successful titles, support
    an economic model that can generate meaningful profits for us.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Continue Developing Superior CG Animation
    Skills.</FONT></I><FONT size="2"> We believe we are at the
    forefront of technical achievement in CG animated filmmaking due
    to the collaboration and artistic skills of our artists,
    technology personnel and production staff and because we have
    built a user-friendly production environment that allows our
    artists and animators to fully exploit the complex technologies
    used in CG animated filmmaking. We have invested, and will
    continue to dedicate, significant resources in the proper
    training and support of our creative staff. Because of our
    training efforts and the flexibility of our production
    environment, we were able to re-train over 140 world-class
    animators who specialized in hand-drawn cel animation to become
    highly proficient with CG animation techniques. In addition, we
    intend to continue to invest in our technology to ensure that,
    from an artistic and technical perspective, our films remain
    state-of-the-art in CG animated filmmaking.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Maximize the Success of Our Films Through
    Promotional Partnerships.</FONT></I><FONT size="2"> We have
    developed strong relationships with a number of well-known
    retailers and consumer products companies throughout the world
    that help us promote our films in many valuable ways. We believe
    these promotional campaigns have been very successful and have
    resulted in increased movie theater attendance, greater home
    video sales and other consumer product sales. We intend to
    continue developing new relationships with prominent companies
    and to continue utilizing existing relationships to ensure
    maximum consumer awareness for our films.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">The Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal executive offices are located at
1000 Flower Street, Glendale, CA 91201-3007. Our telephone
number is (818)&nbsp;695-5000. Our World Wide Web site address
is
http://www.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.com.
Information contained on our website or that can be accessed
through our website is not incorporated by reference in this
prospectus. You should not consider information contained on our
website or that can be accessed through our website to be part
of this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Entities controlled by Paul Allen
(collectively, &#147;Vulcan&#148;), entities controlled by
Steven Spielberg, Jeffrey Katzenberg and David Geffen and all of
the other members of DreamWorks Studios who so elect will
contribute their shares of our common stock not sold in this
offering to a newly formed limited liability limited
partnership, which we refer to in this prospectus as
&#147;Holdco.&#148; Upon the satisfaction of certain conditions,
Holdco will cause appropriate actions to be taken for the sale
of a portion
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<DIV align="left">
<FONT size="2">of such shares in one or more public follow-on
offerings. Holdco will subsequently distribute all the remaining
shares of common stock it holds to the members of DreamWorks
Studios who have contributed their shares to Holdco as described
in &#147;Related Party Agreements&nbsp;&#151; Escrow and
Distribution Arrangement.&#148; Our common stock is divided into
three classes, which are identical and generally vote together
on all matters, except that the Class&nbsp;A common stock and
the Class&nbsp;C common stock each carry one vote per share,
whereas the Class&nbsp;B common stock carries 15&nbsp;votes per
share. In addition, the Class&nbsp;C common stock has the right
to elect one director, voting separately as a class. During the
period that Holdco owns shares of our common stock, the shares
will be held in the form of Class&nbsp;B common stock and will
be voted by Jeffrey Katzenberg and David Geffen or entities
controlled by them (except in the event of a class vote of the
Class&nbsp;A common stock, in which case the shares will be
voted by the participating DreamWorks Studios members as if they
had not contributed their shares to Holdco and had received
shares of Class&nbsp;A common stock). In order to elect the
Class&nbsp;C director, Vulcan will hold Class&nbsp;C common
stock directly rather than through Holdco. When distributed or
sold, all shares of our common stock, other than those
distributed to entities controlled by Jeffrey Katzenberg and
David Geffen, which will receive Class&nbsp;B common stock, and
other than those distributed to Vulcan, which will receive
Class&nbsp;C common stock, will be distributed or sold in the
form of Class&nbsp;A common stock. See &#147;Related Party
Agreements&nbsp;&#151; Escrow and Distribution Arrangement.&#148;
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following completion of this offering, Jeffrey
Katzenberg and David Geffen will indirectly control us through
their ability to vote the shares of our Class&nbsp;B common
stock held by DreamWorks Studios and Holdco.
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<P align="center">
<B><FONT size="2">The Offering</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Class&nbsp;A common stock offered by us
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(1)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Class&nbsp;A common stock offered by the selling
    stockholders
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(1)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Total Class&nbsp;A common stock offered
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(1)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Common stock outstanding immediately after this
    offering:
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(1)(2)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(3)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;C
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(4)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Use of Proceeds
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We intend to (i)&nbsp;retain approximately
    $175&nbsp;million of the net proceeds of the Class&nbsp;A common
    stock offered by us for general corporate purposes, including
    working capital and (ii)&nbsp;use the remaining net proceeds to
    repay all or a portion of the indebtedness that we intend to
    assume from DreamWorks Studios in connection with our separation.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We will not receive any proceeds from sales of
    our Class&nbsp;A common stock by the selling stockholders in the
    offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Dividend Policy
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We do not anticipate paying any dividends on our
    common stock in the foreseeable future.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Voting Rights
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">In general, the Class&nbsp;A, Class&nbsp;B and
    Class&nbsp;C common stock are substantially identical and vote
    together as a single class. In addition, each class of stock has
    the following characteristics:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15
    votes per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;C
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors. In addition, the right to elect one director, voting
    as a separate class.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Proposed Trading Symbol
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Risk Factors
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">See &#147;Risk Factors&#148; beginning on
    page&nbsp;11 of this prospectus for a discussion of factors that
    you should carefully consider before deciding to invest in
    shares of our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">6
</FONT>
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<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not
    include &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock that may be sold by us
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock that may be sold by the selling
    stockholders upon exercise of the underwriters&#146;
    over-allotment option.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not include any of the options that were
    issued and outstanding as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004, under our 2004 Equity Compensation Plan to purchase a
    total
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock at a weighted average exercise
    price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock available for future issuance of
    options and restricted stock under our 2004 Equity Compensation
    Plan.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, DreamWorks Studios will
    hold &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares,
    Holdco will
    own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    and entities controlled by each of Jeffrey Katzenberg and David
    Geffen will hold one share.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be held by Vulcan.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">7
</FONT>

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<P align="center">
<B><FONT size="2">Summary Historical and Pro Forma Financial
Data</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We present below summary historical and pro forma
financial data. The following summary historical financial data
as of March&nbsp;31, 2004, for the three months ended
March&nbsp;31, 2003 and 2004 and as of and for each of the years
in the three year period ended December&nbsp;31, 2003 were
derived from our historical combined financial statements
included elsewhere in this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The summary pro forma financial data for the
three months ended March&nbsp;31, 2004 and the year ended
December&nbsp;31, 2003 were derived from our unaudited pro forma
combined statements of operations included elsewhere in this
prospectus which were prepared (i)&nbsp;as if the Distribution
Agreement had become effective on January&nbsp;1, 2003 and had
been in effect in all periods since and (ii)&nbsp;as if we had
been taxable as a corporation as of January&nbsp;1, 2003 in all
periods presented. The pro forma adjustments are based upon
available information and assumptions that we believe are
reasonable and do not give effect to any transactions other than
those mentioned above, including a services agreement that we
intend to enter into with DreamWorks Studios prior to the
consummation of the offering (the &#147;Services
Agreement&#148;). Please see note&nbsp;(1) below and the notes
to our unaudited pro forma combined financial statements
included elsewhere in this prospectus for a more detailed
discussion of how the adjustments described above are presented
in our pro forma combined financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The summary unaudited pro forma combined
financial statements do not purport (i)&nbsp;to represent what
our financial position and results of operations actually would
have been had we been a stand-alone taxable corporation
operating under the Distribution Agreement for the periods
presented or (ii)&nbsp;to project our financial performance for
any future period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read the following data in conjunction
with &#147;Capitalization,&#148; &#147;Selected Financial
Data,&#148; &#147;Unaudited Pro Forma Financial
Information,&#148; &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations&#148;
and with our audited combined financial statements and our
unaudited interim combined financial statements and the notes
thereto, all included elsewhere in this prospectus.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Three Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004(1)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Audited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Statement of Operations Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">661,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">456,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">509,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">438,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(142,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(125,784</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(167,649</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(138,061</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(282</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest, taxes and other income (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,251</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,550</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,376</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,970</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,490</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,490</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before cumulative effect of
    accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(157,437</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,772</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,743</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(159,959</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,772</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The primary result of giving pro forma effect to
    the Distribution Agreement as of January&nbsp;1, 2003 is that we
    recognize revenue net of (i)&nbsp;DreamWorks Studios&#146; 8.0%
    distribution fee and (ii)&nbsp;the distribution and marketing
    costs that DreamWorks Studios incurs for our films. In all
    periods presented, this results in a substantial reduction to
    our revenue. In addition, our costs of revenue decline because
    we no longer incur distribution and marketing costs and
    third-party distribution and fulfillment services fees. Also,
    selling, general and administrative expenses are reduced because
    we are no longer allocated overhead costs related to DreamWorks
    Studios&#146; marketing and distribution departments.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As a result of giving pro forma effect to the
    Distribution Agreement as of January&nbsp;1, 2003, our pro forma
    net loss is decreased during the periods presented, primarily
    due to timing differences. However, over a longer period of
    time, we believe our pro forma net loss would not have changed
    substantially from our historical net loss. See &#147;Unaudited
    Pro Forma Financial Information&#148; and the notes thereto.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Because we operated as a division of a limited
    liability company for all periods presented, we incurred only
    minimum income taxes related to foreign withholding and state
    franchise taxes. See note&nbsp;14 to our audited combined
    financial statements contained herein for an explanation of pro
    forma income taxes.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">9
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Audited</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unaudited</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">444,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">475,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advances and unearned revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt allocated by DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">168,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">418,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt (including capital leases)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">498,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">686,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">698,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">10
</FONT>

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<DIV align="left">
<FONT size="2"> <A name='102'></A>
</FONT>
</DIV>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should carefully consider the following risks
and other information in this prospectus before deciding to
invest in shares of our Class&nbsp;A common stock. The following
risks and uncertainties could materially adversely affect our
business, financial condition or operating results. In this
event, the trading price of our Class&nbsp;A common stock could
decline and you could lose part or all of your investment.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<P align="left">
<B><FONT size="2">Our success is primarily dependent on audience
acceptance of our films, which is extremely difficult to predict
and therefore inherently risky.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We cannot predict the economic success of any of
our motion pictures because the revenue derived from the
distribution of a motion picture (which does not necessarily
bear any correlation to the production or distribution costs
incurred) depends primarily upon its acceptance by the public,
which cannot be accurately predicted. The economic success of a
motion picture also depends upon the public&#146;s acceptance of
competing films, the availability of alternative forms of
entertainment and leisure time activities, general economic
conditions and other tangible and intangible factors, all of
which can change and cannot be predicted with certainty.
Furthermore, part of the appeal of CG animated films may be due
to their relatively recent introduction to the market. We cannot
assure you that the introduction of new animated filmmaking
techniques, an increase in the number of CG animated films or
the resurgence in popularity of older animated filmmaking
techniques, will not adversely impact the popularity of CG
animated films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, the economic success of a motion
picture is dependent on its domestic theatrical performance,
which is a key factor in predicting revenue from other
distribution channels and is largely determined by (i)&nbsp;our
ability to produce content and develop stories and characters
that appeal to a broad audience and (ii)&nbsp;the effective
marketing of the motion picture. If we are unable to accurately
judge audience acceptance of our film content or to have the
film effectively marketed, the commercial success of the film
will be in doubt, which could result in costs not being recouped
or anticipated profits not being realized. Moreover, we cannot
assure you that any particular feature film will generate enough
revenue to offset its distribution and marketing costs, in which
case we would not receive any gross receipts for such film from
DreamWorks Studios. In the past, some of our films have not
recovered, after recoupment of marketing and distribution costs,
their production costs in an acceptable timeframe or at all. For
example, in 2003 we released our final primarily hand-drawn
animated feature film, <I>Sinbad: Legend of the Seven Seas</I>,
which we estimate will not generate sufficient revenue over its
first 10&nbsp;years in distribution to fully recover, after
recoupment of marketing and distribution costs, its production
costs.
</FONT>

<P align="left">
<B><FONT size="2">Our business is dependent upon the success of
a limited number of releases each year and the commercial
failure of any one of them could have a material adverse effect
on our business.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to theatrically release a limited
number of animated feature films per year for the foreseeable
future. The commercial failure of just one of these films can
have a significant adverse impact on our results of operations
in both the year of release and in the future. For example, for
the remainder of 2004 and into 2005, we will be dependent on the
continuing success of <I>Shrek&nbsp;2 </I>and the success of
<I>Shark Tale</I>. Historically, there has been a close
correlation between domestic box office success and
international box office, home video and television success,
such that feature films that are successful in the domestic
theatrical market are generally also successful in the
international theatrical, home video and television markets.
Because of this close correlation, we believe that
<I>Shrek&nbsp;2</I>, which has been very successful in the
domestic and international theatrical markets, will also
strongly perform in the home video and television markets,
although there is no way to guarantee such results. Our success
in 2004 and 2005 also significantly depends on audience
acceptance of <I>Shark Tale,</I> which is scheduled to be
released in the domestic theatrical market on October&nbsp;1,
2004. If <I>Shark Tale </I>fails to achieve domestic box office
success, because of the close correlation mentioned above, its
international box office and home video success will be in
doubt, and our business, results of operations and financial
condition could be adversely affected in 2005 and beyond.
Further, we cannot assure you that the
</FONT>

<P align="center"><FONT size="2">11
</FONT>
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<DIV align="left">
<FONT size="2">historical correlation between domestic box
office results and international box office and home video
results will continue in the future. In addition, the limited
number of films that we release in a year magnifies fluctuations
in our earnings. Therefore, our reported results at quarter and
year end may be skewed based on the release dates of our films,
which could result in volatility in the price of our
Class&nbsp;A common stock.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Our operating results fluctuate
significantly.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We continue to expect significant fluctuations in
our future quarterly and annual operating results because of a
variety of factors, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the success of our feature films;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing of the domestic and international
    theatrical releases and home video release of our feature
    films;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Studios&#146; costs to distribute and
    market our feature films under the Distribution Agreement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also expect that our operating results will be
affected by the terms of the Distribution Agreement. Under the
Distribution Agreement, film revenue will be used by DreamWorks
Studios to recover (i)&nbsp;the distribution and marketing
expenses it incurs for the film and (ii)&nbsp;to cover its
distribution fee relating to these markets before we recognize
any revenue for that film. Accordingly, we expect to recognize
significantly less revenue from a film in the period of that
film&#146;s theatrical release than we would absent the
Distribution Agreement. Furthermore, in the event that the
Distribution Agreement were terminated, depending on the
arrangement that we negotiate with a replacement distributor, we
could be required to directly incur distribution and marketing
expenses related to our films, which under the Distribution
Agreement are incurred by DreamWorks Studios. Because we would
expense those costs as incurred, further significant
fluctuations in our operating results could result.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In response to these fluctuations, the market
price of our common stock could decrease significantly in spite
of our operating performance.
</FONT>

<P align="left">
<B><FONT size="2">We principally operate in one business, the
production of CG animated feature films, and our lack of a
diversified business could adversely affect us.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unlike most of the major studios, which are part
of large diversified corporate groups with a variety of other
operations, we depend primarily on the success of our feature
films. For example, unlike us, many of the major studios are
part of corporate groups that include television networks and
cable channels that can provide stable sources of earnings and
cash flows that offset fluctuations in the financial performance
of their feature films. Substantially all of our revenue is
derived from a single source&nbsp;&#151; our CG animated feature
films&nbsp;&#151; and our lack of a diversified business model
could adversely affect us if our films fail to perform to our
expectations.
</FONT>

<P align="left">
<B><FONT size="2">Animated films are expensive to produce and
the uncertainties inherent in their production could result in
the expenditure of significant amounts on films that are
canceled or significantly delayed.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The production, completion and distribution of
animated feature films are subject to a number of uncertainties,
including delays and increased expenditures due to creative
problems, technical difficulties, talent availability,
accidents, natural disasters or other events beyond our control.
Because of these uncertainties, the projected costs of an
animated feature film at the time it is set for production may
increase, the date of completion may be substantially delayed or
the film may be abandoned due to the exigencies of production.
Delays in production may also result in a film not being ready
for release at the intended time and postponement to a
potentially less favorable time, which could result in lower
gross receipts for that film. In extreme cases, a film in
production may be abandoned or significantly modified (including
as a result of creative changes) after substantial amounts have
been spent, causing the write-off of expenses incurred with
respect to the film. This was the case in 2003 when we wrote-off
a significant amount of expenses that we had incurred for two of
our animated films.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<P align="left">
<B><FONT size="2">Animated films typically take longer to
produce than live-action films, which increases the
uncertainties inherent in their production and
distribution.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Animated feature films typically take three to
four years to produce after the initial development stage, as
opposed to an average of twelve to eighteen months for
live-action films. The additional time that it takes to produce
and release an animated feature film increases the risk that our
films in production will fall out of favor with target audiences
and that competing films will be released in advance of or
concurrently with ours, either of which risks could reduce the
demand for, or popular appeal of, our films.
</FONT>

<P align="left">
<B><FONT size="2">The production and marketing of CG animated
feature films is capital intensive and our capacity to generate
cash from our films may be insufficient to meet our anticipated
cash requirements.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The costs to develop, produce and market a film
are substantial and some of our competitors have more capital
and greater resources than we and DreamWorks Studios have. In
2004, for example, we expect to spend approximately
$325&nbsp;million to fund production costs of our feature films,
to make contingent compensation and residual payments and to
fund technology capital expenditures. In addition, historically,
we made substantial expenditures on distribution and marketing
costs, which, in the future, will be incurred by DreamWorks
Studios under the Distribution Agreement. Although we retain the
right to exploit each of the nine films that we have previously
released, the size of our film collection is insubstantial
compared to the film libraries of the major movie studios, which
typically have the ability to exploit hundreds of library
titles. Library titles can provide a stable source of earnings
and cash flows that offset fluctuations in the financial
performance of newly released films. Many of the major studios
use these cash flows, as well as cash flows from their other
businesses, to finance the production and marketing of new
feature films. We will not be able to rely on such cash flows
and will be required to fund our films in development and
production and other commitments with cash retained from
operations and the proceeds of films that are generating revenue
from theatrical, home video and ancillary markets. If our films
fail to perform, we may be forced to seek substantial sources of
outside financing. Such financing may not be available in
sufficient amounts for us to continue to make substantial
investments in the production of new CG animated feature films
or may be available only on terms that are disadvantageous to
us, either of which could have a material adverse effect on our
growth or our business.
</FONT>

<P align="left">
<B><FONT size="2">The costs of producing and marketing feature
films have steadily increased and may increase in the future,
which may make it more difficult for a film to generate a profit
or compete against other films.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The production and marketing of theatrical
feature films requires substantial capital and the costs of
producing and marketing feature films have generally increased
in recent years. According to the MPAA, the average negative
cost of a motion picture produced by a major studio, which
includes all costs associated with creating a feature film,
including production costs, allocated studio overhead and
capitalized interest, but excludes abandoned project costs, has
grown at a compound annual growth rate of 7.9%&nbsp;&#151; from
$29.9&nbsp;million in 1993 to $63.8&nbsp;million in
2003&nbsp;&#151; and the average domestic marketing costs (which
includes prints and advertising costs) per picture has grown at
a compound annual growth rate of 10.7% over the same
period&nbsp;&#151; from $14.1&nbsp;million in 1993 to
$39.1&nbsp;million in 2003. Although these growth rates include
the costs of both live-action and animated films, they are
indicative of the cost trend for motion pictures generally.
These costs may continue to increase in the future, which may
make it more difficult for our films to generate a profit or
compete against other films. Historically, production costs and
marketing costs have risen at a rate faster than increases in
either domestic admissions to movie theaters or admission ticket
prices. A continuation of this trend would leave us more
dependent on other media, such as home video, television,
international markets and new media for revenue.
</FONT>

<P align="left">
<B><FONT size="2">We compete for audiences based on a number of
factors, many of which are beyond our control.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Despite a general increase in movie theater
attendance, the number of animated and live-action feature films
released by competitors, particularly the major U.S.&nbsp;motion
picture studios, may create an oversupply of product in the
market, and may make it more difficult for our films to succeed.
In particular, we compete directly against other animated films
and family oriented live-action films. Oversupply of such
products may
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">become most pronounced during peak release times,
such as school holidays, national holidays and the summer
release season, when theater attendance has traditionally been
highest. Although we seek to release our films during peak
release times, we cannot guarantee that we will be able to
release all of our films during those times and, therefore, may
miss potentially higher gross box-office receipts. In addition,
a substantial majority of the motion picture screens in the
U.S.&nbsp;typically are committed at any one time to only 10 to
15&nbsp;films distributed nationally by major studio
distributors. If our competitors were to increase the number of
films available for distribution and the number of exhibition
screens remained static, it could be more difficult for us to
release our films during optimal release periods.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">The market for CG animated films is relatively
new, and the entrance of additional film studios into the CG
animated film market could adversely affect our business in
several ways.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CG animation is a relatively new form of
animation that has been successfully exploited by a limited
number of movie studios since the first CG animated feature
film, <I>Toy Story</I>, was released by Pixar in 1995. Because
there are currently only a few studios capable of producing CG
animated feature films, there are a limited number of CG
animated feature films in the market each year, a fact that may
enhance their popular appeal. If additional studios were to
enter the CG animated film market and increase the number of CG
animated films released per year, the popularity of the CG
animation technique could suffer. Although we have developed
proprietary technology, experience and know-how in the CG
animation field that we believe provide us with significant
advantages over new entrants in the CG animated film market,
there are no substantial technological barriers to entry that
would prevent other film studios from entering the field, and
both Sony and Lucasfilm Ltd. have recently announced plans to do
so. Furthermore, advances in technology may substantially
decrease the time that it takes to produce a CG animated feature
film, which could result in a significant number of new CG
animated films or products. The entrance of additional animation
companies into the CG animated feature film market could
adversely impact us by eroding our market share, increasing the
competition for CG animated film audiences and increasing the
competition for, and cost of, hiring and retaining talented
employees, particularly CG animators and technical staff.
</FONT>

<P align="left">
<B><FONT size="2">Our success depends on certain key
employees.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success greatly depends on our employees. In
particular, we are dependent upon the services of Jeffrey
Katzenberg. We do not maintain key person life insurance for any
of our employees. We will have employment agreements with
Mr.&nbsp;Katzenberg and with all of our top executive officers
and production executives. However, although it is standard in
the motion picture industry to rely on employment agreements as
a method of retaining the services of key employees, these
agreements cannot assure us of the continued services of such
employees. The loss of the services of Mr.&nbsp;Katzenberg or a
substantial group of key employees could have a material adverse
effect on our business, operating results or financial condition.
</FONT>

<P align="left">
<B><FONT size="2">Our scheduled releases of CG animated feature
films will place a significant strain on our
resources.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have established multiple creative and
production teams so that we can simultaneously produce more than
one CG animated feature film. As of July 2004, we have released
three CG animated feature films and five non-CG animated feature
films and have limited experience sustaining the ability to
produce and release more than one CG animated feature film at
the same time. Due to the strain on our personnel from the
effort required to produce a film and the time required for
creative development of future films, it is possible that we
will be unable to consistently release two CG animated feature
films per year. In the past, we have been required, and may
continue to be required, to expand our employee base, increase
capital expenditures and procure additional resources and
facilities in order to accomplish the scheduled releases of our
animated feature films. This growth and expansion has placed,
and continues to place, a significant strain on our resources.
We cannot provide any assurances that any of our animated
feature films will be released as targeted or that this strain
on resources will not have a material adverse effect on our
business, financial condition or results of operations.
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<P align="left">
<B><FONT size="2">We are dependent on DreamWorks Studios and
others for the distribution and promotion of our feature films
and related products.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to enter into the Distribution
Agreement with DreamWorks Studios prior to the consummation of
this offering, pursuant to which DreamWorks Studios will be
responsible, with some exceptions, for the worldwide
distribution of all of our films in all media. For a description
of the terms of the Distribution Agreement, see &#147;Related
Party Agreements&nbsp;&#151; Distribution Agreement.&#148;
Although the Distribution Agreement will obligate DreamWorks
Studios to distribute our films, DreamWorks Studios will be able
to terminate the agreement upon the occurrence of certain events
of default. If DreamWorks Studios terminates the Distribution
Agreement or fails to perform under the agreement or the
Distribution Agreement is otherwise terminated (including as a
result of DreamWorks Studios ceasing to be engaged in the motion
picture distribution business), we cannot assure you that we
will be able to find a replacement distributor on terms as
favorable as those in the Distribution Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios currently distributes, and we
expect will continue to distribute, our motion pictures in
international theatrical markets through distribution agreements
with Universal Studios, CJ Entertainment (in Korea and the
People&#146;s Republic of China) and Kadokawa Entertainment (in
Japan). In addition, DreamWorks Studios has engaged Universal
Studios to be our worldwide principal fulfillment services
provider for our home videos, excluding only Japan and Korea. We
are therefore dependent on the ability of each of these
companies to exploit our feature films in the territories in
which they distribute them and any termination of these
agreements could adversely affect DreamWorks Studios&#146;
ability to distribute our films. In addition, if Universal
Studios, CJ Entertainment or Kadokawa Entertainment were to
experience financial difficulty or file for bankruptcy, our
revenue could be substantially reduced with respect to the films
in distribution.
</FONT>

<P align="left">
<B><FONT size="2">DreamWorks Studios provides a number of
services to us pursuant to the Services Agreement. If the
Services Agreement were terminated, we would be required to
replace those services on terms that may be less favorable to
us.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of a Services Agreement that we
expect to enter into with DreamWorks Studios prior to the
consummation of this offering, DreamWorks Studios will provide
to us certain accounting, insurance administration, information
systems management, tax, payroll, legal, human resources
administration, procurement and other general support services.
DreamWorks Studios will charge us so that it generally recovers
the direct costs of providing these services, plus all
out-of-pocket costs and expenses. While our historical financial
statements reflect our allocated costs of many of these
services, neither the historical financial statements nor the
pro forma financial statements necessarily reflect what the
costs of these services will be in the future. If the Services
Agreement is terminated, DreamWorks Studios will no longer be
obligated to provide these services to us, and we will be
required to either enter a new agreement with DreamWorks Studios
or another services provider or assume the responsibility for
these functions ourselves. If we were to enter a new agreement
with DreamWorks Studios, hire a new services provider or assume
these services ourselves, the economic terms of the new
arrangement may be less favorable than our current arrangement
with DreamWorks Studios, which may adversely affect our
business, financial condition or results of operations.
</FONT>

<P align="left">
<B><FONT size="2">If DreamWorks Studios were to experience
financial difficulty or file for bankruptcy, our business,
results of operations and financial conditions could be
materially adversely affected.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of the Distribution Agreement,
DreamWorks Studios is entitled to collect all amounts relating
to our films from the various distribution channels&nbsp;&#151;
including from domestic theatrical exhibitors, international
sub-distributors, domestic and international home video services
providers and television licensees. DreamWorks Studios is
obligated to remit the amounts that it collects to us after it
has deducted its distribution fee and distribution and marketing
costs. If DreamWorks Studios were to default in its obligations
to pay us these amounts, our revenue with respect to films in
distribution at that time could be substantially reduced.
Moreover, because we rely on DreamWorks Studios&#146;
relationships and agreements with its sub-distributors, home
video fulfillment services providers and licensees, if
DreamWorks Studios were to
</FONT>

<P align="center"><FONT size="2">15
</FONT>

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<DIV align="left">
<FONT size="2">experience financial difficulty or file for
bankruptcy, we could lose the benefit of some of those
relationships and agreements. In addition, DreamWorks Studios is
responsible for the costs of marketing our films in
substantially all media and markets. If DreamWorks Studios were
to experience financial difficulty or file for bankruptcy,
DreamWorks Studios may not have sufficient resources to market
our films as effectively as the major studios market their
films, which could adversely affect our revenue. In addition,
pursuant to the terms of the Services Agreement we expect to
enter into with DreamWorks Studios, we will rely on DreamWorks
Studios for specified services and will share expenses relating
to some of these services. If DreamWorks Studios were not able
to pay its share of these expenses, or ceased to provide these
services, we may be required to absorb a greater portion of
these expenses or obtain them from other sources, which could be
more costly. Accordingly, if DreamWorks Studios were to
experience financial difficulty or file for bankruptcy, our
business, results of operations and financial conditions could
be materially adversely affected.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">We face risks relating to the international
distribution of our films and related products.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because we have historically derived
approximately one-third of our revenue from the exploitation of
our films in territories outside of the United States, our
business is subject to risks inherent in international trade,
many of which are beyond our control. These risks include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">laws and policies affecting trade, investment and
    taxes, including laws and policies relating to the repatriation
    of funds and withholding taxes, and changes in these laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">differing cultural tastes and attitudes,
    including varied censorship laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">differing degrees of protection for intellectual
    property;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">financial instability and increased market
    concentration of buyers in foreign television markets, including
    in European pay television markets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the instability of foreign economies and
    governments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fluctuating foreign exchange rates;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">war and acts of terrorism.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Piracy of motion pictures, including digital
and Internet piracy, may decrease revenue received from the
exploitation of our films.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Motion picture piracy is extensive in many parts
of the world and is made easier by technological advances and
the conversion of motion pictures into digital formats, which
facilitates the creation, transmission and sharing of high
quality unauthorized copies of motion pictures in theatrical
release, on videotapes and DVDs, from pay-per-view through set
top boxes and other devices and through unlicensed broadcasts on
free TV and the Internet. The proliferation of unauthorized
copies and piracy of these products has an adverse affect on our
business because these products reduce the revenue we receive
from our legitimate products. Under the Distribution Agreement,
DreamWorks Studios is primarily responsible for enforcing our
intellectual property rights with respect to all of our films
subject to the Distribution Agreement and is required to
maintain security and anti-piracy measures consistent with the
highest levels it maintains for its own motion pictures. Other
than the remedies we have in the Distribution Agreement, we have
no way of requiring DreamWorks Studios to take any anti-piracy
actions, and DreamWorks Studios&#146; failure to take such
actions may result in our having to undertake such measures
ourselves, which could result in significant expenses and losses
of indeterminate amounts of revenue. Even if applied, there can
be no assurance that the highest levels of security and
anti-piracy measures will prevent piracy.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unauthorized copying and piracy are prevalent in
territories outside of the U.S., Canada and Western Europe and
in countries where we may have difficulty enforcing our
intellectual property rights. The MPAA, the American Motion
Picture Marketing Association and American Motion Picture Export
Association monitor the progress and efforts made by various
countries to limit or prevent piracy. In the past, some of these
trade associations have enacted voluntary embargoes on motion
picture exports to certain countries in order to pressure the
governments of those countries to become more aggressive in
preventing motion picture
</FONT>

<P align="center"><FONT size="2">16
</FONT>

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<FONT size="2">piracy. In addition, the U.S.&nbsp;government has
publicly considered implementing trade sanctions against
specific countries that, in the opinion of the
U.S.&nbsp;government, do not make appropriate efforts to prevent
copyright infringements of U.S.&nbsp;produced motion pictures.
There can be no assurance, however, that voluntary industry
embargoes or U.S.&nbsp;government trade sanctions will be
enacted or, if enacted, effective. If enacted, such actions
could impact the amount of revenue that we realize from the
international exploitation of motion pictures depending upon the
countries subject to such action and the duration and
effectiveness of such action. If not enacted or if other
measures are not taken, we may lose an indeterminate amount of
additional revenue as a result of motion picture piracy.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">We cannot predict the effect that rapid
technological change or alternative forms of entertainment may
have on us or the motion picture industry.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The entertainment industry in general, and the
motion picture industry in particular, continue to undergo
significant changes, primarily due to technological
developments. Due to rapid growth of technology and shifting
consumer tastes, we cannot accurately predict the overall effect
that technological growth or the availability of alternative
forms of entertainment may have on the potential revenue from
and profitability of our animated feature films. In addition,
certain outlets for the distribution of motion pictures may not
obtain the public acceptance that is or was previously
predicted. For example, while we have benefited from the rapid
growth in the digital versatile disk, or DVD market, we cannot
assure that such growth will continue, or that other developing
distribution channels, such as video-on-demand, will be accepted
by the public or that, if they are accepted by the public, that
we will be successful in exploiting such channels. Moreover, to
the extent that other distribution channels gain popular
acceptance, it is possible that demand for existing delivery
channels, such as DVDs, will decrease. If we are unable to
exploit new delivery channels to the same extent that we have
exploited existing channels, our business, results of operations
or financial condition could be materially adversely affected.
</FONT>

<P align="left">
<B><FONT size="2">We have not operated as an independent
company, and we do business in a relatively new industry, each
of which makes it more difficult to predict whether our business
model is sound.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering, we
will have been a business division of DreamWorks Studios.
Accordingly, we have no experience operating as an independent
company implementing our own business model and an evaluation of
our prospects is difficult to make, particularly in light of the
fact that CG animation constitutes a relatively new form of
animated filmmaking and has been successfully exploited since
only 1995. Our prospects must be considered in light of the
risks, expenses and difficulties encountered by companies in the
early stages of independent business operations, particularly
companies in highly competitive markets. To address these risks,
we must, among other things, respond to changes in the
competitive environment, continue to attract, retain and
motivate qualified persons and continue to upgrade our
technologies. We cannot provide any assurances that we will be
successful in addressing such risks.
</FONT>

<P align="left">
<B><FONT size="2">Our historical and pro forma financial
information may not be indicative of our results as a separate
company.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our historical financial information presented in
this document does not reflect what our results of operations,
financial condition and cash flows would have been had we been a
separate, stand-alone entity pursuing independent strategies
during the periods presented. For example, our historical
combined financial statements do not reflect what our results of
operations, financial condition or cash flows would have been
had the Distribution Agreement been in place for all periods
presented. In addition, our historical financial information
does not reflect what our results of operations, financial
condition and cash flows would have been had we shifted to our
current business model of primarily producing CG animated films
at an earlier date. Furthermore, our pro forma combined
financial statements do not necessarily reflect what our results
of operations would have been had we been a stand-alone company
operating under the Distribution Agreement in all periods. As a
result, our historical and pro forma financial information is
not necessarily indicative of our future results of operations,
financial condition or cash flows.
</FONT>

<P align="center"><FONT size="2">17
</FONT>
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<P align="left">
<B><FONT size="2">We could be adversely affected by strikes and
other union activity.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Along with the major U.S.&nbsp;film studios, we
employ members of the International Alliance of Theatrical and
Stage Employees, or IATSE, on many of our productions. We are
subject to a collective bargaining agreement with the IATSE that
expires in August 2006. We are also subject to a collective
bargaining agreement with Local&nbsp;839 of IATSE. We also
employ members of the Screen Actors Guild, or SAG, and we have
signed an industry-wide collective bargaining agreement with SAG
that expires on June&nbsp;30, 2005. We may also become subject
to additional collective bargaining agreements. A strike by one
or more of the unions that provide personnel essential to the
production of our feature films could delay or halt our ongoing
production activities. Such a halt or delay, depending on the
length of time involved, could cause the delay of the release
date of our feature films and thereby could adversely affect the
revenue that the film generates.
</FONT>

<P align="left">
<B><FONT size="2">To be successful, we must continue to attract
and retain qualified personnel and our inability to do so would
adversely affect the quality of our films.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success continues to depend to a significant
extent on our ability to identify, attract, hire, train and
retain qualified creative, technical and managerial personnel.
Competition for the caliber of talent required to make our
films, particularly for our film directors, producers,
animators, creative and technology personnel, will continue to
intensify as other studios build their in-house CG animation or
special effects capabilities. For example, Lucasfilm Ltd. has
announced its intent to make CG animated feature films and Sony
has announced that it is producing its first CG animated feature
film. In addition, we believe Disney has begun to focus more
heavily on CG animated feature films. The entrance of additional
film studios into the CG animated film industry will increase
the demand for the limited number of talented CG animators and
programmers. There can be no assurance that we will be
successful in identifying, attracting, hiring, training and
retaining such qualified personnel in the future. If we were
unable to hire and retain qualified personnel in the future,
particularly film directors, producers, animators, creative
personnel and technical directors, there could be a material
adverse effect on our business, operating results or financial
condition.
</FONT>

<P align="left">
<B><FONT size="2">We depend on technology and computer systems
for the timely and successful development of our animated
feature films and related products.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because we are dependent upon a large number of
software applications and computers for the development and
production of our animated feature films, an error or defect in
the software, a failure in the hardware, a failure of our backup
facilities or a delay in delivery of products and services could
result in significantly increased production costs for a feature
film. Moreover, if a software or hardware problem is significant
enough, it could result in delays in one or more productions,
which in turn could result in potentially significant delays in
the release dates of our feature films or affect our ability to
complete the production of a feature film. Significant delays in
production and significant delays in release dates, as well as
the failure to complete a production, could have a material
adverse effect on our results of operations. In addition,
because we seek to make cutting edge CG animated films, we must
ensure that our production environment integrates the latest CG
animation tools and techniques developed in the industry. To
accomplish this, we can either develop these capabilities by
upgrading our proprietary software, which can result in
substantial research and development costs, or we can seek to
purchase third-party licenses, which can also result in
significant expenditures. In the event we seek to obtain
third-party licenses, we cannot guarantee that they will be
available or, once obtained, will continue to be available on
commercially reasonable terms, or at all.
</FONT>

<P align="left">
<B><FONT size="2">Our revenue may be adversely affected if we
fail to protect our proprietary technology or enhance or develop
new technology.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We depend on our proprietary technology to
develop and produce our CG animated feature films. We rely on a
combination of patents, copyright and trade secret protection
and nondisclosure agreements to establish and protect our
proprietary rights. We currently have five patents in force and
11 patent applications pending in the United States. We cannot
provide any assurances that patents will issue from any of these
pending applications or that, if patents do issue, any claims
allowed will be sufficiently broad to protect our
</FONT>

<P align="center"><FONT size="2">18
</FONT>
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<DIV align="left">
<FONT size="2">technology or that they will not be challenged,
invalidated or circumvented. In addition, we also rely on
third-party software to produce our films, which is readily
available to others. Failure of our patents, copyrights and
trade secret protection, non-disclosure agreements and other
measures to provide protection of our technology and the
availability of third-party software may make it easier for our
competitors to obtain technology equivalent to or superior to
our technology. If our competitors develop or license technology
that is superior to ours or that makes our technology obsolete,
our films could become uneconomical to make. In such a case, we
may be required to incur significant costs to enhance or acquire
new technology so that our feature films remain competitive. We
cannot assure you that such costs would not have a material
adverse affect on our business, financial condition or results
of operations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we may be required to litigate in
the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others, or to defend against claims
of infringement or invalidity. Any such litigation could result
in substantial costs and diversion of resources and could have a
material adverse effect on our business, financial condition or
results of operations.
</FONT>

<P align="left">
<B><FONT size="2">Third-party technology licenses may not
continue to be available to us in the future.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to our proprietary technology, we
also rely on certain technology that we license from
third-parties, including software that we use with our
proprietary software. We cannot provide any assurances that
these third-party technology licenses will continue to be
available to us on commercially reasonable terms or at all. The
loss of, or inability to maintain any of these technology
licenses, or our inability to complete a given feature film,
could result in delays in feature film releases until equivalent
technology could be identified, licensed and integrated. Any
such delays or failures in feature film releases could
materially adversely affect our business, financial condition or
results of operations.
</FONT>

<P align="left">
<B><FONT size="2">Others may assert intellectual property
infringement claims against us.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">One of the risks of the CG animated film
production business is the possibility of claims that our
productions and production techniques misappropriate or infringe
the intellectual property rights of third-parties with respect
to their technology and software, previously developed films,
stories, characters, other entertainment or intellectual
property. We have received, and are likely to receive in the
future, claims of infringement of other parties&#146;
proprietary rights. There can be no assurance that infringement
or misappropriation claims (or claims for indemnification
resulting from such claims) will not be asserted or prosecuted
against us, or that any assertions or prosecutions will not
materially adversely affect our business, financial condition or
results of operations. Irrespective of the validity or the
successful assertion of such claims, we would incur significant
costs and diversion of resources with respect to the defense
thereof, which could have a material adverse effect on our
business, financial condition or results of operations. If any
claims or actions are asserted against us, we may seek to obtain
a license of a third-party&#146;s intellectual property rights.
We cannot provide any assurances, however, that under such
circumstances a license would be available on reasonable terms
or at all.
</FONT>

<P align="left">
<B><FONT size="2">Forecasting film revenue and associated gross
profits from our feature films prior to release is extremely
difficult and may result in significant write-offs.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are required to amortize capitalized film
production costs over the expected revenue streams as we
recognize revenue from the associated films. The amount of film
production costs that will be amortized each quarter depends on
how much future revenue we expect to receive from each film.
Unamortized film production costs are evaluated for impairment
each reporting period on a film-by-film basis. If estimated
remaining revenue is not sufficient to recover the unamortized
film production costs, the unamortized film production costs
will be written down to fair value. In any given quarter, if we
lower our previous forecast with respect to total anticipated
revenue from any individual feature film, we would be required
to accelerate amortization of related film costs. Such
accelerated amortization would adversely impact our business,
operating results and financial condition. In addition, we base
our estimates of revenue on information supplied to us from
DreamWorks Studios and other sources. If the information is not
provided in a timely manner or is
</FONT>

<P align="center"><FONT size="2">19
</FONT>
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<FONT size="2">incorrect, the amount of revenue and related
expenses that we recognize from our animated feature films and
related products could be wrong, which could result in
fluctuations in our earnings.
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Risks Related to Investing in Our
Stock</FONT></B>

<P align="left">
<B><FONT size="2">No market currently exists for our common
stock. We cannot assure you that an active trading market will
develop for our Class&nbsp;A common stock.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for shares of our common stock. We cannot predict the
extent to which investor interest in our company will lead to
the development of a trading market
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;or
otherwise or how liquid that market might become. The initial
public offering price for the shares of our Class&nbsp;A common
stock is or will be determined by negotiations between us, the
selling stockholders and the underwriters and may not be
indicative of prices that will prevail in the open market
following this offering.
</FONT>

<P align="left">
<B><FONT size="2">If our stock price fluctuates after this
offering, you could lose a significant part of your
investment.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our stock may be influenced
by many factors, some of which are beyond our control, including
those described above under &#147;&#151;&nbsp;Risks Related to
Our Business&#148; and the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the failure of securities analysts to cover our
    Class&nbsp;A common stock after this offering or changes in
    financial estimates by analysts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">announcements by us or our competitors of
    significant contracts, productions, acquisitions, or capital
    commitments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">variations in quarterly operating results;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general economic conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">terrorist acts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">future sales of our common stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">investor perception of us and the filmmaking
    industry.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of these factors, investors in our
Class&nbsp;A common stock may not be able to resell their shares
at or above the initial offering price. In addition, the stock
market in general has experienced extreme price and volume
fluctuations that have often been unrelated to and
disproportionate to the operating performance of movie studios.
These broad market and industry factors may materially reduce
the market price of our Class&nbsp;A common stock, regardless of
our operating performance.
</FONT>

<P align="left">
<B><FONT size="2">We have agreed to effect one or more secondary
follow-on offerings of our Class&nbsp;A common stock after this
offering. Sales of our Class&nbsp;A common stock in such
follow-on offerings may cause the market price of our
Class&nbsp;A common stock to drop significantly, even if our
business is doing well.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Vulcan, entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen and all other
members of DreamWorks Studios who so elect will contribute their
shares of our common stock (other than one share of Class&nbsp;C
common stock that will be held by Vulcan directly) not sold in
this offering to Holdco. In connection with the establishment of
Holdco, we have agreed that Jeffrey Katzenberg and David Geffen
(or entities controlled by them), acting together, or Vulcan may
select the timing of one follow-on secondary offering of
Class&nbsp;A common stock from the common stock held by Holdco,
which must occur during the period beginning six months after
this offering and ending on May&nbsp;31, 2006. DreamWorks
Studios&#146; members that elect to contribute their shares to
Holdco will be entitled to receive a minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from a combination of sales of secondary
shares in this offering and sales of shares in the follow-on
secondary offering, subject in the case of entities controlled
by Steven Spielberg, Jeffrey Katzenberg and David Geffen, to the
365 day lock-up described in the following risk factor.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the DreamWorks Studios members participating
in this offering and the follow-on offering have not received a
minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from a combination of sales of secondary
shares in
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<DIV align="left">
<FONT size="2">this offering and the follow-on offering prior to
May&nbsp;31, 2006, Vulcan will have the ability to initiate an
additional follow-on offering during the 18-month period
beginning May&nbsp;31, 2006. See &#147;Related Party
Agreements&nbsp;&#151; Escrow and Distribution Arrangement.&#148;
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These follow-on offerings may cause the market
price of our Class&nbsp;A common stock to drop significantly,
even if our business is doing well.
</FONT>

<P align="left">
<B><FONT size="2">Shares eligible for future sale may cause the
market price of our Class&nbsp;A common stock to drop
significantly, even if our business is doing well.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our Class&nbsp;A common stock
could decline as a result of sales of a large number of shares
of our Class&nbsp;A common stock in the market after this
offering or the perception that these sales could occur. These
sales, or the possibility that these sales may occur, also might
make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the consummation of this offering, there
will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock
(&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise their over-allotment option in
full), &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;B common stock and one share of our
Class&nbsp;C common stock outstanding. The shares of
Class&nbsp;B common stock and Class&nbsp;C common stock are
convertible into Class&nbsp;A common stock on a one-for-one
basis.
The &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock sold in this offering
(&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise their over-allotment option in
full) will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended, by
persons other than our affiliates within the meaning of
Rule&nbsp;144 under the Securities Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the follow-on secondary offering
described in the previous risk factor, following the
distribution of shares by Holdco to certain members of
DreamWorks Studios, each of Steven Spielberg, Jeffrey
Katzenberg, David Geffen and Vulcan or entities controlled by
them or their permitted transferees will, subject to the lock-up
described below, be able to sell their shares in the public
market from time to time without registering them, subject to
certain limitations on the timing, amount and method of those
sales imposed by regulations promulgated by the Securities and
Exchange Commission (the &#147;SEC&#148;). Each of Steven
Spielberg, Jeffrey Katzenberg, David Geffen, DreamWorks Studios,
Vulcan, certain other stockholders, entities controlled by them
and certain of their permitted transferees will also have the
right to cause us to register the sale of shares of Class&nbsp;A
common stock beneficially owned by them. In addition, DreamWorks
Studios and each of our stockholders that is a member of
DreamWorks Studios on the closing date will have the right to
include shares of Class&nbsp;A common stock beneficially owned
by them (including the Class&nbsp;A common stock into which our
Class&nbsp;B and Class&nbsp;C common stock is convertible) in
certain future registration statements relating to our
securities. If any of Steven Spielberg, Jeffrey Katzenberg,
David Geffen, DreamWorks Studios, Holdco, Vulcan, entities
controlled by them or their respective permitted transferees
were to sell a large number of their shares, including in the
follow-on secondary offering described above, the market price
of our Class&nbsp;A common stock could decline significantly. In
addition, the perception in the public markets that sales by
them might occur could also adversely affect the market price of
our Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed to a lock-up period, meaning that they and
their permitted transferees may not sell any of their shares
without the prior consent of the underwriters of this offering
for 365&nbsp;days after the date of this prospectus. Each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180&nbsp;day lock-up period with the
underwriters. In addition to these lock-up agreements, sales of
our Class&nbsp;A common stock will also be restricted by lock-up
agreements for a minimum of 180&nbsp;days that we, our
directors, executive officers and certain of our employees will
enter into with the underwriters. These lock-up agreements will
restrict us and these shareholders, subject to specified
exceptions, from selling or otherwise disposing of any shares
for a minimum period of 180&nbsp;days after the date of this
prospectus without the prior consent of the underwriters.
Although there is no present intention to do so, the
underwriters may, in their sole discretion and without notice,
release all or any portion of the shares from the restrictions
in any of the lock-up agreements described above. In addition to
the lock-up agreements described above, Vulcan and entities
</FONT>

<P align="center"><FONT size="2">21
</FONT>
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<DIV align="left">
<FONT size="2">controlled by Steven Spielberg, Jeffrey
Katzenberg and David Geffen will agree to certain trading and
hedging limitations until the release of shares by Holdco.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we expect DreamWorks Studios to
pledge
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;B common stock as security for its obligations
under its revolving credit agreement. Under certain
circumstances following an event of default by DreamWorks
Studios under that revolving credit agreement, the lenders will
be entitled to take possession of the pledged shares of common
stock (after converting any pledged Class&nbsp;B common stock
into Class&nbsp;A common stock) and sell them in the open
market, subject to applicable bankruptcy, securities and other
laws, as well as any applicable lock-up agreements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Also, in the future, we may issue our securities
in connection with investments and acquisitions. The amount of
our common stock issued in connection with an investment or
acquisition could constitute a material portion of our then
outstanding common stock.
</FONT>

<P align="left">
<B><FONT size="2">A few significant stockholders control the
direction of our business. The concentrated ownership of our
common stock and certain corporate governance arrangements will
prevent you and other stockholders from influencing significant
corporate decisions.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following completion of this offering:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Studios will own &nbsp;&nbsp;% of the
    outstanding shares of our Class&nbsp;B common stock (over which
    Jeffrey Katzenberg and David Geffen will have voting control),
    which represents &nbsp;&nbsp;% of our common equity
    and &nbsp;&nbsp;% of the total voting power of our common stock,
    or &nbsp;&nbsp;% of our common equity and &nbsp;&nbsp;% of the
    total voting power of our common stock if the underwriters
    exercise their over-allotment option in full;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Holdco, which will be controlled by Jeffrey
    Katzenberg and David Geffen or entities controlled by them
    (subject to certain approval rights of Holdco&#146;s limited
    partners), will own &nbsp;&nbsp;% of the outstanding shares of
    our Class&nbsp;B common stock (over which Jeffrey Katzenberg and
    David Geffen or entities controlled by them will have voting
    control, except in the case of a class vote of the Class&nbsp;A
    common stock), which represents &nbsp;&nbsp;% of our common
    equity and &nbsp;&nbsp;% of the total voting power of our common
    stock, or &nbsp;&nbsp;% of our common equity and &nbsp;&nbsp;%
    of the total voting power of our common stock if the
    underwriters exercise their over-allotment option in full.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accordingly, Jeffrey Katzenberg and David Geffen
or entities controlled by them generally will have the
collective ability to control all matters requiring stockholder
approval, including the nomination and election of directors
(other than the director elected by Vulcan as the holder of
Class&nbsp;C common stock), the determination of our corporate
and management policies and the determination, without the
consent of our other stockholders, of the outcome of any
corporate transaction or other matter submitted to our
stockholders for approval, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions. In addition, the disproportionate voting rights of
the Class&nbsp;B common stock relative to the Class&nbsp;A
common stock and the Class&nbsp;C common stock may make us a
less attractive takeover target.
</FONT>

<P align="left">
<B><FONT size="2">The interests of our controlling and
significant stockholders may conflict with the interests of our
other stockholders.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We cannot assure you that the interests of
Jeffrey Katzenberg, David Geffen, Steven Spielberg, DreamWorks
Studios and Vulcan, or entities controlled by them, will
coincide with the interests of the holders of our Class&nbsp;A
common stock. For example, Jeffrey Katzenberg and David Geffen,
or entities controlled by them, could cause us to make
acquisitions that increase the amount of our indebtedness or
outstanding shares of common stock or sell revenue-generating
assets. Additionally, DreamWorks Studios and Steven Spielberg
are in the business of making movies and derivative products and
may, from time to time, compete directly or indirectly with us
or prevent us from taking advantage of corporate opportunities.
Jeffrey Katzenberg, Steven Spielberg, David Geffen and
DreamWorks Studios may also pursue acquisition opportunities
that may be complementary to our business, and as a result,
those acquisition opportunities may not be available to us. Our
restated certificate of incorporation provides for the
allocation of corporate opportunities between us, on the one
hand, and DreamWorks Studios and certain of its affiliates, on
the other hand, which could prevent us
</FONT>

<P align="center"><FONT size="2">22
</FONT>
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<DIV align="left">
<FONT size="2">from taking advantage of certain corporate
opportunities. See &#147;Description of Capital
Stock&nbsp;&#151; Corporate Opportunities.&#148; So long as
Jeffrey Katzenberg, David Geffen, or entities controlled by
them, and DreamWorks Studios continue to collectively own shares
of our Class&nbsp;B common stock with significant voting power,
Jeffrey Katzenberg and David Geffen, or entities controlled by
them, will continue to collectively be able to strongly
influence or effectively control our decisions.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under certain circumstances, Jeffrey Katzenberg
and David Geffen, or entities controlled by them, could cease to
have a majority of the voting control of our common stock, in
which case other significant stockholders may be able to
strongly influence or effectively control our decisions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, we expect to enter into a tax
agreement with Vulcan in connection with our separation from
DreamWorks Studios. We expect that as a result of certain
transactions that Vulcan may engage in, future income taxes that
we will be required to pay to various tax authorities may be
reduced as a result of a partial increase in the tax basis of
our tangible and intangible assets. We will be required to pay
to Vulcan a portion of the amounts by which our income taxes are
actually reduced, subject to repayment provisions if it is
determined that these tax savings should not have been available
to us. As a result, the interests of Vulcan and the holders of
our Class&nbsp;A common stock could differ.
</FONT>

<P align="left">
<B><FONT size="2">Public investors will experience immediate and
substantial dilution as a result of this offering.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior investors have paid substantially less per
share for our common stock than the assumed initial public
offering price in this offering. Accordingly, if you purchase
common stock in this offering, you will experience immediate and
substantial dilution of your investment. Based upon the issuance
and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of common stock by us at an assumed initial public
offering price of $&nbsp;&nbsp;&nbsp;per share (the midpoint of
the price range set forth on the cover page of this prospectus),
you will incur immediate dilution of approximately
$&nbsp;&nbsp;in the net tangible book value per share if you
purchase shares in this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also have
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
stock options to purchase common stock with exercise prices that
are below the assumed initial public offering price of the
common stock. To the extent that these options are exercised,
there will be further dilution.
</FONT>

<P align="left">
<B><FONT size="2">Anti-takeover provisions of our charter and
by-laws, as well as Delaware law may reduce the likelihood of
any potential change of control or unsolicited acquisition
proposal that you might consider favorable.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The anti-takeover provisions of Delaware law
impose various impediments to the ability of a third-party to
acquire control of us, even if a change in control would be
beneficial to our existing stockholders. Additionally,
provisions of our charter and by-laws could deter, delay or
prevent a third-party from acquiring us, even if doing so would
benefit our stockholders. These provisions include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the division of our capital stock into
    Class&nbsp;A common stock and Class&nbsp;C common stock, each
    entitled to one vote per share, and Class&nbsp;B common stock,
    entitled to 15&nbsp;votes per share, all of which will initially
    be owned or controlled by Jeffrey Katzenberg, David Geffen,
    Holdco and DreamWorks Studios;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the right of the holder of Class&nbsp;C common
    stock (voting as a separate class) to elect one director;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the authority of the board to issue preferred
    stock with terms as the board may determine;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the prohibition of cumulative voting in the
    election of directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">following such time as the outstanding shares of
    Class&nbsp;B common stock cease to represent a majority of the
    combined voting power of the voting stock, prohibition on
    stockholder action by written consent;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limitations on who may call special meetings of
    stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advance notice requirements for stockholder
    proposals;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">following such time as the outstanding shares of
    Class&nbsp;B common stock cease to represent a majority of the
    combined voting power of the voting stock, super-majority voting
    requirements for stockholders to amend the by-laws;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">stockholder super-majority voting requirements to
    amend certain provisions of the charter.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">23
</FONT>
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<DIV align="left">
<FONT size="2"> <A name='103'></A>
</FONT>
</DIV>

<!-- link1 "FORWARD-LOOKING STATEMENTS" -->

<P align="center">
<B><FONT size="2">FORWARD-LOOKING STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus contains forward-looking
statements that are based on current expectations, estimates,
forecasts and projections about the industry in which we
operate, management&#146;s beliefs and assumptions made by
management. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings
&#147;Prospectus Summary,&#148; &#147;Risk Factors,&#148;
&#147;Unaudited Pro Forma Financial Information,&#148;
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and
&#147;Business.&#148; Words such as &#147;expect,&#148;
&#147;anticipate,&#148; &#147;intend,&#148; &#147;plan,&#148;
&#147;believe,&#148; &#147;seek,&#148; &#147;estimate,&#148;
variations of such words and similar expressions are intended to
identify such forward looking statements. These statements are
not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements. Except as required under the federal securities laws
and the rules and regulations of the Securities and Exchange
Commission, we do not have any intention or obligation to update
publicly any forward-looking statements after we distribute this
prospectus, whether as a result of new information, future
events or otherwise.
</FONT>

<P align="center"><FONT size="2">24
</FONT>

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<DIV align="left">
<FONT size="2"> <A name='104'></A>
</FONT>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that we will receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in net proceeds from this offering assuming an initial public
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range set forth on the cover page of
this prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses and assuming no
exercise of the underwriters&#146; over-allotment option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to retain approximately
$175&nbsp;million of the net proceeds of the Class&nbsp;A common
stock offered by us for general corporate and working capital
purposes, including possible acquisitions, joint ventures and
investments. In addition, we will use the remaining net proceeds
to repay all or a portion of the indebtedness that we intend to
assume from DreamWorks Studios in connection with our
separation, which we expect will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
We expect that the debt that we assume will have a maturity date
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
bear an interest rate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;basis
points above LIBOR. We have no current agreements or commitments
with respect to any potential acquisitions, joint ventures or
investments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not receive any of the proceeds from the
sale of shares of our Class&nbsp;A common stock by the selling
stockholders.
</FONT>

<P align="center"><FONT size="2">25
</FONT>

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<DIV align="left">
<FONT size="2"> <A name='105'></A>
</FONT>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently intend to retain all our earnings to
finance the growth and development of our business. We do not
anticipate paying any dividends on our common stock in the
foreseeable future. Any future change in our dividend policy
will be made at the discretion of our board of directors and
will depend on contractual restrictions contained in our credit
facility or other agreements, our results of operations,
earnings, capital requirements and other factors considered
relevant by our board of directors.
</FONT>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you invest in our Class&nbsp;A common stock,
your interest will be diluted to the extent of the difference
between the initial public offering price per share of our
Class&nbsp;A common stock and the net tangible book value per
share of our common stock after this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided
by the number of shares of common stock then outstanding. Our
net tangible book value as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 was approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share based
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding as of such date. After giving effect
to our sale of shares of Class&nbsp;A common stock in this
offering at the initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the price range set forth on the cover
page of this prospectus), and after deducting estimated
underwriting discounts and estimated offering expenses, our net
tangible book value as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 would have been
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock (assuming no exercise of the
underwriters&#146; over-allotment option). This represents an
immediate increase in the net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to existing common stockholders and an immediate and
substantial dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors purchasing common stock in this offering.
Tangible assets consist of trade receivables, receivables due
from DreamWorks Studios, film inventories, property, plant and
equipment and other tangible assets of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
which include non-trade receivables of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
included in other current assets and investments of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
included in other assets. The following table illustrates this
dilution per share:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumed initial public offering price per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value per share as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in net tangible book value per share
    attributable to this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value per share after giving
    effect to this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution per share to new investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The foregoing discussion and tables assume no
exercise of outstanding stock options. As
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004, there were options outstanding to purchase a total
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock at a weighted average exercise
price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. To the extent that any of these options are exercised,
there may be further dilution to new investors.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

<P align="center">
<B><FONT size="2">CAPITALIZATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth, as of
March&nbsp;31, 2004, (a)&nbsp;our historical capitalization and
(b)&nbsp;our pro forma as adjusted capitalization, which gives
effect to our issuance and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock offered hereby (at an assumed
initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the midpoint of the range of the initial public offering
price set forth on the cover page of this prospectus, and after
deducting the underwriting discount and estimated expenses of
the offering and assuming no exercise of the underwriters&#146;
over-allotment option) and the application of the net proceeds
of the offering as described under the heading &#147;Use of
Proceeds.&#148;
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of March&nbsp;31, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Obligations under capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt allocated by DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock, par value
    $.01&nbsp;per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted<SUP>(1)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;B common stock, par value
    $.01&nbsp;per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;C common stock, par value $.01 per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not include (a)&nbsp;options issued under
    our 2004 Equity Compensation Plan
    for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock with a weighted average exercise
    price
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share, and
    (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock reserved for issuance under our
    2004 Equity Compensation Plan under which options
    for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock will be issued on the date hereof at the
    offering price set forth on the cover page hereof.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2"> <A name='108'></A>
</FONT>
</DIV>

<!-- link1 "UNAUDITED PRO FORMA FINANCIAL INFORMATION" -->

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA FINANCIAL
INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following unaudited pro forma financial
information should be read in conjunction with our
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and our combined
financial statements and the notes to our combined financial
statements included elsewhere in this prospectus. The unaudited
pro forma combined statements of operation were prepared
(i)&nbsp;as if the Distribution Agreement had become effective
on January&nbsp;1, 2003 and had been in effect in all periods
since and (ii)&nbsp;as if we had been taxable as a corporation
since January&nbsp;1, 2003 in all periods presented.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments are based upon
available information and assumptions that we believe are
reasonable and do not give effect to any transactions other than
those mentioned above, including those contemplated by the
Services Agreement. Please see the notes to our unaudited pro
forma combined financial statements for a more detailed
discussion of how the adjustments described above are presented
in our pro forma combined financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The primary result of giving pro forma effect to
the Distribution Agreement as of January&nbsp;1, 2003 is that we
recognize revenue net of (i)&nbsp;DreamWorks Studios&#146; 8.0%
distribution fee and (ii)&nbsp;the distribution and marketing
costs that DreamWorks Studios incurs for our films. In all
periods presented, this results in a substantial reduction to
our revenue. In addition, our costs of revenue decline because
we no longer incur distribution and marketing costs and
third-party distribution and fulfillment services fees. Also,
selling, general and administrative expenses are reduced because
we are no longer allocated overhead costs related to DreamWorks
Studios&#146; marketing and distribution departments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma effect of these adjustments is to
decrease our net loss in the periods presented primarily due to
timing differences. Over a longer time period, we believe our
pro forma net loss would not have changed substantially from our
historical net loss. As a result of the timing differences
arising from giving effect to the Distribution Agreement,
DreamWorks Studios generally will recoup in later periods the
distribution and marketing costs incurred by it in earlier
periods, thereby lowering our revenue and net income in later
periods. In addition, although during the periods presented the
pro forma distribution fee is approximately equal to or less
than allocated overhead costs and third-party distribution and
fulfillment services fees to be borne by DreamWorks Studios,
over a longer period of time, DreamWorks Studios&#146;
distribution fees (which will reduce our operating revenue) are
expected to be higher than these allocated overhead costs and
third-party distribution and fulfillment services fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma effects of the Distribution
Agreement also shift the timing of amortization of film
inventory from period to period, although the total amount of
film inventory amortized does not change. Under the Distribution
Agreement, the revenue that we recognize from our films will be
net of the distribution fee and the distribution and marketing
costs that DreamWorks Studios incurs. Because amortization of
film inventory is based on the ratio that current period actual
revenue bears to estimated remaining unrecognized revenue, the
pro forma reductions in revenue result in pro forma changes in
film amortization for the periods presented.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma combined financial
statements also include a provision for pro forma income tax to
reflect federal income taxes that we would have been required to
pay had we been a taxable corporation since January&nbsp;1,
2003. These pro forma federal income taxes are separate from and
in addition to the foreign withholding taxes and state franchise
taxes shown in our historical financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following unaudited pro forma combined
financial statements have been derived from the combined
financial statements included elsewhere in this prospectus and
do not purport (i)&nbsp;to represent what our financial position
and results of operations actually would have been had we been a
stand-alone taxable corporation operating under the Distribution
Agreement for the periods presented or (ii)&nbsp;to project our
financial performance for any future period.
</FONT>

<P align="center"><FONT size="2">28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Year Ended December&nbsp;31,
2003</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(127,705</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,869</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(2)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">438,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(144,660</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(142,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(125,784</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,633</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(167,649</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(138,061</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,730</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,730</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(184,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(155,151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(447</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,286</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before cumulative effect of
    accounting change
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(157,437</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting change
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(159,959</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects the reduction in operating revenue that
    would have occurred had the Distribution Agreement been in
    effect as of January&nbsp;1, 2003. Under the terms of the
    Distribution Agreement, DreamWorks Studios would have been
    entitled to retain a distribution fee equal to 8.0% of revenue
    (without deduction for any distribution and marketing costs or
    third-party distribution and fulfillment services fees) with
    respect to our films, or approximately $22.9&nbsp;million.
    DreamWorks Studios would also have been entitled to recoup
    distribution and marketing costs out of this revenue in the
    amount of approximately $104.8&nbsp;million.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Distribution and marketing costs for our films
    incurred prior to the effective date of the Distribution
    Agreement are reflected in costs of revenue in our historical
    financial statements for the year ended December&nbsp;31, 2002.
    Had we given pro forma effect to the Distribution Agreement in
    2002, these expenses, to the extent they would not have been
    recouped in 2002, would have reduced our pro forma operating
    revenue in 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects a reduction in distribution and
    marketing costs of approximately $142.0&nbsp;million as these
    costs are borne by DreamWorks Studios under the terms of the
    Distribution Agreement. In addition, reflects the elimination of
    distribution and fulfillment services fees payable primarily to
    Universal Studios and CJ&nbsp;Entertainment, in the amount of
    approximately $9.9&nbsp;million, as these costs are solely borne
    by DreamWorks Studios pursuant to the Distribution Agreement.
    These reductions are partially offset by an increase in
    production costs amortization of approximately $7.3&nbsp;million
    as, under the individual-film-forecast-computation-method, the
    revenue that we would have recognized in this period would have
    represented a higher proportion of the total revenue that we
    would have estimated our released films to ultimately produce.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects the elimination of allocated overhead
    costs that are primarily related to the salaries and benefits of
    employees in DreamWorks Studios&#146; distribution and marketing
    departments, as these costs will be solely borne by DreamWorks
    Studios pursuant to the Distribution Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects additional federal and state income
    taxes that we would have been required to pay had we been a
    taxable corporation since January&nbsp;1, 2003.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Three Months Ended March&nbsp;31,
2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,514</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(36,966</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,697</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(282</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,541</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,541</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,618</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,772</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects the reduction in operating revenue that
    would have occurred had the Distribution Agreement been in
    effect as of January&nbsp;1, 2003. Under the terms of the
    Distribution Agreement, DreamWorks Studios would have been
    entitled to retain a distribution fee equal to 8.0% of revenue
    (without deduction for any distribution and marketing costs or
    third-party distribution and fulfillment services fees) with
    respect to our films, or approximately $3.2&nbsp;million.
    DreamWorks Studios would also have been entitled to recoup
    distribution and marketing costs out of this revenue in the
    amount of approximately $25.3&nbsp;million.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects a reduction in distribution and
    marketing costs of approximately $30.1&nbsp;million, as these
    costs are borne by DreamWorks Studios under the terms of the
    Distribution Agreement. In addition, reflects the elimination of
    distribution and fulfillment services fees payable primarily to
    Universal Studios and CJ Entertainment, in the amount of
    approximately $1.7&nbsp;million, as these costs are solely borne
    by DreamWorks Studios pursuant to the Distribution Agreement. In
    addition, reflects a decrease in production costs amortization
    of approximately $5.2&nbsp;million as, under the
    individual-film-forecast-computation-method, the revenue that we
    would have recognized in this period would have represented a
    lower proportion of the total revenue that we would have
    estimated our released films to ultimately produce.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects the elimination of allocated overhead
    costs that are primarily related to the salaries and benefits of
    employees in DreamWorks Studios&#146; distribution and marketing
    departments, as these costs will be solely borne by DreamWorks
    Studios pursuant to the Distribution Agreement.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects federal and state income taxes that we
    would have been required to pay, if any, had we been a taxable
    corporation since January&nbsp;1, 2003.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">30
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "SELECTED FINANCIAL DATA" -->

<P align="center">
<B><FONT size="2">SELECTED FINANCIAL DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our selected
financial information derived from our unaudited combined
financial statements as of and for the years ended
December&nbsp;31, 1999 and 2000, the audited combined financial
statements as of and for the years ended December&nbsp;31, 2001,
2002 and 2003, and the unaudited combined financial statements
for the three months ended March&nbsp;31, 2003 and as of and for
the three months ended March&nbsp;31, 2004. The historical
selected financial information may not be indicative of our
future performance as a stand-alone company. The historical
selected financial information should be read in conjunction
with &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations,&#148; the
combined financial statements and notes to our combined
financial statements and the unaudited pro forma combined
financial statements and notes to our unaudited pro forma
combined financial statements included elsewhere in this
prospectus.
</FONT>

<P align="center">
<B><FONT size="2">Combined Statement of Operations
Data</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Audited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">397,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">661,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">456,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">340,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">372,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">509,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">438,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(142,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(108,069</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(167,649</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,212</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(812</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,585</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,541</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,005</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,419</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,730</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,300</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes and cumulative
    effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(114,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(184,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,861</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,618</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(85</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before cumulative effect of
    accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(115,490</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,743</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(115,490</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">Combined Balance Sheet Data</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Audited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Assets</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables from employees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">501,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">516,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">444,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">475,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net of accumulated
    depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments in joint ventures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred costs, net of amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">641,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">703,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Liabilities and Owner&#146;s Equity
    (Deficiency)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advances and unearned revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Obligations under capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,732</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt allocated by DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">283,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">168,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">418,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,612</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">355,005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">220,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">498,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">686,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">698,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-controlling minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">286,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">483,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">480,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">641,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">703,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">32
</FONT>

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<DIV align="left">
<A name='110'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL</FONT></B>

<DIV align="center">
<B><FONT size="2">CONDITION AND RESULTS OF OPERATIONS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This management&#146;s discussion and analysis
of financial condition and results of operations contains
forward-looking statements that involve risks and uncertainties.
Please see &#147;Forward-Looking Statements&#148; for a
discussion of the uncertainties, risks and assumptions
associated with these statements. You should read the following
discussion in conjunction with our audited and unaudited
combined financial statements, the notes to our audited combined
financial statements, our unaudited pro&nbsp;forma combined
financial statements and the notes to our unaudited pro forma
combined financial statements included elsewhere in this
prospectus. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of
various factors, including but not limited to those listed under
&#147;Risk Factors&#148; and included in other portions of this
prospectus.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have been developing and producing animated
films as a division of DreamWorks Studios since its formation in
1994 and our assets, liabilities and operating results have been
included in DreamWorks Studios&#146; financial statements since
that time. As part of our separation from DreamWorks Studios, on
the date of the consummation of this offering, DreamWorks
Studios will contribute to us, by way of merger or otherwise,
the subsidiaries, assets and liabilities that have comprised its
animation business. Please see &#147;Related Party
Agreements&nbsp;&#151; Separation Agreement&#148; for a
description of the separation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audited combined financial statements, which
are discussed below, reflect the historical position, results of
operations and cash flows of the businesses that will be
transferred to us from DreamWorks Studios pursuant to the
separation. The financial information included in this
prospectus, however, does not reflect what our financial
position, results of operations and cash flows will be in the
future or what our financial position, results of operations and
cash flows would have been in the past had we been a separate,
stand-alone company during the periods presented.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sources of
Revenue</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our feature films are the source of substantially
all of our revenue, which is derived through their worldwide
exploitation in sequential domestic and international
distribution channels, typically beginning with domestic
theatrical exhibition. Historically, we have released an average
of one film per year. In the future, we expect to release two
films per year. In addition, in the past, our sources of revenue
have principally been the domestic and international theatrical,
home video and television markets, although we have also derived
revenue from ancillary sources, such as through the
merchandising and licensing of our characters and films. Under
the Distribution Agreement, which is described below, we expect
that revenue (without deduction for any distribution and
marketing expenses) from the domestic and international
theatrical exhibition of a film will be used by DreamWorks
Studios to recover the distribution and marketing expenses it
incurs for the film and to cover its distribution fee relating
to these markets before we recognize any revenue for that film.
Therefore, we expect that our revenue will be principally
derived from the home video and television markets and from the
same ancillary sources as in the past. Because DreamWorks
Studios will be recouping distribution and marketing costs and
its distribution fee, our revenue from theatrical markets will
be significantly lower than it would have been had we not
entered the Distribution Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, there has been a close correlation
between domestic box office success and home video and
international theatrical box office success, such that films
that achieve high domestic box office receipts also tend to sell
large numbers of home videos and achieve a high international
theatrical box office gross. In addition, license fees derived
from pay and broadcast television are often based on the box
office success of a film. Therefore, we consider domestic box
office sales to be the most important indicator of how much
revenue our films will ultimately generate. Regardless of the
number of films we make or how we report our revenue, our
revenue will always be dependent on the performance of our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our films are distributed in foreign countries
and, in recent years, we have derived approximately one-third of
our revenue from foreign sources. As a result, fluctuations in
foreign currency exchange rates can
</FONT>

<P align="center"><FONT size="2">33
</FONT>

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<DIV align="left">
<FONT size="2">adversely affect our business, results of
operations and cash flow. Due to the nature of the distribution
agreements that have been in place at DreamWorks Studios,
whereby DreamWorks Studios has not been responsible for
collecting foreign currency, there is a relatively short period
between revenue recognition and cash payment under those
agreements. As a result, neither we nor DreamWorks Studios
generally have hedged foreign currency exchange risks associated
with those distribution agreements (although we have used
hedging transactions in connection with foreign currency
denominated production costs), and we do not expect to do so in
the future.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our historical financial statements do not
reflect any material allocations of revenue from DreamWorks
Studios and we do not expect any material allocations in the
future.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of
Revenue and Selling, General and Administrative
Expenses</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, our costs of revenue have included
distribution and marketing costs; third-party distribution and
fulfillment services fees; the amortization of capitalized
production, overhead and interest costs; contingent compensation
and residual costs; and write-offs of film inventory for
unreleased films. Selling, general and administrative expenses
include salaries, employee benefits, rent and other routine
overhead expenses, net of expenses included in capitalized
overhead. Over the past decade, expenses in the motion picture
industry have increased rapidly as a result of increased
production costs and distribution and marketing costs. See
&#147;Risk Factors&nbsp;&#151; The costs of producing and
marketing feature films have steadily increased and may increase
in the future, which may make it more difficult for a film to
generate a profit or compete against other films.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Distribution and marketing costs consist
primarily of the costs of advertising, preparing release prints
and manufacturing home video units. The costs of advertising a
CG&nbsp;animated feature film for the theatrical market are
significant and typically involves national and target market
media campaigns, as well as public appearances of the
film&#146;s stars. In addition, there are significant
advertising costs associated with other distribution channels,
such as home video marketing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Capitalized production costs include all of the
costs incurred to develop and produce animated films, which
primarily consist of salaries and fringe benefits for animators
and voice talent, equipment and other direct operating costs.
Capitalized production overhead generally represents the
salaries of individual employees or entire departments with
exclusive or significant responsibilities for the production of
our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are responsible for certain compensation paid
to creative participants, such as writers, producers, directors,
voice talent and other persons associated with the production of
a film, which is dependent on the performance of the film and is
based on factors such as domestic box office and total revenue
recognized by the distributor related to the film. We are also
responsible for residuals, which are payments based on similar
factors and generally made to third-parties pursuant to
collective bargaining, union or guild agreements or for
providing certain services such as recording or synchronization
services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Distribution Agreement, our costs of
revenue will include the amortization of capitalized production,
overhead and interest costs, contingent compensation and
residual costs and write-offs of film inventory for unreleased
films, but generally will not include distribution and marketing
costs or third-party distribution and fulfillment services fees.
Distribution and marketing costs will be included in our costs
of revenue only to the extent that we cause DreamWorks Studios
to make additional expenditures in excess of agreed amounts. See
&#147;Related Party Agreements&nbsp;&#151; Distribution
Agreement.&#148; Our selling, general and administrative
expenses will no longer include allocated costs of DreamWorks
Studios&#146; selling and marketing departments.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allocations</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audited combined financial statements
included in this prospectus include allocations of the combined
assets, liabilities and expenses of DreamWorks Studios and
DreamWorks Animation. As an operating division of DreamWorks
Studios, we have historically been allocated a portion of
DreamWorks Studios&#146; total overhead expenses for the
marketing and distribution of all DreamWorks Studios&#146; films
</FONT>

<P align="center"><FONT size="2">34
</FONT>

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<DIV align="left">
<FONT size="2">(including our films), and for corporate
functions, such as executive management, finance, accounting,
legal, human resources, facilities management, insurance and
information technology. In general, these allocations have been
calculated based on the percentage that our films, headcount,
revenue or other criteria constitute of the total films,
headcount, revenue or other criteria of DreamWorks Studios
(which amounts include our films, headcount, revenue or other
criteria). In the future, to the extent that DreamWorks Studios
provides these or other services to us that are not covered by
the Distribution Agreement, we will reimburse DreamWorks Studios
pursuant to the Services Agreement, which is described elsewhere
in this prospectus under &#147;Related Party
Agreements&nbsp;&#151; Services Agreement&#148;. A brief
description of these services is also included below.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Worldwide Marketing and
Distribution</FONT></I><FONT size="2">: Historically, certain
overhead expenses for the marketing and distribution of our
films have been allocated to us by DreamWorks Studios. These
costs include the salaries, fringe benefits and operating
expenses of the employees in DreamWorks Studios&#146;
theatrical, home video, marketing and television
sales/distribution departments. The allocation of the overhead
associated with these functions has been based on several
factors, including: (1)&nbsp;marketing costs incurred for our
films as a percentage of marketing costs incurred for all
DreamWorks Studios&#146; films; (2)&nbsp;the number of films we
have released as a percentage of all DreamWorks Studios&#146;
films released in a given year and (3)&nbsp;estimates of time
spent on our releases as a percentage of time spent on all
DreamWorks Studios&#146; releases. Although DreamWorks Studios
has historically allocated a portion of the overhead costs of
these departments to us, these services will be provided to us
in the future pursuant to the Distribution Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Executive
Management</FONT></I><FONT size="2">: Executive management
expense is comprised of the expenses relating to DreamWorks
Studios&#146; principals, chief operating officers, and their
respective administrative staffs, including costs associated
with transportation. These costs have historically been
allocated to us based on a combination of (1)&nbsp;revenue
generated by us as a percentage of DreamWorks Studios&#146;
consolidated revenue and (2)&nbsp;our headcount as a percentage
of DreamWorks Studios&#146; consolidated headcount. In the
future, we expect that executive management expense, including
costs associated with transportation, will be incurred directly
by us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Finance and
Accounting</FONT></I><FONT size="2">: DreamWorks Studios has
historically allocated accounting and finance services related
costs, including the costs of financial systems, to us based on
several factors, including: (1)&nbsp;revenue generated by us as
a percentage of DreamWorks Studios&#146; consolidated revenue;
(2)&nbsp;our headcount as a percentage of DreamWorks
Studios&#146; total headcount and (3)&nbsp;time spent on our
finance projects as a percentage of time spent on all DreamWorks
Studios&#146; finance projects. In the future, we expect to
directly incur the costs of some accounting and finance
services, such as strategic planning, financial reporting,
treasury and investor relations. Other accounting and finance
services, such as billing and collection of receivables (except
receivables derived from rights retained by us, such as
licensing and merchandising rights) and contingent compensation
and residual reporting oversight services, will be provided
pursuant to the Distribution Agreement. As a result, DreamWorks
Studios will no longer allocate any of these costs to us. We
expect that DreamWorks Studios will provide other accounting
services to us, such as payroll, pursuant to the Services
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Legal</FONT></I><FONT size="2">: Costs related
to legal services, other than outside legal fees and film
specific trademark related expenses, which have been directly
charged to us, have historically been allocated to us based on
actual time spent by DreamWorks Studios&#146; attorneys on
matters related primarily to us or our films. In the future, we
expect to directly incur the costs of most legal services,
either through our employees or through our direct retention of
outside legal counsel. However, some legal services, such as
work related to employment and music law, we expect will be
provided to us by attorneys employed by DreamWorks Studios under
the Services Agreement. We will pay DreamWorks Studios for these
services pursuant to the Services Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Human Resources</FONT></I><FONT size="2">:
DreamWorks Studios has historically allocated some human
resources costs, including management, benefits administration
and employee relations to us based on our headcount as a
percentage of the consolidated headcount of DreamWorks Studios.
Other costs related to human resources, such as recruiting and
relocation costs have been directly incurred by us. In the
future, we expect to directly incur the costs associated with
human resources management and employee relations. We expect
</FONT>

<P align="center"><FONT size="2">35
</FONT>
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<DIV align="left">
<FONT size="2">DreamWorks Studios to provide other services,
such as benefits management, for which we would reimburse
DreamWorks Studios for these services pursuant to the Services
Agreement.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Occupancy and Facilities
Management</FONT></I><FONT size="2">: The costs of facilities
management and mail services have been allocated to us
historically based on the square footage that we have occupied
at our Glendale animation campus and our Redwood City production
facility as a percentage of total square footage of all
DreamWorks Studios&#146; facilities. In the future, we expect to
incur the costs of facilities management and mail services
directly. We will charge a portion of our occupancy costs to
DreamWorks Studios pursuant to the Glendale lease arrangement.
See &#147;Related Party Agreements&nbsp;&#151; Glendale
Lease.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Insurance:</FONT></I><FONT size="2"> Property
insurance premiums have historically been allocated to us based
on our insurable asset values as a proportion of DreamWorks
Studios&#146; total insurable asset values, based on the
asset&#146;s fair market or replacement value as determined at
the time of premium renewal. The insurance premiums for policies
such as errors and omissions, directors and officers, travel,
and excess liability, have historically been allocated to us
based on (1)&nbsp;our headcount as a percentage of the
consolidated headcount of DreamWorks Studios and (2)&nbsp;the
number of films we have released as a percentage of all
DreamWorks Studios&#146; films released in a given year. In the
future, we expect to directly incur all insurance costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Information
Technology:</FONT></I><FONT size="2"> DreamWorks Studios has
historically allocated to us the costs of network infrastructure
and administrative desktop computer support. This allocation has
been based on our headcount as a percentage of total DreamWorks
Studios&#146; headcount, in each case excluding the headcount of
our Redwood City facility, as the costs related to Redwood City
have been directly incurred by us. In the future, we expect
DreamWorks Studios will provide network infrastructure and
administrative desktop support services to us, and we will
reimburse DreamWorks Studios for these services, pursuant to the
Services Agreement. For telecommunications, we have historically
been allocated a fixed fee for every telephone user, which
includes the costs of the equipment and related maintenance and
support costs. We have also been charged for actual local and
long distance usage.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Other Allocations:</FONT></I><FONT size="2">
We have historically been allocated certain other costs,
including (1)&nbsp;costs to track, deliver and store various
film and film related content (for example, film elements,
photos and artwork); (2)&nbsp;costs to oversee dubbing of our
films and (3)&nbsp;costs to oversee the placement of musical
content in our films. In the future, we will directly incur some
of these costs, such as the placement of musical content in our
films. DreamWorks Studios will provide some of these services to
us, such as the dubbing of our films, as set forth in the
Distribution Agreement. Other of these services, such as the
costs of storing various film and film related content, will be
provided to us, and we will reimburse DreamWorks Studios
pursuant to the Services Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Debt, Interest and Other Expense
Allocations:</FONT></I><FONT size="2"> DreamWorks Studios has
historically allocated to us debt and interest expense
associated with its debt, and other income and expense
associated with its interest rate swap agreements. This
allocation has been based on the proportion of capital invested
in our films in production as a percentage of total capital
invested by DreamWorks Studios in all films in production. A
portion of this allocated interest expense has been capitalized
to film inventory. In connection with our separation from
DreamWorks Studios, we do not expect to assume any obligations
with respect to any of DreamWorks Studios&#146; interest rate
swap agreements other than those associated with the Glendale
animation campus indebtedness. In the future, to the extent we
incur debt and interest expense, we will do so directly.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distribution
and Services Agreements</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will enter into several agreements with
DreamWorks Studios in connection with our separation, including
the Distribution Agreement and the Services Agreement. For a
more detailed description of these agreements, please see
&#147;Related Party Agreements&nbsp;&#151; Distribution
Agreement&#148; and &#147;Related Party Agreements&nbsp;&#151;
Services Agreement.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Distribution
Agreement:</FONT></I><FONT size="2"> Pursuant to the
Distribution Agreement, we will grant DreamWorks Studios the
exclusive right to distribute all of our completed animated
feature films, including our previously released films,
throughout the world that are available for delivery through the
later of (i)&nbsp;delivery of 12&nbsp;animated
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">feature films, beginning with <I>Shark Tale</I>,
and (ii)&nbsp;December&nbsp;31, 2010. However, in general, the
terms of the Distribution Agreement will be subject to each of
the sub-distribution, servicing and licensing agreements that we
pre-approve (such as DreamWorks Studios&#146; existing
arrangements with Universal Studios, CJ&nbsp;Entertainment and
Kadokawa Entertainment). In addition, even if we terminate our
distribution relationship with DreamWorks Studios, our existing
and future films generally will still be subject to the terms of
pre-approved agreements. DreamWorks Studios will be responsible
for (1)&nbsp;the domestic and international theatrical
exhibition of our films, (2)&nbsp;the domestic and international
home video exhibition of our films and direct-to-video pictures,
(3)&nbsp;the domestic and international television licensing of
our films, including pay-per-view, pay television, network,
basic cable and syndication, (4)&nbsp;non-theatrical exhibition
of our films, such as on airlines, in schools and in armed
forces institutions. DreamWorks Studios has also been granted
Internet, radio (for promotional purposes only) and new media
rights with respect to our films. We retain all other rights to
exploit our films, including the right to make sequels and
commercial tie-in and promotional rights with respect to each
film, as well as merchandising, interactive, literary
publishing, music publishing, soundtrack, radio, legitimate
stage and theme park rights. However, to the extent we wish to
exploit theme park rights, we will only do so through Universal
Studios for so long as Steven Spielberg has certain contractual
relationships with us or if he, his wife, his or her issue (or
trusts for the primary benefit of any of them) or a private
charitable foundation organized by him and/or his wife directly
or indirectly owns or controls our Class&nbsp;A common stock.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios will be directly responsible
for the initial U.S.&nbsp;theatrical release of all of our
animated films, but may engage one or more sub-distributors and
service providers for all other markets, subject to our prior
written approval with respect to entities not currently so
engaged by DreamWorks Studios. Pursuant to the Distribution
Agreement, we are solely responsible for all of the costs of
developing and producing our animated feature films and for
contingent compensation and residual costs. DreamWorks Studios
is responsible for all out-of-pocket costs, charges and expenses
incurred in the distribution (including prints and the
manufacture of home video units and distribution and fulfillment
services fees payable to third-parties), advertising, marketing,
publicizing and promotion of the films, and has agreed to make
expenditures consistent with historical levels with respect to
our films. If we make a good faith determination that the
expenditure of additional distribution and marketing amounts
will enhance a film&#146;s gross receipts, we may cause
DreamWorks Studios to spend additional amounts. In such a case,
we will be solely responsible for reimbursing DreamWorks Studios
for those additional expenditures and we will incur the related
distribution and marketing expenses in the period in which we
reimburse DreamWorks Studios therefor. The Distribution
Agreement also provides that DreamWorks Studios is entitled to
(i)&nbsp;retain a fee of 8.0% of revenue (without deduction for
any distribution and marketing costs or third-party distribution
and fulfillment services fees) and (ii)&nbsp;recoup all of its
distribution and marketing costs prior to our recognizing any
revenue. Once the license to distribute one of our animated
films or direct-to-video pictures is acquired by DreamWorks
Studios, it will have the right to exploit the animated film or
direct-to-video picture in the manner described above for
16&nbsp;years from initial general theatrical release or
10&nbsp;years from initial direct-to-video release.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Services Agreement.</FONT></I><FONT size="2">
We will also enter into the Services Agreement with DreamWorks
Studios prior to the consummation of this offering that will
provide for certain services to be provided to us by DreamWorks
Studios. The services to be provided include (i)&nbsp;specified
accounting functions; (ii)&nbsp;insurance administration;
(iii)&nbsp;information systems management; (iv)&nbsp;payroll
services; (v)&nbsp;legal advisory and consulting services;
(vi)&nbsp;human resources administration; (vii)&nbsp;certain
procurement services and (viii)&nbsp;other general support
services. Each of these services will have a separate fee
structure that will be reflected in the Services Agreement.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Policies</FONT></B>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
Recognition</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Both historically and under the Distribution
Agreement, we have recognized and will recognize revenue from
the distribution of our animated feature films when earned, as
reasonably determinable in accordance with the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants Statement of Position&nbsp;00-2,
&#147;Accounting by Producers or Distributors of Films&#148;
(the&nbsp;&#147;SOP&#148;).
</FONT>

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<FONT size="2">The following are the conditions that must be met
in order to recognize revenue in accordance with the SOP:
(i)&nbsp;persuasive evidence of a sale or licensing arrangement
with a customer exists; (ii)&nbsp;the film is complete and has
been delivered or is available for immediate and unconditional
delivery; (iii)&nbsp;the license period of the arrangement has
begun and the customer can begin its exploitation, exhibition or
sale; (iv)&nbsp;the arrangement fee is fixed or determinable and
(v)&nbsp;collection of the arrangement fee is reasonably assured.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenue from the sale of home video units is
recognized at the time the product is made available for retail
sale, at which time we also establish a reserve that reduces
revenue by the estimated impact of returns, rebates and other
incentives. In determining the estimate of home video unit sales
that will be returned, we analyze point-of-sale data available
from major retailers, historical returns, current economic
trends and changes in consumer demand and acceptance of our
product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For periods prior to the effective date of the
Distribution Agreement, we have recognized revenue from our
films net of reserves for returns, rebates and other incentives.
Under the Distribution Agreement, which will become effective as
of a date prior to the consummation of this offering, we are
entitled to recognize revenue after DreamWorks Studios
(i)&nbsp;retains a distribution fee of 8.0% of revenue (without
deduction for any distribution and marketing costs or
third-party distribution and fulfillment services fees) and
(ii)&nbsp;recovers all of its distribution and marketing costs
with respect to our films. See &#147;Related Party
Agreements&nbsp;&#151; Distribution Agreement.&#148; Upon
effectiveness of the Distribution Agreement, DreamWorks Studios
will begin retaining its 8.0% fee for all revenue recognized by
it subsequent to the effective date, regardless of whether the
revenue relates to a film released prior to the effective date
of the Distribution Agreement and regardless of whether it has
recouped the distribution and marketing expenses related to that
film that it has incurred.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because DreamWorks Studios will be the principal
distributor of our films, in accordance with the SOP, the amount
of revenue that we will recognize from our films in any given
period following the effective date of the Distribution
Agreement will depend on the timing, accuracy and sufficiency of
the information we receive from DreamWorks Studios. Although
DreamWorks Studios has agreed to provide us with the most
current information available to it to enable us to recognize
our share of revenue, we may make adjustments to that
information based on our estimates and judgments. For example,
we may make adjustments to our revenue derived from home video
units for estimates on return reserves, rebates and other
incentives that may differ from those that DreamWorks Studios
recommends. The estimates on reserves may be adjusted
periodically based on actual rates of returns, inventory levels
in the distribution channel, as well as other business and
industry information. We will also review expense estimates and
may make adjustments to these estimates in order to ensure that
our revenue and gross margin are accurately reflected in our
financial statements. In addition, as is typical in the movie
industry, our distributor and its sub-distributors may also make
subsequent adjustments to the information that they will provide
and these adjustments could have a material impact on our
operating results in later periods.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of
Revenue</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Film Production
Costs.</FONT></I><FONT size="2"> We capitalize film production
costs to film inventories in production in accordance with the
provisions of the SOP. Direct film production costs include
costs to develop and produce CG&nbsp;animated films, which
primarily consists of salaries and fringe benefits for animators
and voice talent, equipment and other direct operating costs.
Production overhead, a component of film inventory, includes
allocable costs of individuals or departments with exclusive or
significant responsibility for the production of our films. In
addition to the films being produced, we are also working on
development of several new projects. Costs of these projects are
capitalized as film inventories in development in accordance
with the provisions of the SOP and are transferred to film
inventories in production when a film is set for production. We
evaluate each project in development and production on a
quarterly basis to determine whether capitalized costs are in
excess of our estimate of fair value. If they are in excess,
then we write-off the excess cost and reflect these in costs of
revenue. In addition, after three years, if the project is still
in development and has not been set for production, it is
written off and reflected in costs of revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Contingent Compensation and
Residuals.</FONT></I><FONT size="2"> Certain compensation paid
to creative participants, such as writers, producers, directors,
voice talent and other persons associated with the production of
a film is
</FONT>

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<DIV align="left">
<FONT size="2">dependent on the performance of the film, based
on factors such as domestic box office and total revenue
recognized by the distributor related to the film. We are also
responsible for residuals, which are payments based on similar
factors and generally made to third-parties pursuant to
collective bargaining, union or guild agreement or for providing
certain services such as recording or synchronization services.
These forms of contingent compensation and residual costs are
accrued in accordance with the SOP, using the
individual-film-forecast-computation method, which accrues and
amortizes such costs in the same ratio that current period
actual revenue (numerator) bears to estimated remaining
unrecognized revenue as of the beginning of the current fiscal
year (denominator), as described below.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Amortization.</FONT></I><FONT size="2"> Once a
film is released, the amount of film inventory relating to that
film, including film production costs and contingent
compensation and residual costs, is amortized and included in
costs of revenue in the proportion that the revenue during the
period for each film (&#147;Current Revenue&#148;) bears to the
estimated total revenue to be received from all sources for each
film (&#147;Ultimate Revenue&#148;) under the
individual-film-forecast-computation method in accordance with
the provision of the SOP. The amount of film costs that are
amortized each quarter will therefore depend on the ratio of
Current Revenue to Ultimate Revenue for each film. We make
certain estimates and judgments of Ultimate Revenue to be
received for each film based on information received from
DreamWorks Studios, and our knowledge of the industry. Estimates
of Ultimate Revenue and anticipated contingent compensation and
residual costs are reviewed periodically and are revised if
necessary. A change to the Ultimate Revenue for an individual
film will result in an increase or decrease to the percentage of
amortization of capitalized film costs relative to a previous
period. Unamortized film production costs are evaluated for
impairment each reporting period on a film-by-film basis in
accordance with the requirements of the SOP. If estimated
remaining revenue is not sufficient to recover the unamortized
film inventory for that film, the unamortized film inventory
will be written down to fair value determined using a net
present value calculation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that, in periods following the
effectiveness of the Distribution Agreement, the amount of
revenue that we recognize in the periods immediately following a
film&#146;s release will be substantially less than the amounts
that we have historically recognized in similar periods, due to
the fact that, under the Distribution Agreement, we will be
recognizing revenue net of DreamWorks Studios&#146;
8.0%&nbsp;distribution fee and the distribution and marketing
costs that it incurs. Consequently, although the total amount of
production costs that are amortized for any particular film will
be the same over the life of the film, the timing of the
amortization will change, since amortization is calculated based
on the ratio of Current Revenue to Ultimate Revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Marketing and Distribution
Expenses.</FONT></I><FONT size="2"> The costs of marketing a
film consist primarily of prints and advertising costs, as well
as third-party distribution and fulfillment services fees. Print
costs are expensed upon the theatrical release of a film, and
advertising and third-party distribution and fulfillment
services fees are expensed as incurred in accordance with the
SOP and are included in costs of revenue. Third-party
distribution and fulfillment services fees have historically
included fees earned by our distributors and fulfillment
services providers, which in the periods through the
effectiveness of the Distribution Agreement were primarily
Universal Studios and CJ&nbsp;Entertainment. Manufacturing costs
(including duplication and replication) related to home video
units are expensed when the related product revenue is
recognized. We periodically evaluate inventories of such
products for impairment and obsolescence and make appropriate
adjustments to their carrying value as necessary. Although our
historical financial statements include these costs, as
described above, pursuant to the Distribution Agreement,
DreamWorks Studios will generally be responsible for all costs
associated with the distribution and marketing of our films.
Accordingly, in the future, while our costs of revenue will not
include distribution and marketing costs and third-party
distribution and fulfillment services fees, our revenue will be
net of the distribution and marketing costs that DreamWorks
Studios recoups, as well as its 8.0% distribution fee.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Selling, General and Administrative
    Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Selling, general and administrative expenses
generally consist of general and administrative expenses,
including allocations (historically), depreciation and non-film
amortization, net of expenses included in capitalized overhead.
General and administrative expenses consist of salaries, rent
and other allocated
</FONT>

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<FONT size="2">overhead costs as described in allocations above.
Capitalized overhead generally represents the salaries of
individual employees or entire departments with exclusive or
significant responsibilities for the production of our films,
which we capitalize and include in production costs as described
above.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Expense and Other Income and
    Expense</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense and other income and expense
historically include allocations of interest expense and other
income and expense associated with DreamWorks Studios&#146; debt
and its interest rate swap agreements, and other non-operating
income and expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property, Plant and Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are recorded at the
lower of cost or fair value and are depreciated on a
straight-line method over the estimated useful lives of such
assets. Property, plant and equipment consist primarily of our
Glendale animation campus, leasehold improvements associated
with our Redwood City facility, furniture and computer equipment.
</FONT>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Three Months Ended March&nbsp;31, 2004,
    compared to Three Months Ended March&nbsp;31,
    2003.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the three months ended March&nbsp;31, 2004,
our results were primarily driven by worldwide home video
revenue for <I>Shrek </I>and <I>Sinbad: Legend of the Seven
Seas,</I> and from continuing revenue from our library of films.
This was partially offset by pre-release advertising and
printing costs associated with the release of
<I>Shrek&nbsp;2.</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenue.</FONT></I><FONT size="2"> For the
three months ended March&nbsp;31, 2004, revenue decreased by
$7.4&nbsp;million, or 15%, from $48.2&nbsp;million to
$40.8&nbsp;million, as compared to the three months ended
March&nbsp;31, 2003. Film revenue for the three months ended
March&nbsp;31, 2004 was primarily driven by the ongoing success
of <I>Shrek </I>in the worldwide home video and television
markets. The international theatrical and home video release of
<I>Sinbad: Legend of the Seven Seas </I>also contributed to
revenue in the first quarter of 2004. Other library titles
(<I>Antz, Prince of Egypt, The Road to El Dorado, Chicken Run,
Joseph: King of Dreams </I>and <I>Spirit: Stallion of the
Cimarron</I>) contributed revenue of approximately
$13.6&nbsp;million for the three months ended March&nbsp;31,
2004, primarily from worldwide home video. Film revenue for the
three months ended March&nbsp;31, 2003 was derived primarily
from international theatrical and home video revenue from
<I>Spirit: Stallion of the Cimarron,</I> along with its
associated ancillary revenue. Also contributing to revenue in
the first quarter of 2003 was ongoing revenue from <I>Shrek
</I>in the worldwide home video and international pay television
markets. Other library titles (<I>Antz, Prince of Egypt, The
Road to El Dorado, Chicken Run </I>and <I>Joseph: King of
Dreams</I>) contributed revenue of approximately
$13.1&nbsp;million in the three months ended March&nbsp;31,
2003, primarily from the worldwide home video and domestic
television markets. The lower revenue in the first quarter of
2004 as compared to 2003 was primarily due to the disappointing
results for <I>Sinbad: Legend of the Seven Seas </I>in the
international theatrical and worldwide home video markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Costs of Revenue.</FONT></I><FONT size="2">
Costs of film revenue were $45.5&nbsp;million in the three
months ended March&nbsp;31, 2004, as compared to
$41.0&nbsp;million in the three months ended March&nbsp;31,
2003. This increase was primarily driven by pre-release
marketing and promotional costs associated with the release of
<I>Shrek&nbsp;2</I>, which were expensed in the three months
ended March&nbsp;31, 2004, although no revenue can be recognized
until May 2004, the month in which the film was released. The
increase was partially offset by a decline in amortization of
film inventory for the three months ended March&nbsp;31, 2004 as
compared to the three months ended March&nbsp;31, 2003.
Amortization of film costs as a percentage of film revenue in
the three months ended March&nbsp;31, 2004 was 31%, compared to
51% for the three months ended March&nbsp;31, 2003. Amortization
of film inventory as a percentage of film revenue may vary from
period to period due to several factors, including:
(i)&nbsp;changes in the mix of films earning revenue,
(ii)&nbsp;changes in any film&#146;s Ultimate Revenue and
(iii)&nbsp;write offs of film inventory due to changes in the
estimated fair value of unamortized film inventory, as required
by the SOP. The decline in amortization of film inventory as a
percentage of film revenue for the first quarter of 2004 was
primarily due to the change in the mix of films earning revenue.
<I>Shrek</I>, which has a low amortization due to the size of its
</FONT>

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<FONT size="2">Ultimate Revenue, earned more revenue than any of
our other films in the first quarter of 2004. This resulted in a
lower overall amortization when compared to the first quarter of
2003, where substantial revenue was earned from <I>Spirit:
Stallion of the Cimarron</I>, which had a higher amortization
percentage due to the size of its Ultimate Revenue.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling, General and Administrative
Expenses.</FONT></I><FONT size="2"> Total selling, general and
administrative expenses were $7.8&nbsp;million for the three
months ended March&nbsp;31, 2004 as compared to
$9.2&nbsp;million for the three months ended March&nbsp;31,
2003. This $1.4&nbsp;million decrease was primarily due to bad
debt expense reported in the three months ended March&nbsp;31,
2003 associated with international home video receivables. We
expect that operating expenses will be reduced in future periods
to the extent that we are no longer allocated overhead costs for
selling and marketing. However, this reduction will be offset to
the extent of increases in general and administrative and
compliance costs that result from our becoming a public company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest Expense and Other Income and
Expense.</FONT></I><FONT size="2"> Total interest expense and
other income and expense were $13.2&nbsp;million for the three
months ended March&nbsp;31, 2004 as compared to
$9.9&nbsp;million for the three months ended March&nbsp;31,
2003. This $3.3&nbsp;million increase in expense was primarily
due to an increase in interest expense and other expense
associated with interest rate swap agreements allocated to us by
DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating Results.</FONT></I><FONT size="2">
The three months ended March&nbsp;31, 2004 resulted in an
operating loss of $12.4&nbsp;million and net loss of
$25.9&nbsp;million, as compared to an operating loss of
$2.0&nbsp;million and a net loss of $11.9&nbsp;million for the
quarter ended March&nbsp;31, 2003. This was primarily due to
pre-release marketing and promotion expenses incurred in the
first quarter of 2004 associated with the May release of
<I>Shrek 2</I> and an increase in interest expense and other
expense associated with interest rate swap agreements allocated
to us by DreamWorks Studios. Because we operated as a division
of a limited liability company for both periods, we incurred
only minimal income taxes related to foreign withholding and
state franchise taxes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year Ended December&nbsp;31, 2003, compared
    to the Year Ended December&nbsp;31, 2002.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenue.</FONT></I><FONT size="2"> For the
year ended December&nbsp;31, 2003, revenue decreased by
$160.8&nbsp;million, or 35%, to $295.6&nbsp;million from
$456.4&nbsp;million for the year ended December&nbsp;31, 2002.
Film revenue for the year ended December&nbsp;31, 2003 was
derived primarily from worldwide home video and television
revenue from <I>Shrek</I>, and from the worldwide theatrical and
home video release of <I>Sinbad: Legend of the Seven Seas</I>.
Also contributing to revenue in 2003 was ongoing revenue from
<I>Spirit: Stallion of the Cimarron </I>in the international
theatrical and worldwide home video markets. Other library
titles (<I>Antz, Prince of Egypt, The Road to El Dorado, Chicken
Run </I>and <I>Joseph: King of Dreams</I>) contributed revenue
of approximately $58.8&nbsp;million in the year ended
December&nbsp;31, 2003, primarily from the worldwide home video
and television markets. Film revenue for the year ended
December&nbsp;31, 2002 was primarily driven by the ongoing
success of <I>Shrek </I>in the worldwide home video and
television markets, and by the release of <I>Spirit: Stallion of
the Cimarron </I>in the worldwide theatrical and home video
markets, along with their associated ancillary revenue. Revenue
in 2002 from domestic home video sales of <I>Shrek</I>, which
was initially released in the domestic home video market in
November 2001, also benefited from unprecedented low rates of
returns of home video units shipped in 2001. We based 2001
returns reserves on the number of units shipped, historical
experience and sales data available at the time. During 2002, as
<I>Shrek</I> sales continued with low rates of returns, we
reversed $52.5&nbsp;million of previously recorded reserves for
returns. Other library titles (<I>Antz, Prince of Egypt, The
Road to El&nbsp;Dorado, Chicken Run </I>and <I>Joseph: King of
Dreams</I>) contributed revenue of approximately
$50.2&nbsp;million for the year ended December&nbsp;31, 2002,
primarily from worldwide home video and television. The decline
in revenue was primarily due to two factors. First,
<I>Shrek</I>, which was released in May 2001, continued to
perform extraordinarily well in 2002, generating revenue of
approximately $223.8&nbsp;million. In the worldwide home video
markets alone, <I>Shrek </I>generated revenue of
$175.2&nbsp;million in 2002. Second, the disappointing
performance of our 2003 release, <I>Sinbad: Legend of the Seven
Seas</I>, which generated only $26.4&nbsp;million in domestic
box office receipts, contributed less revenue than <I>Spirit:
Stallion of the Cimarron</I>, our 2002 release.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Costs of Revenue.</FONT></I><FONT size="2">
Costs of film revenue were $438.3&nbsp;million for the year
ended December&nbsp;31, 2003, as compared to $397.0&nbsp;million
for the year ended December&nbsp;31, 2002. The primary component
of this
</FONT>

<P align="center"><FONT size="2">41
</FONT>

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<DIV align="left">
<FONT size="2">$41.3&nbsp;million increase in costs of revenue
during 2003 was a write-off for two unreleased animated projects
because they were creatively inconsistent with our overall
strategy shift, and an increase in amortization of film
inventories for the same period. Amortization of film costs as a
percentage of film revenue in the year ended December&nbsp;31,
2003 was 64%, compared to 31% for the year ended
December&nbsp;31, 2002. The increase in amortization of film
inventory as a percentage of film revenue for 2003 was primarily
due to a write down of film inventory due to changes in the
estimated fair value of unamortized film inventory for
<I>Sinbad: Legend of the Seven Seas</I>, as required by the SOP.
These increases in costs of revenue were partially offset by
distribution and marketing costs associated with the 2003
initial release of <I>Sinbad: Legend of the Seven Seas</I> in
the worldwide theatrical and home video markets, which were
significantly lower than the costs incurred for the 2002 release
of <I>Spirit: Stallion of the Cimarron</I>.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling, General and Administrative
Expenses.</FONT></I><FONT size="2"> Total selling, general and
administrative expenses for the year ended December&nbsp;31,
2003 were $24.9&nbsp;million, as compared to $57.0&nbsp;million
for the year ended December&nbsp;31, 2002. The primary component
of this $32.1&nbsp;million decrease in operating expenses was
due to 2002 bad debt expense associated with bankruptcies of two
domestic home video customers, one of which was K-Mart. We
settled with K-Mart in 2003, resulting in a partial reversal of
the bad debt expense recorded in 2002. Another contributor to
the decline in operating expenses was a lower allocation of
DreamWorks Studios&#146; sales and distribution departments,
which was due in part to lower revenue. The lower revenue in
2003 as compared to 2002 therefore resulted in lower allocations
of these overhead costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest Expense and Other Income and
Expense.</FONT></I><FONT size="2"> Total interest expense and
other income and expense were $17.1&nbsp;million for the year
ended December&nbsp;31, 2003 as compared to $31.4&nbsp;million
for the year ended December&nbsp;31, 2002. This
$14.3&nbsp;million decrease in expense is primarily due to other
income recognized in 2003 in connection with preferred vendor
arrangements, and a decline in interest expense and other
expense associated with interest rate swap agreements allocated
to us by DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating Results.</FONT></I><FONT size="2">
The year ended December&nbsp;31, 2003, resulted in an operating
loss of $167.6&nbsp;million and a net loss of
$189.1&nbsp;million, as compared to operating income of
$2.4&nbsp;million and a net loss of $31.1&nbsp;million for the
year ended December&nbsp;31, 2002. There were two principal
reasons for the decline in operating income and the increase in
net loss in 2003: the disappointing performance of <I>Sinbad:
Legend of the Seven Seas</I>, and the write-off of the two
unreleased animated projects described above. As of
December&nbsp;31, 2003, we began consolidating our Glendale
headquarters and animation campus, and its associated debt, in
accordance with the requirements of the Financial Accounting
Standards Board Interpretation No.&nbsp;46, &#147;Consolidation
of Variable Interest Entities&#148; (&#147;FIN&nbsp;46&#148;).
As a result, we recorded an expense of $2.5&nbsp;million, which
is reported as a cumulative effect of accounting change in the
statement of operations for the year ended December&nbsp;31,
2003. Because we operated as a division of a limited liability
company for both periods, we incurred only minimal income taxes
related to foreign withholding and state franchise taxes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year Ended December&nbsp;31, 2002, compared
    to the Year Ended December&nbsp;31, 2001.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Revenue.</FONT></I><FONT size="2"> For the
year ended December&nbsp;31, 2002, revenue decreased by
$204.9&nbsp;million, or 31%, to $456.4&nbsp;million from
$661.3&nbsp;million for the year ended December&nbsp;31, 2001.
Film revenue for the year ended December&nbsp;31, 2002 was
primarily driven by the ongoing success of <I>Shrek </I>in the
worldwide home video and television markets, and by the release
of <I>Spirit: Stallion of the Cimarron </I>in the worldwide
theatrical and home video markets. Revenue in 2002 from domestic
home video sales of <I>Shrek</I> also benefited from
unprecedented low rates of returns of home video units shipped
in 2001. We based 2001 returns reserves on the number of units
shipped, historical experience and sales data available at the
time. During 2002, we reversed $52.5&nbsp;million of previously
recorded reserves for returns, as <I>Shrek</I> sales continued
with low rates of returns. Other library titles (<I>Antz, Prince
of Egypt, The Road to El Dorado, Chicken Run </I>and <I>Joseph:
King of Dreams</I>) contributed revenue of approximately
$50.2&nbsp;million for the year ended December&nbsp;31, 2002,
primarily from worldwide home video and television. However
these revenue were insufficient to match the extraordinary
success of <I>Shrek </I>in both the worldwide theatrical and
international home video markets in 2001. Film revenue for year
ended December&nbsp;31, 2001 was derived primarily from the
worldwide theatrical and home video release of <I>Shrek</I>,
which generated $503.4&nbsp;million in total 2001 revenue,
including its associated ancillary revenue. Other library titles
(<I>Antz, Prince of Egypt, The Road to El Dorado, Chicken
Run</I> and
</FONT>

<P align="center"><FONT size="2">42
</FONT>

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<DIV align="left">
<I><FONT size="2">Joseph: King of
Dreams</FONT></I><FONT size="2">) contributed revenue of
approximately $152.0&nbsp;million for the year ended
December&nbsp;31, 2001, primarily from the worldwide home video
and television markets.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Costs of Revenue.</FONT></I><FONT size="2">
Costs of film revenue were $397.0&nbsp;million for the year
ended December&nbsp;31, 2002, as compared to $509.1&nbsp;million
for the year ended December&nbsp;31, 2001. This
$112.1&nbsp;million, or 22%, decrease in costs of revenue was
primarily driven by a decline in distribution and marketing
costs. Due to the success of <I>Shrek </I>in 2001, we incurred
substantially higher costs in 2001 for marketing, advertising,
and manufacturing release prints and home video units. Also
contributing to the decline in costs of revenue in 2002 were
lower amortization of film inventories. Because amortization of
film inventory is based on the ratio that current period actual
revenue bears to estimated remaining unrecognized revenue, the
31% decrease in revenue described above resulted in a
corresponding decline in film amortization.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling, General and Administrative
Expenses.</FONT></I><FONT size="2"> Total selling, general and
administrative expenses for the year ended December&nbsp;31,
2002 were $57.0&nbsp;million, as compared to $49.6&nbsp;million
for the year ended December&nbsp;31, 2001. This
$7.4&nbsp;million increase in operating expenses was due to 2002
bad debt expense associated with bankruptcies of two domestic
home video customers, one of which was K-Mart. This was offset
by a substantial decrease in sales and distribution department
overhead allocated to us by DreamWorks Studios, which was due in
part to lower revenue. The lower revenue in 2002 as compared to
2001 therefore resulted in lower allocations of these overhead
costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest Expense and Other Income and
Expense.</FONT></I><FONT size="2"> Total interest expense and
other income and expense were $31.4&nbsp;million for the year
ended December&nbsp;31, 2002 as compared to $14.8&nbsp;million
for the year ended December&nbsp;31, 2001. This
$16.6&nbsp;million increase in expense is primarily due to an
increase in interest expense and other expense associated with
interest rate swap agreements allocated to us by DreamWorks
Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Operating Results.</FONT></I><FONT size="2">
Operating income was $2.4&nbsp;million and net loss was
$31.1&nbsp;million for the year ended December&nbsp;31, 2002, as
compared to operating income of $102.7&nbsp;million and net
income of $3.7&nbsp;million for the year ended December&nbsp;31,
2001. The decline in operating income was primarily due to the
tremendous success of <I>Shrek </I>in 2001, which was not
repeated in 2002. The significant difference between operating
income and net income in 2001 was due to our adoption of the SOP
on January&nbsp;1, 2001 and an increase in interest expense and
other expense associated with interest rate swap agreements
allocated to us by DreamWorks Studios. As a result of our
adoption of the SOP, we recognized a non-cash charge for the
cumulative effect of accounting change in the amount of
$82.7&nbsp;million for the year ended December&nbsp;31, 2001.
Because we operated as a division of a limited liability company
for both periods, we incurred only minimal income taxes related
to foreign withholding and state franchise taxes.
</FONT>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We retained small amounts of cash and cash
equivalents for each of the three years in the period ended
December&nbsp;31, 2003. During the periods covered by the
combined financial statements, DreamWorks Studios provided all
working capital required for development, production and
marketing of our films and other operations through centralized
cash management. In the future, we expect to fund our operating
activities with cash that is generated from the films that we
release, a portion of the proceeds from this offering and with
borrowings from a revolving credit facility that we expect to
enter prior to the consummation of this offering. As described
under &#147;Related Party Agreements&nbsp;&#151; Distribution
Agreement,&#148; we will be responsible for all costs of
developing and producing our animated feature films and
direct-to-video pictures, while DreamWorks Studios will
generally be responsible for all costs of distributing and
marketing those products. For the remainder of 2004 and the
first half of 2005 we intend to use the proceeds of this
offering and cash received from DreamWorks Studios from revenue
related to <I>Shrek&nbsp;2 </I>and our other films to fund our
operating activities. Although we expect that, beginning 2005,
cash from operations will be sufficient to satisfy our
anticipated cash needs for working capital and capital
expenditures, in the event that these cash flows are
insufficient, we expect to be able to draw funds from the
revolving credit facility or issue additional debt or equity
securities to meet these needs. However, there can be no
assurance that cash from operations in 2005 will be sufficient
to fund our operations or that we will be able to draw on our
revolving credit facility or issue additional debt or equity
securities at that time.
</FONT>

<P align="center"><FONT size="2">43
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our historical balance sheets reflect a portion
of DreamWorks Studios&#146; indebtedness that has been allocated
to us. This allocation has been based on the proportion of
capital invested in our films in production as a percentage of
total capital invested by DreamWorks Studios in all films in
production. Because DreamWorks Studios has funded all of our
operations in the past, we did not directly incur any debt to
fund production of our films and our historical balance sheets
do not reflect any of this debt other than the debt allocated by
DreamWorks Studios. However, we directly incurred debt related
to our Glendale animation campus and an animated film currently
being produced by Aardman Animations. If we had historically
operated as a stand-alone company, the amount of debt that we
would have incurred would have depended on our evaluation of
then-current economic and industry conditions and factors such
as our optimal capital structure, our funding needs, our
acquisition and capital investment activity and other
considerations relevant to a stand-alone company operating in
the animated filmmaking industry. In connection with our
separation from DreamWorks Studios, we expect to assume
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of the indebtedness allocated to us from DreamWorks Studios, all
or a portion of which we expect to repay with proceeds of this
offering, and DreamWorks Studios will be released from its
obligation to repay this indebtedness.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash provided by operating activities for the
first three months of 2004 was $5.4&nbsp;million and was
primarily attributable to collection of worldwide home video
revenue earned in 2003 for <I>Shrek </I>and <I>Sinbad: Legend of
the Seven Seas.</I> Cash used in operating activities for the
year ended December&nbsp;31, 2003 was $170.0&nbsp;million and
was primarily attributable to production spending. Cash provided
by operating activities for the year included cash collected
from revenue for the worldwide home video release of <I>Spirit:
Stallion of the Cimarron </I>and other library titles, but was
insufficient to fund our operating and production cash
requirements. Cash provided by operating activities for 2002 was
$44.6&nbsp;million. Cash provided by operating activities for
2002 was attributable to collection of revenues from the
worldwide home video release of <I>Shrek</I>, partially offset
by film production, contingent compensation and residuals and
other operating uses. Cash used in operating activities for 2001
was $63.5&nbsp;million. Cash used in operating activities for
2001 was primarily attributable to film production costs and
distribution and marketing costs associated with the release of
<I>Shrek</I>. Although the 2001 release of <I>Shrek
</I>generated substantial revenue, a significant portion of the
home video manufacturing costs were incurred in 2001, while cash
from worldwide home video sales was not collected until 2002.
Thus, cash from operating activities was insufficient to fund
all production and operating activities in 2001. Cash used in
investing activities for the first three months of 2004 was
$0.2&nbsp;million, stemming mainly from investment in equipment.
Cash used in investing activities for 2003, 2002 and 2001 were
$3.1&nbsp;million, $5.3&nbsp;million and $4.7&nbsp;million,
respectively, and were primarily related to investment in the
equipment and leasehold improvements for our Glendale and
Redwood City production and administration facilities. Cash
provided by (used in) financing activities for the first three
months of 2004, and the years ended 2003, 2002 and 2001 were
$(5.2)&nbsp;million, $173.2&nbsp;million, ($40.2)&nbsp;million
and $68.9&nbsp;million, respectively. This was primarily related
to cash funding and the difference in the amount of debt
allocated to us by DreamWorks Studios in each period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2004, our principal source of liquidity has
been cash generated by operations and contributions from
DreamWorks Studios. Our commitments prior to the Distribution
Agreement becoming effective are primarily for production
funding, contingent compensation and residual payments,
distribution and marketing costs and technology capital
expenditures. Following the effectiveness of the Distribution
Agreement, our primary commitments will be to fund production
costs of our feature films, to make contingent compensation and
residual payments and to fund technology capital expenditures.
For the full year 2004, we expect that our commitments to fund
production costs, to make contingent compensation and residual
payments and to fund technology capital expenditures will total
approximately $325&nbsp;million.
</FONT>

<P align="center"><FONT size="2">44
</FONT>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Contractual
Obligations.</FONT></I><FONT size="2"> At January&nbsp;1, 2004,
we had contractual commitments to make the following payments
(in thousands):
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Payments Due by Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Contractual Cash Obligations(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2005</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2006</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2007</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2008</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Thereafter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Wallace&nbsp;&#38; Gromit: Tale of the Were
    Rabbit </FONT></I><FONT size="2">obligation<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Glendale animation campus
    note&nbsp;payable<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Universal advance<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total contractual cash obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">246,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">With respect to debt and interest rate swap
    obligations allocated to us from DreamWorks Studios, we have not
    included amounts related to those allocations in this table
    because we will repay any obligations that we assume in
    connection with our separation from DreamWorks Studios with
    proceeds from this offering. DreamWorks Studios has entered into
    interest rate swap agreements to serve as a hedge against
    interest rate fluctuations associated with our Glendale
    animation campus. DreamWorks Studios has attributed to us
    interest rate swaps with an aggregate notional principal amount
    of $73.0&nbsp;million. These agreements do not qualify for
    special hedge accounting and, as a result, the fair value of
    such transactions has been included in other income (expense) in
    the combined statements of operations. We expect that, upon the
    consummation of this offering, we will assume DreamWorks
    Studios&#146; obligations with respect to swaps in this
    aggregate notional amount.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In October 2003, we entered into an agreement to
    acquire certain distribution rights to <I>Wallace&nbsp;&#38;
    Gromit: Tale of the Were Rabbit</I>, an animated film currently
    in production. Pursuant to the acquisition agreement, we are
    obligated to pay approximately $45.0&nbsp;million to acquire
    substantially all rights to the film (of which $8.1&nbsp;million
    had been paid as of March&nbsp;31, 2004). In connection with the
    acquisition, DreamWorks Studios entered into loan agreements for
    the financing of the production costs of up to approximately
    $28.7&nbsp;million. Of this amount, $11.0&nbsp;million had been
    borrowed at March&nbsp;31, 2004. Because we are obligated to
    acquire this film upon its completion in 2005, we have included
    amounts in this table related to the obligation.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We operate an animation campus in Glendale,
    California. The lease on the property, which was originally
    acquired for $76.5&nbsp;million, qualified as an operating
    lease. In March 2002, we renegotiated the lease through the
    creation of a special-purpose entity that acquired the property
    for $73.0&nbsp;million and leased the facility to us for a
    five-year term. In accordance with the provisions of
    FIN&nbsp;46, we have included the asset, debt and non-
    controlling interest on our combined balance sheet as of
    December&nbsp;31, 2003. We expect to refinance this obligation
    prior to its maturity.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Universal Studios has advanced DreamWorks Studios
    amounts based on expected future receipts from films that it
    releases. A portion of these advances relate to animated films
    and have been allocated to us by DreamWorks Studios. We expect
    to become obligated to DreamWorks Studios with respect to all or
    a portion of these advances in connection with our separation
    from it.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Deferred Income Tax Benefit</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In conjunction with this offering and as part of
our separation from DreamWorks Studios, we expect a partial
increase in the tax basis of our tangible and intangible assets
as a result of certain transactions that Vulcan may engage in.
This increase in basis generally should result in additional tax
deductions available to us over a period of 15&nbsp;years. To
the extent we generate taxable income sufficient actually to
realize the additional cash tax savings from such deductions, we
will be required to pay Vulcan a percentage of the amount of the
cash tax savings actually realized.
</FONT>

<P align="center"><FONT size="2">45
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Market&nbsp;&#38; Exchange Rate
    Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Interest Rate Risk.</FONT></I><FONT size="2">
We are exposed to the impact of interest rate changes as a
result of our variable rate long-term debt and debt allocated to
us by DreamWorks Studios. DreamWorks Studios uses derivative
instruments from time to time to manage the related risk.
Because DreamWorks Studios allocates to us the income and
expense associated with these derivative instruments, this has
resulted in short term gains or losses. As part of our
separation from DreamWorks Studios, we will no longer be
allocated interest expense or other income and expense
associated with derivative instruments, although we will assume
the interest rate swap agreements associated with our Glendale
animation campus. We will continue to actively monitor
fluctuations in interest rates. A hypothetical 1% change in the
interest rates applicable to the debt associated with our
Glendale animation campus and <I>Wallace&nbsp;&#38; Gromit: Tale
of the Were Rabbit</I> obligation would result in a
$0.8&nbsp;million increase or decrease in interest expense.
Because we expect to repay any obligations that we assume from
DreamWorks Studios with the proceeds of this offering, we have
not performed an analysis of our interest rate risk for any debt
that has been allocated to us by DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Foreign Currency
Risk.</FONT></I><FONT size="2"> We are subject to market risks
resulting from fluctuations in foreign currency exchange rates
through our non-U.S.&nbsp;revenue sources and we incur certain
distribution and production costs in foreign currencies.
However, there is a natural hedge against foreign currency
changes due to the fact that, while significant receipts for
international territories may be foreign currency denominated,
significant distribution expenses will be similarly denominated,
mitigating fluctuations to some extent depending on their
relative magnitude. <I>Wallace&nbsp;&#38; Gromit: Tale of the
Were Rabbit</I>, currently in production in the United Kingdom,
is the only project that we expect to be produced abroad, and we
have therefore entered into a hedge agreement intended to reduce
our exposure to changes in the British pound.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Credit Risk.</FONT></I><FONT size="2"> We are
exposed to credit risk from DreamWorks Studios and third
parties, including customers, counter parties and distribution
partners. These parties may default on their obligations to us,
due to bankruptcy, lack of liquidity, operational failure or
other reasons.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">New Accounting Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the Financial Accounting
Standards Board (&#147;FASB&#148;) issued FAS&nbsp;No.&nbsp;148,
&#147;Accounting for Stock-Based Compensation&nbsp;&#151;
Transition and Disclosure&#148; (&#147;FAS&nbsp;148&#148;).
FAS&nbsp;148 amends FAS&nbsp;No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation&#148; (&#147;FAS&nbsp;123&#148;), to
provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for
stock-based employee compensation. In addition, FAS&nbsp;148
amends the disclosure provisions of FAS&nbsp;123 to require
prominent disclosure of the effects of an entity&#146;s
accounting policy with respect to stock-based employee
compensation on reported operating results, including per share
amounts, in annual and interim financial statements. The
disclosure provisions of FAS&nbsp;148 were effective immediately
upon issuance in 2002. As of December&nbsp;31, 2003, we have no
immediate plans to adopt the fair value method of accounting for
stock-based employee compensation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FIN&nbsp;46,
&#147;Consolidation of Variable Interest Entities.&#148; In
November 2003, the FASB revised certain provisions of
FIN&nbsp;46. FIN&nbsp;46 requires a variable interest entity
(defined as a corporation, partnership, trust or any other legal
structure used for business purposes that either does not have
equity investors with voting rights or has equity investors that
do not provide sufficient financial resources for the entity to
support its activities) to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entity&#146;s activities or entitled to
receive a majority of the entity&#146;s residual returns, or
both. The consolidation requirements of FIN&nbsp;46, as revised,
apply immediately to variable interest entities created after
January&nbsp;31, 2003. The consolidation requirements for older
entities were effective on December&nbsp;31, 2003. Upon our
adoption of FIN&nbsp;46 as of December&nbsp;31, 2003, we
consolidated the special-purpose entity that acquired our
Glendale animation campus. Such consolidation has resulted in an
increase in property, plant and equipment of approximately
$70.2&nbsp;million, net of accumulated depreciation, an increase
in debt and a non-controlling minority interest of
$70.1&nbsp;million and $2.9&nbsp;million, respectively, and a
cumulative effect of a change in accounting principle of
$2.5&nbsp;million.
</FONT>

<P align="center"><FONT size="2">46
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='111'></A>
</DIV>

<!-- link1 "INDUSTRY OVERVIEW" -->

<P align="center">
<B><FONT size="2">INDUSTRY OVERVIEW</FONT></B>

<P align="left">
<B><FONT size="2">Motion Picture Industry</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The motion picture industry involves the
production and distribution of feature films. Production
involves the development and physical production of
feature-length films. Distribution involves the domestic and
international marketing and exploitation of those films in a
variety of ways, including theatrical exhibition, home video
sales and rentals, licensing fees from pay and broadcast
television operators and revenue from ancillary markets. The
major studios have leading industry positions based on the
number of films that they release. The major studios are
generally part of large diversified corporations with production
and distribution operations and established relationships with
exhibitors, creative talent and others involved in the industry.
The MPAA defines the major studios as Metro-Goldwyn-Mayer Inc.
(including MGM Studios, MGM Pictures, Orion and UA&nbsp;Films),
Paramount Pictures Corporation, Sony Pictures Entertainment,
Inc. (including Columbia Pictures), The Walt Disney Company
(including Buena Vista, Miramax Films and Touchstone), Twentieth
Century Fox Film Corp., Universal Studios and Warner Bros.
(including Castle Rock Entertainment, New Line Cinema and
Turner). In the past seven years, the total number of feature
films released in the United States has remained relatively
stable, with 471 released in 1996 compared to 473 released in
2003, according to the MPAA. In addition to distributing films
developed and produced by their wholly owned studios, the major
studios also distribute films of independent production
companies and independent film studios. These smaller,
independent studios, such as Pixar, Muse Productions and Icon
Productions produce a varying number of films per year, but
generally fewer than the major studios. Although DreamWorks
Studios is not defined as a major studio by the MPAA, DreamWorks
Studios distributes its own films in the domestic theatrical
market and worldwide television markets and sub-distributes
films through several parties in the international theatrical
and worldwide home video markets. Our films will be distributed
by DreamWorks Studios. As compared to the major studios, which,
between 2001 and 2003 distributed an average of approximately
29&nbsp;films per studio (inclusive of their subsidiaries) per
year in the U.S.&nbsp;theatrical market, DreamWorks Studios
distributed an average of approximately six films per year over
the same time period.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Animated Motion Picture
    Industry</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The motion picture industry can be divided into
two categories&nbsp;&#151; animated films and live-action films.
The vast majority of films theatrically released are live-action
films. Animated films are typically either hand-drawn,
stop-motion or computer generated (or &#147;CG&#148;).
Hand-drawn films are the traditional two-dimensional films, such
as <I>Snow White and the Seven Dwarfs</I>, that have
historically comprised the majority of animated films.
Stop-motion films, such as <I>Chicken Run</I>, involve animating
three-dimensional models by making small adjustments to the
model between each frame of film to simulate motion. CG animated
films, such as <I>Shrek&nbsp;2</I>, are made by creating and
animating digital models and sets that have been built in a
virtual world using complex computer programs. For a description
of how CG animated films are made, see
&#147;Business&nbsp;&#151; How We Develop and Produce Our
Films.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The animated film business differs from the
live-action film business in several key ways, including
development process and schedules, cost structure and revenue
realization. Animated films rely on the collaborative skills of
a wide variety of artists, including directors, producers,
animators, lighters, effects artists, screenplay writers,
technical personnel and voice talent, while live-action films
heavily rely on the talent of actors and the vision of a single
director. After initial development, it takes approximately
three to four years to produce a high-quality animated film,
while a live-action film is typically produced within a period
of 12 to 18&nbsp;months.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due in part to these production differences, the
cost structures of animated and live-action films are different.
The production costs of an animated film consist primarily of
the salaries paid to a larger number of employees working over a
longer time period than on a typical live-action film, corporate
overhead allocated to the film and equipment and technology
costs. On the other hand, a live-action film&#146;s production
costs vary for a variety of reasons, including the caliber of
acting talent that is hired, the degree to which the film relies
on special effects, and whether the film is shot in remote or
otherwise expensive set locations. In general, due to
</FONT>

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<FONT size="2">the much shorter time commitment involved,
compensation paid to voice talent in connection with an animated
film generally is significantly less than compensation paid to
an actor in a live-action film, although in some cases,
particularly with respect to sequels (such as <I>Shrek 2</I>),
these costs (including contingent compensation) can be
significant. In addition, because of their production cost
structures and the length of time it takes to produce
high-quality animated films, they are generally treated as event
movies, on par with big-budget live-action productions, and
their marketing budgets are generally comparable to such films.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to having different cost structures,
revenue derived from animated films generally has significantly
different characteristics than revenue derived from live-action
films. In theaters, animated films typically have shorter
playing times (generally no longer than 100 minutes), while
live-action movies can have playing times of over 160 minutes.
Accordingly, animated films can be shown more often per screen
than longer live-action films, which can result in greater
attendance and higher box office receipts. In addition,
historically, animated films generally have been more successful
in the home video market than live-action films, as they tend to
sell more home video units per box-office dollar and tend to
have more durable sales past the first cycle. According to
industry reports, since 2000, animated titles have sold
approximately one million home video units per
$13.6&nbsp;million in domestic box office as compared to one
million home video units sold per $19.8&nbsp;million in domestic
box office for PG-rated and G-rated live-action films. Over this
same time period, our animated titles have sold approximately
one million home video units per $12.6&nbsp;million in domestic
box office. Animated films have also been more successful in the
lucrative sell-through market as compared to the rental market,
which we believe is due to their cross-generational family
entertainment appeal and the viewing habits of these audiences,
which are generally made up of younger, repeat viewers. In
addition, animated films have proven successful in the
direct-to-video market. According to AC Nielsen, direct-to-video
titles have sold an estimated 2.3&nbsp;million units per title
since August 1999. Finally, animated films and characters are
generally more amenable to merchandising and cross-promotional
opportunities than the majority of live-action films,
particularly with respect to consumer products aimed at families
and children.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Animated films make up a small portion of the
overall film market. In the past 10&nbsp;years, approximately
94&nbsp;animated films have been theatrically released in the
United States, of which 13 were CG animated films. By
comparison, according to the MPAA, over 450 live-action films
were theatrically released in the United States in 2003 alone.
According to Variety, approximately 180 films were originally
released in more than 100&nbsp;theaters in 2003. Of these, nine
were animated films, which averaged approximately
$65.5&nbsp;million in domestic box office receipts, and the rest
were live-action films, which averaged approximately
$50.3&nbsp;million in domestic box office receipts.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of CG animated films released each
year has remained stable at one or two per year since the first
CG animated feature film was released in 1995. The table below
lists CG-only animated films that have been theatrically
released in the United States to date:
</FONT>

<DIV align="center">
<IMG src="y98977y9897700.gif" alt="(Bar Graph)">
</DIV>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp; *&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Through July&nbsp;18, 2004.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Source: Variety <I>(www.variety.com)</I>.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Motion Picture Distribution</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, the economic life of a motion picture
consists of cycles, which is a period of time over which a film
runs through each distribution channel at least once. The first
cycle of a film&#146;s life is the most important because a film
will generate most of its revenue within it. The first cycle
typically lasts between seven and 10&nbsp;years and consists of
the sequential distribution of a film in (i)&nbsp;the domestic
and international theatrical markets, (ii)&nbsp;the domestic
home video, pay-per-view and video-on-demand markets,
(iii)&nbsp;the international home video market, (iv)&nbsp;the
domestic and international pay television market, (v)&nbsp;the
domestic and international broadcast television and basic cable
markets and (vi)&nbsp;the domestic syndicated television market.
After the first cycle, a film is considered to be a library film
and continues to contribute revenue that, when combined with the
revenue of other titles in a film library, can be a significant
source of additional revenue to a film studio. On average,
revenue streams from the sequential distribution of a film after
it has been released in the domestic theatrical market account
for approximately 85-90% of the total revenue to be realized by
the film studio that released it and its distributor. According
to industry reports, out of the $38.7&nbsp;billion of estimated
worldwide revenue earned by all studios from feature films in
2002, almost $33.8&nbsp;billion was generated from markets other
than the domestic theatrical market. Notwithstanding that the
most significant portion of a film&#146;s revenue stream is
derived from outside of the domestic theatrical market, the
relationship between domestic theatrical revenue and total
revenue has historically been closely correlated. This
correlation is primarily driven by the translation of audience
acceptance of a film across the various revenue markets. To the
extent a film is widely accepted and viewed in the theatrical
market where it is first released, it is likely to be widely
viewed and purchased in the home video market and viewed in the
television market, as customers
</FONT>

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<FONT size="2">wish to recreate the original theatrical
experience. Additionally, many worldwide pay and free television
revenue are contractually determined based on the level of
domestic box office receipts or the applicable territory box
office receipts achieved on a film-by-film basis.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Motion pictures are generally made available for
distribution in markets subsequent to, or simultaneously with,
domestic theatrical release. The chart below shows the timing of
substantially all of the revenue generally received during the
first cycle from the different markets into which a film is
released.
</FONT>

<P align="center">
<IMG src="y98977y9897702.gif" alt="(Bar Graph)">

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Theatrical Distribution and
    Marketing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Theatrical distribution of a motion picture
involves the duplication and transportation of release prints,
the promotion of the picture through advertising and publicity
campaigns (e.g., trailers, television spots and newspaper ads)
and the licensing of the motion picture to theatrical exhibitors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The successful theatrical exhibition of a film
requires the distributor to forecast optimal release dates and
to evaluate the strength of competing films expected to be in
the market around the same time its film will be ready for
release. In general, release dates are picked based on two
factors&nbsp;&#151; the historical number of moviegoers for the
weekend of release and the scheduled competition on those
weekends. The ideal date to release a film is on a high-volume
weekend, such as Memorial Day weekend, that coincides with
little competition for the same audience. Exhibitors and other
film studios are notified of a film&#146;s expected release date
approximately one year in advance, although for major
productions, the announcement can be even earlier. If production
is on schedule and the film is expected to be completed by the
release date, exhibitors are invited to a screening of the film
approximately one month prior to the release date. Based on the
screening, agreements are generally entered with both the
nationwide theater chains and with independently owned theaters.
These arrangements generally provide for the exhibitor&#146;s
payment to the distributor of a percentage of the box office
receipts for the exhibition period, in some cases after
deduction of the theater&#146;s overhead or a flat negotiated
weekly amount. The distributor&#146;s percentage of box office
receipts generally ranges from an effective rate of 35% to over
50%, depending upon the financial success of the motion picture
and the number of weeks that it plays at the box office.
Distributors carefully monitor theater gross receipts to ensure
that the exhibitor promptly pays all amounts due. The size and
success of the promotional advertising campaign can materially
affect the revenue realized from the theatrical release of a
motion picture. Similarly, the ability to exhibit motion
pictures in the most popular theaters can affect theatrical
revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Motion picture studios can spend well in excess
of $50&nbsp;million on the domestic promotion of a major motion
picture, which includes costs related to print, television and
radio advertising campaigns, trailers, Internet advertising and
non-media costs such as production, creative and exhibitor
services and market research. The largest single marketing cost
for the major studios is the cost associated with advertising a
film on television. According to the MPAA, in 2003 the average
domestic cost for a major studio to advertise a new feature film
was approximately $35&nbsp;million. Similar amounts can be spent
in total in all international markets in all media promoting a
film. Nonetheless, the costs incurred in connection with the
distribution and marketing of a motion picture can vary
significantly, depending on the number of screens on which the
motion picture is to be exhibited, the overall budget of the
film and the competition among distributors at the time of
</FONT>

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<FONT size="2">release. While marketing campaigns generally
raise consumer awareness and ticket sales prior to and during
the theatrical release of a feature film, the effects of a
successful campaign can also significantly contribute to a
film&#146;s success in the home video and other markets.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Films typically are released theatrically in
international territories between one and three months following
initial domestic theatrical release and in much the same manner.
In recent years, however, studios have begun to capitalize on
global media saturation and are releasing films in many of the
larger international territories within the first month
following domestic release. International release patterns are
dependent on local holidays and school schedules, as well as the
timing of competitive releases. For the major studios, as well
as for DreamWorks Studios, key international territories are
Australia, Brazil, France, Germany, Italy, Japan, Korea, Mexico,
the United Kingdom and Spain. Animated films differ from
live-action films in that they may be dubbed in as many as
30&nbsp;languages, as compared to live-action films, which are
generally dubbed in five or six languages and subtitled
elsewhere.
</FONT>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Home Video</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Home video distribution involves the marketing,
promotion and sale and/or lease of videocassettes and DVDs to
wholesalers, local, regional and national home video retailers
(e.g., home video specialty stores, mass merchants, record
stores and other outlets), which then sell or rent the
videocassettes and DVDs to consumers for private viewing.
According to the MPAA, film studio revenue growth for the major
studios has been driven by home video in recent years, with
worldwide home video revenue growing from approximately
$12.4&nbsp;billion, or approximately 40% of total film studio
revenue, in 2001 to approximately $16.3&nbsp;billion, or
approximately 44%, in 2002. In the same time period, revenue
generated from home video sales of our animated titles, which
primarily includes home video sales of <I>Shrek </I>and
<I>Spirit: Stallion of the Cimarron</I>, has averaged
approximately 60% of the total revenue derived from those films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Major feature films are usually scheduled for
release in the domestic home video market within four to six
months after domestic theatrical release to capitalize on the
theatrical advertising and publicity for the film.
Internationally, the release date can vary significantly, but is
generally within four to twelve months following domestic
theatrical release. Home video units may be sold or leased to
wholesalers and retailers for either a fixed price or a
percentage share of the rental revenue. Animated titles are
generally priced for sale to encourage direct purchase by
consumers, referred to as &#147;sell-through,&#148; (as compared
to purchases by home video chains that then rent the home video
to customers) and, historically, animated films have generally
had more success than live-action films in the sell-through
market. After the initial home video release period, home video
units continue to be sold at reduced sell-through pricing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The home video release of an animated feature
film involves the manufacture of both DVDs and VHS cassettes of
the film, the creation and production of bonus material and the
distribution to numerous retail accounts, often accompanied by
an extensive marketing campaign. These expenses can vary
substantially from film to film, based on how many units are
replicated and the distributor&#146;s judgment of an appropriate
marketing spending level. The marketing campaign will often
include television, radio and print advertising, along with
in-store promotions and publicity events. The size of the
marketing campaign can be substantially impacted by the time of
year of the home video release, the competitive titles being
released in the same period and the level of box-office success
of the underlying animated film. The success of the home video
release is largely dependent upon the theatrical success of the
film, the success of the film&#146;s marketing campaign and the
choice of an optimal date to release the home video.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Overall growth in the domestic home video market
has accelerated with the introduction of the DVD format,
although the growth in DVD demand has led to a decline in the
videocassette business. According to the MPAA, sales of DVDs to
U.S.&nbsp;dealers in the rental and sell-through markets have
increased over 3,000% since 1998&nbsp;&#151; from approximately
34&nbsp;million units sold in 1998 to approximately
1.1&nbsp;billion in 2003. Likewise, according to the MPAA, the
number of DVD capable households in the United States in 2003
was approximately 46.7&nbsp;million compared to approximately
1.2&nbsp;million in 1998. Although international DVD penetration
levels lag behind those in the United States, the demand for
DVDs is growing overseas.
</FONT>

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    <TD width="3%"></TD>
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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Television Markets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, films are distributed in television
markets throughout the world either through output agreements or
on a film-by-film basis. Output agreements generally involve a
film studio and a pay cable or satellite network operator
agreeing that all eligible films produced by the film studio
will be licensed to the network for exhibition a certain number
of times during the license period. In addition, television
networks, independent television networks, television stations
and basic cable system operators generally license television
series, individual films and film packages (consisting of
theatrically released feature films and made-for-television
movies) pursuant to agreements with distributors or syndicators
that allow a fixed number of telecasts over a prescribed period
of time for a specified cash license fee or for barter of
advertising time. The license fees vary based on factors
including the theatrical performance of a film, subscriber
counts of pay cable services and/or local theatrical admissions
in territories outside the United States.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pay-Per-View.</FONT></I><FONT size="2">
Pay-per-view television allows cable and satellite television
subscribers to purchase individual programs, including recently
released films and live sporting, music or other events, on a
&#147;per use&#148; basis. Subscriber fees are typically divided
among the program distributor, the pay-per-view operator and the
cable or satellite system operator.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Video-On-Demand.</FONT></I><FONT size="2">
Video-on-demand allows consumers to view a film or television
program whenever they choose, or &#147;on demand&#148;. Unlike
pay-per-view, video-on-demand offers viewers the ability to
pause, rewind and fast-forward programs that they rent for a
period of up to 24&nbsp;hours. According to preliminary MPAA
figures, there are currently a limited number of video-on-demand
capable households in both domestic and international markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Domestic Pay
Television.</FONT></I><FONT size="2"> Pay television allows
subscribers to view premium channels such as HBO, Cinemax,
Showtime, The Movie Channel and Starz/ Encore that are offered
by cable and satellite network operators for a monthly
subscription fee. The pay television networks acquire a
substantial amount of their programming from the major studios.
Most film studios have negotiated output agreements with the
major subscription pay services whereby the service provider
licenses for distribution all eligible films from the studio for
a guaranteed fee typically dependent on domestic theatrical
performance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">International Pay
Television.</FONT></I><FONT size="2"> Pay television is offered
internationally by over 35 service providers reaching 150
countries worldwide and is generally distributed via cable
and/or satellite for a monthly subscription fee, as it is in the
United States. Although these international pay television
services acquire locally produced motion pictures, the viability
of their movie channels is dependent to varying degrees upon
access to Hollywood films. Virtually all of the major
international pay television services have licensing
arrangements (either on an output, volume or package basis) with
multiple, if not all, Hollywood studios. In the major European
Union countries&#146; license fees are based on local theatrical
admissions. The majority of pay television license agreements
throughout the rest of the world tend to be based on
U.S.&nbsp;theatrical performance. In those regions of the world
comprised of smaller countries&nbsp;&#151; such as Latin
America, the Middle East and Southeast Asia&nbsp;&#151; pay
television services are generally offered on a pan-regional
basis by two competing services per region.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Broadcast and Basic Cable
Television.</FONT></I><FONT size="2"> Broadcast television
allows viewers to receive, without charge, programming broadcast
over the air by affiliates of the major networks (ABC, CBS, NBC
and Fox), other networks such as UPN and the WB Network,
independent television stations and cable and satellite networks
and stations. In certain areas, viewers may receive the same
programming via cable transmission for which they pay a basic
cable television fee. Broadcasters or cable system operators pay
fees to studios for the right to air programming a specified
number of times. Unlike pay-per-view and pay television,
broadcast and basic cable networks typically acquire motion
pictures more selectively, licensing individual films or small
packages of films rather than negotiating more expansive output
agreements.
</FONT>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Markets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Motion pictures can generate revenue outside of
traditional distribution networks, including from the
non-theatrical distribution of motion pictures to airlines,
schools, libraries, hospitals and the military.
</FONT>

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<FONT size="2">Soundtrack albums and licensing of rights to
perform musical works from film music can also be a source of
income. In addition, derivative works such as theme park
attractions, ice shows, musicals and plays can be created to
generate additional sources of revenue. Other revenue may be
generated from the licensing of rights to manufacture and
distribute board and video games, dolls, clothing and similar
commercial articles derived from characters or other elements of
a motion picture, and we expect that similar revenue
opportunities will likely exist in new and emerging technology
markets, such as cell-phone and other mobile and wireless
devices.
</FONT>
</DIV>

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<A name='112'></A>
</DIV>

<!-- link1 "BUSINESS" -->

<P align="center">
<B><FONT size="2">BUSINESS</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, we make high quality CG animated
films meant for a broad movie-going audience. We believe we
currently have more CG animated feature films in development and
production than any other animation studio. We employ a core
staff of artists, technology personnel and production staff who
have been creating, developing and applying CG techniques for
over 20&nbsp;years. We have theatrically released a total of
eight animated feature films, three of which have been CG-only,
and one direct-to-video title. Our CG animated feature films
have achieved domestic box office success, with <I>Antz, Shrek
</I>and <I>Shrek 2 </I>grossing approximately
$90.2&nbsp;million, $267.7&nbsp;million and $425.0&nbsp;million
(<I>Shrek 2&#146;s </I>results are through July&nbsp;18, 2004),
respectively, and collectively selling approximately
56&nbsp;million home video units worldwide (<I>Shrek 2 </I>is
scheduled to be released on home video in November 2004).
<I>Shrek 2</I>, which opened on May&nbsp;18, 2004, was the most
widely distributed film ever in the domestic theatrical market
(playing in 4,223&nbsp;theaters at its peak), achieved the
highest domestic box office gross of any animated film, had the
most successful three-day opening weekend of any animated film
and broke the single-day box office sales record for any film by
grossing $44.8&nbsp;million. Our five non-CG animated feature
films have achieved total domestic box office receipts of
approximately $358.7&nbsp;million and have sold approximately
44&nbsp;million home video units worldwide. We believe our
experience, creative talent, scale of operations, technology and
animation proficiency enable us to produce two high quality CG
animated feature films per year. We are scheduled to release our
second CG animated feature film for the year, <I>Shark Tale</I>,
into the domestic theatrical market on October&nbsp;1, 2004. We
are in various stages of pre-production and production on five
additional feature films that we expect to release through 2006.
In addition, we have a substantial number of projects in
creative and story development that are expected to fill the
release schedule in 2007 and beyond.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our feature films are the source of substantially
all of our revenue. We derive revenue from the worldwide
exploitation of our feature films in theaters and in markets
such as home video, pay and free broadcast television and
ancillary markets. We retain the exclusive copyright and other
intellectual property rights to all of our films and characters,
excluding Aardman Animation films and characters (some of which
we co-own), and we have access to an established distribution
and marketing network to fully exploit our films and characters
in theatrical, home video, television and ancillary markets
throughout the world. We have important strategic relationships
with retailers, promotional partners and licensees around the
world that significantly enhance consumer awareness of our films
and their revenue-producing potential. In addition to producing
feature films for theatrical release, we intend to develop and
produce CG animated films for the direct-to-video market. We
have also developed and are currently producing a CG animated
television series for NBC called <I>Father of the Pride</I>,
which is scheduled to air in primetime in the fall of 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering, we
will enter into the Distribution Agreement with DreamWorks
Studios. Under the terms of that agreement, DreamWorks Studios
will generally be responsible for the distribution, marketing
and servicing of all of our completed animated films, including
our previously released films, and direct-to-video pictures.
DreamWorks Studios currently distributes, and we expect will
continue to distribute, our motion pictures in international
theatrical markets through distribution agreements with
Universal Studios, an industry leading distributor and
fulfillment services provider, CJ Entertainment (in Korea and
the People&#146;s Republic of China) and Kadokawa Entertainment
(in Japan). DreamWorks Studios has engaged Universal Studios to
be our worldwide principal fulfillment services provider for our
home video units, excluding only Korea and Japan, where CJ
Entertainment and Kadokawa Entertainment, respectively, will
perform such functions. The Distribution Agreement will cover
the distribution of our films and pictures in all media and
markets on a worldwide basis that are available for delivery
through the later of (i)&nbsp;delivery of 12 animated feature
films, beginning with <I>Shark Tale</I>, and
(ii)&nbsp;December&nbsp;31, 2010. In general, the term of the
Distribution Agreement will be extended to the extent of the
terms, if longer, of any of DreamWorks Studios&#146;
sub-distribution, servicing and licensing agreements that cover
our films and that we pre-approve (such as DreamWorks
Studios&#146; existing arrangements with Universal Studios, CJ
Entertainment and Kadokawa
</FONT>

<P align="center"><FONT size="2">54
</FONT>

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<DIV align="left">
<FONT size="2">Entertainment). Even if we terminate our
distribution relationship with DreamWorks Studios, our existing
and future films generally will still be subject to the terms of
those pre-approved agreements. We will retain the copyrights and
other intellectual property related to our films and the right
to directly exploit certain ancillary rights, such as commercial
tie-ins, and promotional, literary publishing, music publishing,
soundtrack, radio, legitimate stage and merchandising rights. We
believe our relationship with DreamWorks Studios provides us
with many advantages, including the ability to create consumer
awareness and demand for our films through DreamWorks
Studios&#146; seasoned theatrical marketing, distribution and
home video teams. Please see &#147;Related Party
Agreements&nbsp;&#151; Distribution Agreement&#148; for a more
detailed description of the Distribution Agreement.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Company History</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have been a business division of DreamWorks
Studios, the diversified entertainment company formed by Steven
Spielberg, Jeffrey Katzenberg and David Geffen, since its
formation in October 1994. We have grown from several hundred
employees releasing a single animated film per year to our
current status as a separate company with approximately
1,200&nbsp;employees and the capacity to release two CG animated
feature films annually.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have conducted our business primarily through
DreamWorks Studios&#146; animation division, which includes
DreamWorks Animation L.L.C. and Pacific Data Images, Inc. and
its subsidiaries (&#147;PDI&#148;). On the date of the
consummation of this offering, we will complete the separation
of our business from those of DreamWorks Studios. The separation
will be accomplished by the direct transfer of certain of the
assets and liabilities that comprise our business, as well as by
the transfer, by way of merger or otherwise, of certain of
DreamWorks Studios&#146; subsidiaries to us. For a description
of our separation from DreamWorks Studios, see &#147;Related
Party Agreement&nbsp;&#151; Separation Agreement.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conduct our business primarily in two
studios&nbsp;&#151; in Glendale, where we are headquartered, and
in Redwood City, California. Our Glendale animation campus,
where the majority of our animators and production staff is
based, was custom built in 1997 for use as an animation studio.
In 1997, we formed a joint venture with PDI to produce
<I>Antz</I>, and in 2000 we acquired a controlling stake in PDI.
Our animators have won numerous awards for their work in CG
animation, most recently having won a Technical Achievement
Award from the Academy of Motion Picture Arts and Sciences for
our facial animation system.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 1998, we have released eight animated
feature films, including <I>Shrek&nbsp;2 </I>in May of this
year. In addition, we have released one animated direct-to-video
film. Historically, we have produced both CG animated feature
films as well as hand-drawn two dimensional animated feature
films. While all of our films produced to date, except
<I>Chicken Run</I>, contained CG images, only <I>Antz, Shrek
</I>and <I>Shrek&nbsp;2 </I>were created solely using CG
animation. The average domestic box office performance of those
films has been significantly higher than that of our hand-drawn,
two dimensional feature films. In 2001, due to the success of CG
animated films, we decided to exit the two dimensional,
hand-drawn business after the completion and release, in 2002
and 2003, of the two remaining hand-drawn features that were in
production. Beginning with <I>Shrek&nbsp;2</I>, all films in
production and projects in development, other than certain films
that we may finance, co-produce or distribute for Aardman
Animations, are expected to be produced solely using CG images
and techniques. Aardman Animations is the Academy Award&#174;
winning animation studio founded in 1972 by David Sproxton and
Peter Lord, best known for its work in stop-motion animation.
DreamWorks Studios and Aardman Animations have collaborated in
the past on <I>Chicken Run</I>, which was produced by Aardman
Animations and distributed in certain territories, including the
United States, by DreamWorks Studios. We also have a commitment
to distribute <I>Wallace&nbsp;&#38; Gromit: Tale of the Were
Rabbit</I>, another stop-motion film being produced by Aardman
Animation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to our strategic shift to CG animated
films, in 2001 we decided to focus on developing a unique
identity for our films that seeks to appeal to a broad-based
audience of families, teens and adults. <I>Shrek</I>, in
particular, represented a breakthrough for this kind of movie.
Not only did <I>Shrek </I>achieve critical
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">acclaim by being nominated for two Academy
Awards&#174; and winning the first ever Academy Award&#174; for
Best Animated Feature, but it also was a financial success, as
it generated domestic box office receipts of approximately
$267.7&nbsp;million. <I>Shrek&#146;s </I>domestic box office
receipts surpassed the box office receipts of all other animated
feature films released prior to it, excluding only <I>The Lion
King</I>. In addition, <I>Shrek </I>has been very successful in
the home video market, with approximately 28&nbsp;million units
sold domestically (approximately 12&nbsp;million of which were
DVDs) and approximately 15&nbsp;million sold internationally.
Like <I>Shrek, Shrek&nbsp;2 </I>has been critically acclaimed.
It has also established several box office records, including
achieving the highest domestic box office gross of any animated
film at $425.0&nbsp;million as of July&nbsp;18, 2004, and the
highest single-day sales total of any film, with
$44.8&nbsp;million in domestic box office receipts.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Our Strengths</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe our competitive strengths to be as
follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strong Management Team with a Successful Track
    Record.</FONT></I><FONT size="2"> Our creative and production
    management team, led by Jeffrey Katzenberg, consists of some of
    the most experienced individuals in the CG animation industry,
    with an average of over 12&nbsp;years of experience in the
    animation field and 18&nbsp;years in the entertainment industry.
    Mr.&nbsp;Katzenberg, as Chairman of The Walt Disney Studios, was
    one of the key architects responsible for building Disney&#146;s
    filmed entertainment business from approximately
    $245&nbsp;million in revenue in 1984 to one that generated
    revenue exceeding $4.7&nbsp;billion in 1994. Driving this
    tremendous growth was Disney&#146;s animated film division,
    which, under Mr.&nbsp;Katzenberg&#146;s leadership, produced
    such successful films as <I>The Lion King, Aladdin </I>and
    <I>Beauty and the Beast</I>. Mr.&nbsp;Katzenberg and his
    management team have led DreamWorks Studios&#146; animation
    division since its formation and have overseen the successful
    release of a number of animated films, including<I> Antz</I>,<I>
    Shrek</I> and<I> Shrek&nbsp;2</I>.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Creative and Experienced
    Talent.</FONT></I><FONT size="2"> Our producers, directors and
    production executives, many of whom are signed to long-term
    contracts, are among the most experienced in the CG animation
    industry, having produced, directed or otherwise overseen highly
    successful animated feature films such as <I>Shrek,
    Shrek&nbsp;2, The Lion King, Toy Story, Beauty and the Beast
    </I>and <I>Aladdin</I>. Our dedicated artists, technology
    personnel and production staff, numbering approximately 1,000
    employees, are also among the most talented and creative in the
    industry. We emphasize the importance of quality scripts when
    considering film ideas, and generally engage proven
    screenwriters, comedians and other writers to develop and
    produce our storylines. In addition, these writers are deeply
    involved throughout the production process so that our story
    department and technical personnel can directly collaborate with
    the creative talent that develops a story. Finally, our
    commitment to investing in our people and technology helps
    ensure that our films continue to represent the cutting edge in
    CG animated filmmaking. We attract and retain our animators and
    creative and technical staff with competitive compensation
    packages and an artist friendly environment that emphasizes
    ongoing training in animation artistry and technology.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strong and Adaptable Technology
    Foundation.</FONT></I><FONT size="2"> Our technology plays an
    important role in the production of our films. Our technology
    development staff has been responsible for many award-winning
    innovations that continue to advance the art of CG animated
    film-making. We also continue to innovate in the application of
    new technologies to the production process, which has enabled us
    to produce progressively richer and more visually sophisticated
    imagery in our films. Our focus on user interface and tool
    development enables our animators to adeptly use existing and
    emerging CG technologies, allowing us to maximize our artistic
    talent within a CG&nbsp;environment. In addition, we have
    strategic relationships with leading technology companies that
    allow us to leverage third-party advancements and technology
    innovation substantially before they are available to the open
    market, which gives us a valuable advantage in the rapidly
    changing landscape of technology.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Exclusive Ownership of Our Films and
    Characters.</FONT></I><FONT size="2"> We exclusively own the
    copyright and other property rights to all of our films,
    including the animated films released prior to this offering,
    with the exception of certain films that we produce with Aardman
    Animations. Because of our exclusive
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">56
</FONT>
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">ownership, we control the creative direction and
    the exploitation of our films and characters and retain the sole
    right to create sequels and other derivative products such as
    direct-to-video films and consumer products. We believe that our
    ability to control the continued exploitation of our properties
    is a competitive advantage and allows us to capitalize on an
    already existing audience base for our films.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Established Distribution and Promotion
    Infrastructure.</FONT></I><FONT size="2"> Our films have been
    distributed through DreamWorks Studios since we released our
    first film in 1998, and we and DreamWorks Studios have developed
    strong relationships with a host of prominent companies to help
    promote our films. In addition, DreamWorks Studios has worked
    with Universal Studios, the principal international theatrical
    distributor and principal home video fulfillment services
    provider of our films, since 1995. We believe our relationship
    with DreamWorks Studios and its international distributors and
    fulfillment services providers have created proven distribution
    channels and marketing networks for our films, particularly with
    respect to home video. In addition, we believe that our
    established merchandising and promotions group is among the most
    capable in the industry, with the ability to leverage our strong
    relationships with retailers and other consumer products
    companies to maximize the ways in which we promote and profit
    from our films.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Our Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to maintain our position as one of the
leading developers and producers of CG animated feature films.
To accomplish this goal, we are pursuing the major strategies
described below.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Focus on Maintaining Broad Audience Appeal for
    Our Films Through the Unique Identity of DreamWorks
    Animation.</FONT></I><FONT size="2"> We believe that DreamWorks
    has developed a unique identity that the public associates with
    innovative and popular movies such as the <I>Shrek </I>films. We
    intend to build on DreamWorks&#146; brand recognition by
    continuing to make unique, high quality, CG animated films that
    have a sophisticated tone and visual style. We believe our style
    and our appeal to a broad-based audience of families, teens and
    adults set us apart from traditional animated films and film
    companies.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Use Our Existing Scale of Operations to
    Release Two CG&nbsp;Animated Feature Films Per
    Year.</FONT></I><FONT size="2"> We intend to release two
    CG&nbsp;animated feature films per year. We believe this exceeds
    the current production schedule of any other CG animation studio
    and allows us to leverage our infrastructure and spread overhead
    costs over a greater number of films than our current
    competitors. We believe that, although other studios may have
    the financial or technical capacity to match our output of two
    high-quality CG animated feature film releases per year, the
    time that it takes to develop and produce CG animated feature
    films makes it unlikely that any other studio will do so within
    the near future.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Use Star Talent to Increase Popular
    Appeal.</FONT></I><FONT size="2"> Our films feature the voice
    talent of some of the most celebrated actors in the
    entertainment industry. We believe that using the voices of
    today&#146;s top feature film and television actors in both
    domestic and international markets enhances our films as their
    unique voices and talent help bring our characters to life. We
    have strong relationships with our star talent. In addition to
    providing their voices in our films, these actors commit to
    promoting our films for both theatrical and home video release.
    We believe this commitment enhances the event status of each
    release and increases consumer awareness of the film.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Take Advantage of Franchise
    Opportunities.</FONT></I><FONT size="2"> We intend to take
    advantage of our ownership rights and the broad marketability of
    animated films to create franchise films and characters that can
    generate prequels, sequels and other derivative works and
    licensing opportunities in several different markets, including
    theme park attractions, stage plays, interactive games and the
    direct-to-video market. We believe the direct-to-video market,
    in particular, is receptive to animated films, especially in
    expanding characters that have become part of popular culture.
    We expect the production costs associated with direct-to-video
    titles will be significantly less than those associated with our
    animated feature films. We believe the relatively low costs of
    producing direct-to-video titles, and the significant unit
    volumes generated by even moderately successful titles, support
    an economic model that can generate meaningful profits for us.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">57
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Continue Developing Superior CG Animation
    Skills.</FONT></I><FONT size="2"> We believe we are at the
    forefront of technical achievement in CG animated filmmaking due
    to the collaboration and artistic skills of our artists,
    technology personnel and production staff and because we have
    built a user-friendly production environment that allows our
    artists and animators to fully exploit the complex technologies
    used in CG animated filmmaking. We have invested, and will
    continue to dedicate, significant resources in the proper
    training and support of our creative staff. Because of our
    training efforts and the flexibility of our production
    environment, we were able to re-train over 140 world-class
    animators who specialized in hand-drawn cel animation to become
    highly proficient with CG animation techniques. In addition, we
    intend to continue to invest in our technology to ensure that,
    from an artistic and technical perspective, our films remain
    state-of-the-art in CG animated filmmaking.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Maximize the Success of Our Films Through
    Promotional Partnerships.</FONT></I><FONT size="2"> We have
    developed strong relationships with a number of well-known
    retailers and consumer products companies throughout the world
    that help us promote our films in many valuable ways. We believe
    these promotional campaigns have been very successful and have
    resulted in increased movie theater attendance, greater home
    video sales and other consumer product sales. We intend to
    continue developing new relationships with prominent companies
    and to continue utilizing existing relationships to ensure
    maximum consumer awareness for our films.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Our Films</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Films in Production</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are currently producing five animated feature
films (in addition to <I>Shark Tale</I>), and have committed to
acquire distribution rights to one stop-motion film being
produced by Aardman Animations. In addition, we have a
substantial number of projects in development that are expected
to fill our release schedule in 2007 and beyond. The table below
lists all of our films in various stages of pre-production and
production that are expected to be released through 2006.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expected Release Date*</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Voice Talent*</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Shark Tale**</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">October&nbsp;1, 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Will Smith, Robert De&nbsp;Niro, Ren&#233;e
    Zellweger, Jack Black, Angelina Jolie, Martin Scorsese, Peter
    Falk, Michael Imperioli, Vincent Pastore, Ziggy Marley,
    Doug&nbsp;E. Doug
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Madagascar</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Ben Stiller, Chris Rock, Jada Pinkett-Smith,
    David Schwimmer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Wallace&nbsp;&#38; Gromit: Tale of the Were
    Rabbit&nbsp;</FONT></I><FONT size="2">(stop-motion)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Ralph Fiennes, Helena Bonham Carter, Peter Sallis
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Flushed Away</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">To be announced
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Over the Hedge</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Jim Carrey, Garry Shandling
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Shrek 3</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Mike Myers, Cameron Diaz, Eddie Murphy, Antonio
    Banderas
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="2%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Release dates and voice talent are tentative. Due
    to the uncertainties involved in the development and production
    of animated feature films, the date of their completion can be
    significantly delayed and planned voice talent can change.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In post-production.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Shark Tale.</FONT></I><FONT size="2"> A smooth
talking little fish named Oscar (voiced by Will Smith), tired of
scraping out a living at the bottom of the food chain, rockets
to the top of the reef by taking credit for something he did not
do&nbsp;&#151; killing a great white shark. Oscar becomes a
local hero, getting everything his heart desires, including a
penthouse suite and the attention of the hottest girl on the
reef. Eventually the truth catches up with him, and Oscar
discovers that it is impossible to live a lie and that happiness
was right in front of him all along. <I>Shark Tale&#146;s</I>
voice cast is an ensemble of world-class talent rarely seen in
any film: Will Smith, Robert De&nbsp;Niro,
</FONT>

<P align="center"><FONT size="2">58
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">Ren&#233;e Zellweger, Jack Black, Angelina Jolie,
Martin Scorsese, Peter Falk, Michael Imperioli, Vincent Pastore,
Ziggy Marley and Doug E. Doug. As of July&nbsp;1, 2004, <I>Shark
Tale </I>is in its final stages of production, has completed
voice recording and has begun post-production and the final mix.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Madagascar.</FONT></I><FONT size="2"> A comic
adventure about four New York City Central Park Zoo animals who
find themselves unexpectedly shipwrecked on the exotic island of
Madagascar. Best of friends in the civilized world, these
die-hard native New Yorkers must try to survive in the wild and
discover the true meaning of the phrase, &#147;it&#146;s a
jungle out there.&#148; <I>Madagascar </I>features the voices of
Ben Stiller, Chris Rock, Jada Pinkett-Smith and David Schwimmer.
As of July&nbsp;1, 2004, <I>Madagascar </I>was in full
production.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Wallace&nbsp;&#38; Gromit: Tale of the Were
Rabbit.</FONT></I><FONT size="2"> Produced with Aardman
Animations in Bristol, England (makers of <I>Chicken Run</I>),
<I>Wallace&nbsp;&#38; Gromit: Tale of the Were Rabbit </I>is the
first feature film about the characters of the Academy
Award-winning film shorts of the same name.
<I>Wallace&nbsp;&#38; Gromit: Tale of the Were Rabbit </I>is
being produced in stop-motion animation, the style for which
Aardman and its award-winning director, Nick Park, are well
recognized. As of July&nbsp;1, 2004, <I>Wallace&nbsp;&#38;
Gromit: Tale of the Were Rabbit </I>was halfway through its
shooting schedule with over three-quarters of the film&#146;s
final voices recorded.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Flushed Away.</FONT></I><FONT size="2">
<I>Flushed Away</I> marks the third collaboration between us and
Aardman Animations. Sophisticated socialite rat, Roderick
St.&nbsp;James, lives a charmed life in a posh Kensington flat.
Accidentally flushed down his own loo, Roddy winds up in the
sewer and strikes a deal with a street-smart rat named Rita to
take him home. As they voyage through the sewer, a thriving
underground &#147;Ratropolis&#148; full of both great charm and
peril, sparks fly between our rats from opposite worlds. But
when Roddy realizes this secret city is facing disaster, he is
forced to choose between the life of privilege &#147;up
top&#148; and Rita and the citizens of Ratropolis. As of
July&nbsp;1, 2004, <I>Flushed Away </I>was in pre-production,
with production scheduled to begin in the fall of 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Over the Hedge.</FONT></I><FONT size="2">
Based on the popular comic strip seen in over 200 newspapers,
<I>Over the Hedge </I>tells the story of a mischievous raccoon
named R.J. (voiced by Jim Carrey) and a timid turtle named Verne
(voiced by Garry Shandling). When R.J., Verne and their woodland
friends find a suburban housing development encroaching on their
forest home, Verne&#146;s first instinct is to head for the
hills. But the opportunistic R.J. sees a treasure trove to be
had from his unsuspecting new neighbors. Together, Verne and
R.J. form an unlikely friendship as they observe and exploit
this strange new world called suburbia. As of July&nbsp;1, 2004,
<I>Over the Hedge</I> was in pre-production, with production set
to commence in early 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Shrek 3.</FONT></I><FONT size="2"> <I>Shrek
2,</I> the #1 comedy film of all time, based on domestic box
office receipts, continues with <I>Shrek 3</I>. Mike Myers,
Eddie Murphy, Cameron Diaz, Antonio Banderas, and the
behind-the-scenes talent of <I>Shrek&nbsp;2 </I>return for this
new adventure. As of July&nbsp;1, 2004, <I>Shrek 3 </I>was in
pre-production, with production set to commence in early 2005.
</FONT>

<P align="center"><FONT size="2">59
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Released Films</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To date, we have theatrically released eight
animated feature films and one direct-to-video film. Each of
these films continues to generate first-cycle revenue. The table
below lists our animated films produced and released to date:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Domestic</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Domestic Box</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Worldwide Home</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Release Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Office Receipts<SUP>(1)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Video Units Sold</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">CG Animated</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Shrek 2</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">May&nbsp;19, 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">425.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><SUP><FONT size="2">(2)</FONT></SUP></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD align="left" valign="bottom" nowrap><SUP><FONT size="2">(2)</FONT></SUP></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Shrek</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">May&nbsp;18, 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Antz</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Oct.&nbsp;2, 1998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Primarily Hand-Drawn and Other</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Chicken Run
    </FONT></I><FONT size="2">(stop-motion)<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">June&nbsp;21, 2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">The Prince of Egypt</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Dec.&nbsp;18, 1998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Spirit: Stallion of the Cimarron</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">May&nbsp;24, 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">The Road to El Dorado</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Mar.&nbsp;31, 2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Sinbad: Legend of the Seven Seas</FONT></I></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">July&nbsp;06, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <I><FONT size="2">Joseph: King of Dreams
    </FONT></I><FONT size="2">(direct-to-video)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Nov.&nbsp;7, 2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Source: Variety
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Shrek 2</FONT></I><FONT size="2"> receipts are
    through July&nbsp;18, 2004. <I>Shrek&nbsp;2</I> is scheduled to
    be released in the home video market in November 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Produced by Aardman Animations and co-financed
    and distributed by us in certain territories.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">How We Distribute, Promote and Market our
Films</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Distribution and Marketing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, we have distributed and marketed our
films in all media through our parent, DreamWorks Studios and
its sub-distributors and fulfillment services providers in a
manner that we believe has been consistent with general industry
practice (see &#147;Industry Overview&nbsp;&#151; Motion Picture
Distribution&#148;). In the future, we expect to continue
marketing and distributing all of our films through DreamWorks
Studios in a consistent manner, but our distribution
relationship will be governed by the Distribution Agreement,
which we will enter into prior to the consummation of this
offering. Pursuant to the Distribution Agreement, we will grant
DreamWorks Studios the exclusive worldwide right to distribute
all of our animated feature films and direct-to-video pictures
completed and available for release through the later of
(i)&nbsp;delivery of 12&nbsp;animated feature films, beginning
with <I>Shark Tale</I>, and (ii)&nbsp;December&nbsp;31, 2010. In
general, the term of the Distribution Agreement will be extended
to the extent of the term, if longer, of any of DreamWorks
Studios&#146; sub-distribution, servicing and licensing
agreements that we pre-approve (such as DreamWorks Studios&#146;
existing arrangements with Universal Studios, CJ Entertainment
and Kadokawa Entertainment). In addition, even if we terminate
our distribution relationship with DreamWorks Studios, our
existing and future films generally will still be subject to the
terms of those pre-approved agreements. The Distribution
Agreement will also grant DreamWorks Studios identical rights
with respect to all animated feature films and direct-to-video
pictures that we have previously released.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Distribution Agreement will provide that
DreamWorks Studios will be responsible for advertising,
publicizing, promoting, distributing and exploiting our animated
feature films and direct-to-video pictures in a manner
consistent with the customary and reasonable business practices
of the motion picture industry and DreamWorks Studios&#146;
prevailing and commercially reasonable practices. Specifically,
the distribution, promotional and marketing services that
DreamWorks Studios will provide with respect to our theatrically
</FONT>

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<FONT size="2">released animated feature films will be required
to be substantially comparable to the distribution, promotional
and marketing services provided by DreamWorks Studios in
connection with the initial theatrical and home video release of
our films that DreamWorks released prior to the effectiveness of
the Distribution Agreement. For a more detailed description of
the Distribution Agreement, see &#147;Related Party
Agreements&nbsp;&#151; Distribution Agreement.&#148;
</FONT>
</DIV>

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    <B><I><FONT size="2">Theatrical Distribution</FONT></I></B></TD>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios directly distributes and
markets our films in the domestic theatrical market. Outside of
this market, DreamWorks Studios distributes and markets our
films through its distribution and fulfillment services
agreements with Universal Studios and CJ&nbsp;Entertainment and
its distribution and licensing agreements with Kadokawa
Entertainment. Outside of Japan, Korea, the People&#146;s
Republic of China, and the domestic market, Universal Studios
theatrically distributes and markets our films through United
International Pictures, a joint venture with Paramount Pictures.
United International Pictures is one of the leading
international film distributors in the world and operates in
approximately fifty countries. In Korea and the People&#146;s
Republic of China, CJ&nbsp;Entertainment provides theatrical
distribution services, and in Japan, Kadokawa Entertainment
provides such services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has a domestic distribution
group that distributes our films through theaters and theater
circuits and through non-theatrical venues, such as hotels,
airlines, cruise ships and other common carriers and military
installations. All of our films are intended to be distributed
as wide releases on more than 1,500&nbsp;screens. DreamWorks
Studios&#146; distribution group selects exhibitors for our
films based on the quality of the facility, the box office
success of animated films in that theater and geographic area,
the terms of the exhibition agreement, the length of the run to
which the exhibitor is willing to commit and all other relevant
information available to them.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios uses sophisticated technology
that provides the informational background for the
decision-making process involved in the distribution of our film
products. In the United States and Canada, the information
system links DreamWorks Studios&#146; distribution offices with
each other and with exhibitors, print laboratories, film
shippers, advertising agencies and publicists. This seamless
book-to-billing system allows DreamWorks Studios to set shipment
dates for print ads and trailers to theaters, send billing
statements to exhibitors and track performance, all
electronically.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The system currently maintains four years of
historical industry film performance data, which is used in an
on-line environment that tracks theater-by-theater performance
histories for DreamWorks Studios&#146; distributed films. This
system assists DreamWorks Studios and us in determining the most
profitable venues for our films and helps determine optimal
release dates. In addition, the system provides weekly receipts
information so that DreamWorks Studios can accurately track
gross receipts at theaters and the proceeds it is due.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios is directly responsible for
all billing and collection of gross rentals from theater
operators for the domestic markets. Each week, DreamWorks
Studios receives a billing statement from each theater
indicating the level of box office receipts. The billing is
followed by a written confirmation of receipts, at which time
DreamWorks Studios prepares a bill to the theater owner.
DreamWorks Studios estimates that at least 80% of the box office
data required to generate theater billings is received through a
centralized collection information agency that is linked
directly to DreamWorks Studios&#146; book-to-billing system. The
remainder is generated through direct inquiry on a
circuit-by-circuit or theater-by-theater basis.
</FONT>

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    <B><I><FONT size="2">Home Video Distribution</FONT></I></B></TD>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has entered into an agreement
with Universal Studios to service the worldwide distribution of
our DVDs and videocassettes for home video, other than in Japan
and Korea. The services of Universal Studios are comprehensive
and include all manufacturing and packaging, marketing,
distribution, billing and collection. In Japan and Korea,
DreamWorks Studios has entered into agreements with Kadokawa
Entertainment and CJ&nbsp;Entertainment, respectively, to
provide similar services. DreamWorks Studios&#146; home video
division maintains a small core of executives to oversee
distribution, marketing and operations. These
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<FONT size="2">agreements pertain to both home video rental and
the sell-through markets, both domestically and internationally.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we and DreamWorks Studios enjoy a
strong relationship with some of the world&#146;s largest
retailers. We work with these key retailers to develop custom
marketing programs to support the launch of our home video
titles. Our relationship with these stores have resulted in
broad promotion of our home videos and ancillary consumer
products in stores throughout the world.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 1996, DreamWorks Studios has released over
53 films into the worldwide home video market and has had a
successful track record in &#147;event&#148; marketing of such
films as <I>Shrek</I>, which ranks as one of the top-selling
home videos of all time, with approximately 42&nbsp;million home
video units sold worldwide. DreamWorks Studios has achieved this
success through the creative marketing efforts of its seasoned
executive team, which pioneered the sell-through business prior
to joining DreamWorks Studios, and by cultivating close
relationships with retailers around the world. DreamWorks
Studios&#146; home video division has received numerous awards
for creativity and marketing from consumer and industry
organizations including the Cannes DVD&nbsp;Festival,
Parent&#146;s Choice, DVD&nbsp;Entertainment Awards and the
VSDA&nbsp;Home Entertainment Awards.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios distributes our films in
worldwide television markets, including pay television, by
licensing our films pursuant to output agreements and individual
and package film agreements, which generally provide that the
exhibitor pays a fee for each film exhibited during the
specified license period for that film, which may vary according
to the theatrical success of the film. DreamWorks Studios has
entered into license agreements for domestic pay television,
domestic free television and domestic basic cable with respect
to our films. Worldwide, DreamWorks Studios has output
agreements in place with many of the largest pay and free
television distributors around the world. In the past, as a
division of DreamWorks Studios, our films have generally been
covered by these license and output agreements. We expect that
under the Distribution Agreement we will continue to benefit
from DreamWorks Studios&#146; existing agreements and
relationships.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have directly entered into strategic licensing
arrangements with a number of well-known consumer products
companies that generate royalty-based licensing fees. In
general, pursuant to these agreements we provide a license to
use our characters and film elements in connection with
merchandise in exchange for a percentage of net sales of those
products. We have entered into agreements with companies such as
Activision, Hasbro and Scholastic. Activision is our interactive
partner for a number of our movies, including
<I>Shrek&nbsp;2</I>, <I>Shark Tale, Madagascar</I> and <I>Over
the Hedge</I>, and is creating several video games for a variety
of interactive platforms. Hasbro, our master toy licensee for
<I>Shrek&nbsp;2</I>, <I>Shark Tale</I> and <I>Madagascar</I> is
manufacturing and selling toys, puzzles and games such as Shrek
Monopoly&nbsp;Jr. and Shrek Operation, each of which are based
on classic board games. Scholastic is our worldwide English
language (and to a limited extent, Spanish language) publishing
partner for several films, beginning with <I>Shrek&nbsp;2</I>.
Scholastic, one of the only brand names in children&#146;s
publishing, is our primary publishing partner for storybooks and
color/activity books and will produce 19 books based on
<I>Shrek&nbsp;2</I>.
</FONT>

<P align="left">
<B><FONT size="2">Promotional Partnerships</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The success of our films greatly depends not only
on their quality, but also on the degree of consumer awareness
that we are able to generate for their theatrical and home video
releases. In order to maximize consumer awareness, together with
DreamWorks Studios, we have developed promotional partnerships
with a host of well known companies. For example, for
<I>Shrek&nbsp;2</I>, we have promotional partnerships with
Burger King, Baskin Robbins, General Mills, M&#38;M&nbsp;Mars,
Pepsi, Frito-Lay, Hewlett Packard, Dial and The United States
Post Office. Likewise, to promote <I>Shark Tale</I>, to date, we
have partnered with Burger King, General Mills, Coca-Cola,
Hewlett Packard and Krispy Kreme Doughnuts. We have similar
relationships with brand leaders in the international
marketplace, such as Proctor&nbsp;&#38; Gamble, Nestl&#233;,
Kellogg&#146;s, Ferrero (Europe), Barilla
</FONT>

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<FONT size="2">(Italy), Quik (France) and Red Rooster
(Australia). Our promotional partnerships are either
multi-picture or picture-by-picture arrangements. In general,
these arrangements provide that we license our characters and
storylines for use in conjunction with our promotional
partners&#146; products or services. In exchange, we generally
receive promotional fees in addition to substantial marketing
benefits from cross-promotional opportunities, such as inclusion
of our characters and movie images in television commercials,
print media and on promotional packaging. We believe these
relationships are mutually valuable. We benefit because of the
substantial consumer awareness generated for our films, and our
partners benefit because these arrangements provide them the
opportunity to build their brand awareness and associate with
popular culture in ways they otherwise might not be able.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">How We Develop and Produce our Films</FONT></B>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">The CG&nbsp;Animated Filmmaking
    Process</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The filmmaking process starts with an idea.
Inspiration for a film comes from many sources&nbsp;&#151; from
our in-house staff, from freelance writers and from existing
literary works. Successful ideas are generally written up as a
treatment (or story description) and then proceed to a
screenplay, followed by the storyboarding process and then
finally into the production process. After the majority of the
development phase is complete, the entire production process,
from storyboarding to filming out the final image, can take
approximately three to four years.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We employ small collaborative teams that are
responsible for preparing storylines and ideas for the initial
stages of development. These teams, through a system of creative
development controls, are responsible for ensuring that ideas
follow the best creative path within a desired budget and
schedule parameter. The table below depicts, in a very general
manner, a timeline for the filmmaking process, and describes the
four general and overlapping phases that constitute the process
and their components:
</FONT>

<P align="left">
<IMG src="y98977y9897705.gif" alt="(Bar Graph)">

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An animated film, in its most basic state, is a
collection of shots that are assembled and combined with
dialogue, sound effects and music to create a cohesive story. A
group of shots&nbsp;&#151; for example a close up of Shrek
speaking followed by a close-up of Puss-in-Boots responding
would constitute two shots&nbsp;&#151; that logically flow
together and form a cohesive group is known as a sequence. The
collection of sequences that make up the entire film is called
the story reel. The story reel is the most important tool for
providing continuity and comprehension during the filmmaking
process and is the most basic form of the film that will
ultimately reach theaters some three-plus years later. All of
the component shots and sequences in the story reel (characters,
voices, sets, music, and the like) are manipulated using a
digital editing console that keeps track of the high-resolution
shots and sequences stored in our database and allows for quick,
non-linear editing and manipulation of low-resolution duplicates
on the story reel. Throughout the filmmaking process, new and
modified shots and sequences are integrated into the story reel
and replace older shots, sequences and placeholders. As each
shot and sequence follows its path to completion, a copy of it
is edited into the story reel, which allows the filmmakers to
access the most complete version of the film at all times.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Development.</FONT></I></B><FONT size="2">
The development phase generally consists of story and visual
development and its duration can vary project by
project&nbsp;&#151; from a matter of months to a number of
years. The primary components of the development stage are:
</FONT>
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    <I><FONT size="2">Treatment:</FONT></I><FONT size="2"> Typically
    a three to five page outline of the story.
    </FONT></TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Screenplay:</FONT></I><FONT size="2"> An
    approximately 80-page script of the story that combines dialogue
    and stage directions to elaborate the outline of the story.
    </FONT></TD>
</TR>

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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Storyboarding:</FONT></I><FONT size="2"> A
    visual script, or storyboard, developed from the screenplay that
    breaks down the story into thousands of hand-drawn still
    pictures, similar to a comic book. The storyboard describes and
    further weaves the plot and characters into a continuous
    narrative fabric. This is the first stage of the process that
    adds motion and personality to our characters.
    </FONT></TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Visual Development:</FONT></I><FONT size="2">
    Artists begin to draw character designs, backgrounds and other
    images that help develop the characters and the setting of the
    film. Decisions on stylistic approaches, color, use of space and
    light and other elements, in other words, how the film will
    eventually look, are all decided in this phase of development.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Pre-Production.</FONT></I></B><FONT size="2">
This phase is preparatory to the actual CG&nbsp;animation phase
and involves the following:
</FONT>
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    <I><FONT size="2">Modeling:</FONT></I><FONT size="2"> The
    CG&nbsp;modeler translates two-dimensional imagery of props,
    environments and characters into three-dimensional geometric
    representations that can be viewed and manipulated in a computer.
    </FONT></TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Character Rigging:</FONT></I><FONT size="2">
    During character rigging, the three-dimensional model is affixed
    within the computer with all the points of potential movement or
    anatomical control, which can number anywhere from a few hundred
    to several thousand for a primary character. These specialized
    controls are custom programmed to allow the entire range of a
    character&#146;s movement and emotion.
    </FONT></TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Voice Recording:</FONT></I><FONT size="2">
    Directors instruct and coach the actors by walking through the
    scenes and describing the emotions that need to be conveyed.
    Because the actors are performing their roles, sessions are
    usually videotaped to help provide reference for the next phases
    of production and ensure that key expressions, reactions and
    other nuances are captured.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Production.</FONT></I></B><FONT size="2">
The production phase is the longest phase and involves the
largest number of staff. It can last up to two years and it
primarily consists of:
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    <I><FONT size="2">Layout:</FONT></I><FONT size="2"> Using rough
    character shapes, we block out the movement of the character in
    the scene. We determine camera movement, character placement,
    spacing, basic lighting, geography and scene timing before
    beginning animation.
    </FONT></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Animation:</FONT></I><FONT size="2"> Animators
    articulate the thousands of skeletal-like controls that were
    created during the character rigging phase to bring each
    character to life and to synchronize the characters to the voice
    recordings. Animation ranges from a subtle change of a
    sub-surface muscle that changes the expression on a
    character&#146;s face to a rapid series of intense jerks and
    twists of digital spine controls that allow characters to run,
    jump and fly.
    </FONT></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Lighting:</FONT></I><FONT size="2"> By
    applying textures to surfaces, a lighter brings the scene to
    life. Setting quantity, color, intensity and positioning of
    light creates the depth and shadow of the desired dramatic
    effect. In the end, a three-dimensional animated scene is simply
    hundreds of millions of digital polygons (or surfaces) that have
    been manipulated to create three dimensional illusion.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Post
Production.</FONT></I></B><FONT size="2"> In the post production
phase, the core visual and dialogue are in place and we add the
following important aspects to the film:
</FONT>
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    <I><FONT size="2">Sound Effects:</FONT></I><FONT size="2"> All
    non-dialogue sounds effects are added.
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Music/Score:</FONT></I><FONT size="2"> The
    final musical components are delivered and cut into the film in
    addition to the final score.
    </FONT></TD>
</TR>

</TABLE>

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    <I><FONT size="2">Sound Mixing:</FONT></I><FONT size="2"> All of
    the elements of the film are mixed together for proper volume
    levels and mixing.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Color Correction:</FONT></I><FONT size="2">
    The entire film is viewed by the filmmakers to ensure that the
    colors have properly translated during the final stages of the
    process.
    </FONT></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I><FONT size="2">Final Print:</FONT></I><FONT size="2"> A final
    version of the completed film is sent to the lab to be printed,
    checked and ultimately duplicated and shipped to exhibitors
    around the world.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Our Technology</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our technology plays an important role in the
production of our films. Our technology development staff has
been responsible for many award-winning innovations that
continue to advance the art of CG animated film-making and many
of our employees are active leaders of industry trade
organizations, which help set standards within the CG animation
community. We also continue to innovate in the application of
new technologies to the production process, which has enabled us
to produce progressively richer and more visually sophisticated
imagery in our films. Our focus on user interface and tool
development enables our animators to adeptly use existing and
emerging CG technologies, allowing us to leverage our
extraordinary artistic talent. In addition, we have strategic
relationships with leading technology companies that allow us to
leverage third-party advancements and technology innovation
substantially before they are available to the open market,
which in the rapidly changing landscape of technology gives us a
valuable advantage.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have several core proprietary technologies and
production processes: (1)&nbsp;Our <I>Adaptable Production
Environment </I>is a robust data and workflow management
architecture for connecting various tools together into an
organized and efficient pipeline; (2)&nbsp;<I>Emo </I>is our
character animation system; (3)&nbsp;<I>Light</I> and
<I>D<U>&nbsp;</U>Render </I>are an interactive lighting tool and
a photo realistic rendering software system, respectively;
(4)&nbsp;<I>Comp</I> is a high-quality digital compositor;
(5)&nbsp;<I>Nile</I> is a sophisticated production tracking and
management tool and (6)&nbsp;<I>Virtual Studio Collaboration</I>
encompasses a suite of high-end collaboration tools that enable
efficient production workflow and collaboration across multiple
geographically diverse sites.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Adaptable Production
Environment:</FONT></I><FONT size="2"> The adaptable and
flexible production environment at DreamWorks Animation exists
because of our core pipeline software, which permits the use of
specialized proprietary custom tools, as well as commercially
available applications. The proprietary pipeline software
includes hundreds of scripts and applications that manage and
version the millions of digital elements that make up each of
our CG&nbsp;productions. The basis for our production pipeline
is a linked collection of proprietary tools that are
customizable and allow for the creation of unique,
groundbreaking images and visual effects in our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">EMOtion:</FONT></I><FONT size="2"> <I>Emo
</I>is our Academy Award&#174; winning animation system. It is
one of the primary tools used by our animators to put our CG
characters in motion. Unlike commercially available software
solutions that focus primarily on film visual effects or
computer game animation, <I>Emo </I>is designed to deliver
animators the control and flexibility to achieve convincing
facial expression and full body motion worthy of the world-class
acting talent in our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Light </FONT></I><FONT size="2">and
<I>D<U>&nbsp;</U>Render:</I> Together these two software systems
provide an interactive lighting interface and a powerful
photo-realistic image rendering software. <I>Light </I>provides
an interactive shading interface that enables artists to make
creative adjustments to the shot&#146;s lighting environment.
<I>D<U>&nbsp;</U>Render</I> provides the engine that synthesizes
the environment according to the settings established in
<I>Light</I>. <I>Light </I>and <I>D<U>&nbsp;</U>Render </I>are
essential for establishing the complex visual imagery that is a
hallmark of DreamWorks Animation films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Comp:</FONT></I><FONT size="2"> <I>Comp </I>is
our integrated and interactive compositing package specifically
targeted for the needs of high-end CG animation. Architected for
parallel work, <I>Comp </I>allows many artists to work
concurrently on the same shot. <I>Comp </I>has a sophisticated
user interface that maximizes artist productivity and also
provides programmatic access for customization and integration
into the production workflow.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nile:</FONT></I><FONT size="2"> <I>Nile</I> is
our production management system used to schedule, coordinate
and track the flow of work through the production pipeline. Due
to the complex interdependent nature of three dimensional
animation,
</FONT>

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<DIV align="left">
<FONT size="2">accurate production information is essential for
producing high quality animation on a specific schedule and
budget. <I>Nile </I>acts as the central repository for all
notes, changes and key decisions that take place throughout the
production of a film. Furthermore, <I>Nile </I>shares
information across productions, allowing the production
management team to optimize studio resources and regulate the
inventory of work for individual departments.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Virtual Studio
Collaboration:</FONT></I><FONT size="2"> Our <I>Virtual Studio
Collaboration </I>technology enables creative collaboration
across multiple geographic sites. This technology has been
applied to the several areas of the creative, production and
technical collaboration processes at DreamWorks Animation, which
has enabled us to build virtual studios across physical
boundaries and leverage our talent pool without regard to
location. The technology has been deployed internally to enable
remote digital dailies, remote editing collaboration, remote
storyboard pitching and many other forms of remote collaboration
involving the real-time sharing of high-resolution images
combined with interactive communication among staff. This
technology, which is now at the core of our operation, has
enabled us to leverage the latest in research and development
with our strategic technology partners.
</FONT>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because of the importance of the domestic
theatrical market in determining revenue from other sources, our
primary competition comes from both animated and live-action
films that are targeted at similar audiences and released into
the domestic theatrical market at the same time as our films. At
this level, in addition to competing for box office receipts, we
compete with other film studios over optimal release dates and
the number of motion picture screens on which our movies are
exhibited. In addition, we compete with other films released
into the international theatrical market and the worldwide home
video and television markets. We also face intense competition
from other animation studios for the services of talented
writers, directors, producers, animators and other employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Competition for Film
Audiences.</FONT></I><FONT size="2"> Our feature films compete
with both live-action and animated films for motion picture
screens, particularly during national and school holidays when
demand is at its peak. Due to the competitive environment, the
opening weekend for a film is extremely important in
establishing momentum for its domestic box office performance.
Because we expect to release only two films per year, the
scheduling of optimal release dates is critical to our success.
One of the most important factors we consider when determining
the release date for any particular film is the expected release
date of competing films. In this regard, we pay particular
attention to the expected release dates of films produced by
other animation studios, and in particular Pixar, Disney and Fox
Entertainment&#146;s Blue Sky Studios, although we expect that
in the future, we may also need to consider the release dates of
animated films produced by others.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Disney, Pixar, and Blue Sky Studios are the other
CG animation studios that we believe target similar audiences
and currently have comparable CG animated filmmaking
capabilities, and each of them has released animated films
produced solely with CG technology. Pixar has announced that it
intends to release <I>The&nbsp;Incredibles </I>on November 5 of
this year and <I>Cars </I>in late 2005. Blue Sky Studios is a
smaller animation studio and production company that has
released only one CG animated feature film, <I>Ice Age </I>in
March 2002, and is currently producing <I>Robots</I>, which has
an announced release date of March 2005. In addition to
producing <I>Dinosaur </I>in 2000, Disney has announced that it
plans to release the CG animated feature film, <I>Chicken
Little</I>, in 2005. In addition to these animated film studios,
other smaller animated film studios and production companies
currently exist, such as DNA Productions, which in 2001 released
the CG animated feature film <I>Jimmy Neutron: Boy Genius </I>in
conjunction with Nickelodeon and Paramount Pictures. In addition
to CG animated films, a number of hand-drawn animated films are
released each year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Competition for
Talent.</FONT></I><FONT size="2"> Currently, we compete with
other animated film and visual effect studios for artists,
animators, directors and producers. In addition, we compete for
the services of computer programmers and other technical
production staff with other CG animation studios and production
companies and, increasingly, with video game producers. In order
to recruit and retain the most talented creative and technical
personnel possible, we have established relationships with the
top animation schools and industry trade groups. We have also
established well organized and thorough in-house digital
training and artistic development
</FONT>

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<DIV align="left">
<FONT size="2">training programs. Through these programs, we
were able to re-train approximately 140 talented two-dimensional
animators to become highly proficient three-dimensional CG
animators.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Potential
Competition.</FONT></I><FONT size="2"> In addition to existing
CG animation studios, a number of film and visual effect
studios, including Sony Entertainment and Lucasfilm Ltd. have
announced their intention to enter the market or produce
additional CG animated films. While we and most of the other
existing CG animation studios and production companies have
developed proprietary software to create CG animated films,
other film studios would not be required to do so, as
technological advances have made it possible to purchase
third-party software that is capable of producing high-quality
CG images. However, we believe that our experience in the CG
animation field, along with the technology and talent that we
have developed, provide us with significant competitive
advantages over new entrants.
</FONT>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We employ approximately 1,200 full and part-time
employees, most of which are currently covered by employment
contracts, which generally include non-disclosure agreements. Of
that total, approximately three quarters are directly employed
in the production of our films as animators, modelers, story
artists, visual development artists, layout artists, editors,
technical directors, lighters and visual effects artists and
production staff, approximately 180 are primarily engaged in
supporting and developing our animation technology, and
approximately 80 work on general corporate and administrative
matters, including training. We also hire additional employees
on a picture-by-picture basis. The salaries of these additional
employees, as well as portions of the salaries of certain
full-time employees who provide direct production services, are
typically allocated to the capitalized costs of the related
feature film. In addition, approximately 450 of our current
employees (and some of the employees or independent contractors
that we hire on a project-by-project basis) are represented
under three industry-wide collective bargaining agreements to
which we are a party, namely the Local&nbsp;839 of the
International Alliance of Theatrical Stage Employees Agreement
and the International Alliance of Theatrical Stage Employee
Basic Agreement, which generally cover certain members of our
production staff, and an agreement with the Screen Actors Guild,
which generally covers artists such as actors and singers. The
collective bargaining agreements with Local&nbsp;839 and the
IATSE expire in August 2006 and the SAG agreement expires in
June 2005. We believe that our employee and labor relations are
good.
</FONT>

<P align="left">
<B><FONT size="2">Legal Proceedings</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time we are involved in legal
proceedings arising in the ordinary course of our business,
typically intellectual property litigation and infringement
claims related to our feature films, which could cause us to
incur significant expenses or prevent us from releasing a film.
We also have been the subject of patent and copyright claims
relating to technology and ideas that we may use or feature in
connection with the production, marketing or exploitation of our
feature films, which may affect our ability to continue to do so.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that there is no litigation pending
against us, including the matters described above, that should
have, individually or in the aggregate, a material adverse
effect on our financial position or results of operations.
</FONT>

<P align="center"><FONT size="2">67
</FONT>
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<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "MANAGEMENT" -->

<P align="center">
<B><FONT size="2">MANAGEMENT</FONT></B>

<P align="left">
<B><FONT size="2">Executive Officers and Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information as to
persons who are expected to serve as our directors and executive
officers upon consummation of this offering, together with their
positions and ages.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">53
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Executive Officer and Director Nominee
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Roger A. Enrico
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">59
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board of Directors Nominee
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paul G. Allen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">51
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director Nominee
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lewis W. Coleman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">62
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director Nominee
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Geffen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">61
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director Nominee
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nathan Myhrvold
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">44
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director Nominee
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Howard Schultz
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">50
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director Nominee
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">48
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Operating Officer
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">44
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Counsel
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">39
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Set forth below is a brief description of the
business experience of the persons who are expected to serve as
our directors and executive officers upon consummation of this
offering:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Jeffrey Katzenberg&nbsp;&#151; Chief Executive
Officer and Director Nominee.</FONT></I><FONT size="2"> Mr.
Katzenberg co-founded and has been a principal member of
DreamWorks Studios since its founding in October 1994. Prior to
founding DreamWorks Studios, Mr.&nbsp;Katzenberg served as
chairman of the board of The Walt Disney Studios from 1984 to
1994. As chairman, he was responsible for the worldwide
production, marketing and distribution of all Disney filmed
entertainment, including motion pictures, television, cable,
syndication, home video and interactive entertainment. During
his tenure, the studio produced a number of live-action and
animated box office hits, including <I>Who Framed Roger Rabbit,
The Little Mermaid, Beauty and the Beast, Aladdin</I> and <I>The
Lion King</I>. Prior to joining Disney, Mr.&nbsp;Katzenberg was
president of Paramount Studios. Mr.&nbsp;Katzenberg serves on
the boards of The Motion Picture and Television Fund, The Museum
of Moving Image, Cedars-Sinai Medical Center, California
Institute of the Arts and The Simon Wiesenthal Center. He is
co-chairman of each of the Creative Rights Committee of the
Directors Guild of America, and the Committee on the
Professional Status of Writers of the Writers Guild of America.
In addition, his fundraising efforts on behalf of AIDS Project
Los Angeles have helped to provide its clients with medical and
social services. Following our separation from DreamWorks
Studios, Mr.&nbsp;Katzenberg will be a consultant to DreamWorks
Studios, where he will be permitted to spend up to 10% of his
time, and will remain one of its principal members.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Roger A. Enrico&nbsp;&#151; Chairman of the
Board Nominee.</FONT></I><FONT size="2"> We expect that
Mr.&nbsp;Enrico will become chairman of our board of directors
upon completion of this offering and will also assume additional
duties and responsibilities as described below under
&#147;&#151;&nbsp;Board of Directors&nbsp;&#151; Chairman of the
Board.&#148; Mr.&nbsp;Enrico is the former chairman and chief
executive officer of PepsiCo, Inc. Mr.&nbsp;Enrico was chief
executive officer of PepsiCo, Inc. from April 1996 to April
2001, chairman of PepsiCo, Inc.&#146;s board from November 1996
to April 2001, and vice chairman from April 2001 to April 2002.
He joined PepsiCo, Inc. in 1971, became president and chief
executive officer of Pepsi-Cola USA in 1983, president and chief
executive officer of PepsiCo Worldwide Beverages in 1986,
chairman and chief executive officer of Frito-Lay, Inc. in 1991,
and chairman and chief executive officer of PepsiCo Worldwide
Foods in 1992. Mr.&nbsp;Enrico was chairman and chief executive
officer, PepsiCo Worldwide Restaurants, from 1994 to 1997. He is
also on the boards of directors of Target Corporation,
Electronic Data Systems Corporation, Belo Corp. and The National
Geographic Society.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Paul G. Allen&nbsp;&#151; Director
Nominee.</FONT></I><FONT size="2"> Mr.&nbsp;Allen co-founded and
has been the primary financial investor in DreamWorks Studios
since its founding in October 1994. Mr.&nbsp;Allen is the
chairman of Vulcan Inc., which he founded in 1986. He co-founded
Microsoft Corporation with Bill Gates in 1976 and remained the
company&#146;s chief technologist until he left in 1983.
Mr.&nbsp;Allen&#146;s diverse multibillion dollar investment
portfolio
</FONT>

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<FONT size="2">spans holdings in telecommunications, technology,
media, biotech, entertainment and real estate, including
DreamWorks Studios, Digeo, Oxygen Media, The Sporting News and
the Seattle Seahawks NFL and Portland Trail Blazers NBA
franchises. He is a director of numerous privately held
companies and has served as chairman of the board of directors
of Charter Communications, Inc. since July 1999. He is also the
founder of Vulcan Productions, Inc., Experience Music Project
and the Science Fiction Museum and Hall of Fame. Named one of
the top 10 philanthropists in America, Mr.&nbsp;Allen gives back
to the community through the Paul&nbsp;G. Allen Foundations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Lewis W. Coleman&nbsp;&#151; Director
Nominee.</FONT></I><FONT size="2"> Mr.&nbsp;Coleman is the
president of the Gordon and Betty Moore Foundation, a
multi-billion dollar philanthropic foundation, which he joined
in January 2001, although he intends to resign his position with
the foundation in September 2004. A San&nbsp;Francisco native,
and a Stanford University economics graduate, Mr.&nbsp;Coleman
worked in the banking industry for 37&nbsp;years. In December
2000, he resigned as chairman of the board of Banc of America
Securities, LLC, a subsidiary of Bank of America Corporation
after having served in that position since joining Banc of
America Securities, LLC in December 1995. Prior to that, he
spent ten years at BankAmerica Corporation where he held various
positions including chief financial officer, head of World
Banking Group and head of Capital Markets. Previous to that he
spent thirteen years with Wells Fargo&nbsp;&#38; Co. in a
variety of wholesale and retail banking positions. He is also on
the boards of directors of Chiron Corporation, Northrop Grumman
Corporation and Regal Entertainment Group.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">David Geffen&nbsp;&#151; Director
Nominee.</FONT></I><FONT size="2"> Mr.&nbsp;Geffen co-founded
and has been a principal of DreamWorks Studios since its
founding in October 1994. Prior to founding DreamWorks Studios,
he founded, built and sold both Asylum Records (founded in 1970)
and Geffen Records (founded in 1980) by signing contracts with
and producing albums for such notable artists as The Eagles,
Jackson Browne, Joni Mitchell and Linda Rondstadt (at Asylum
Records) and John Lennon and Yoko Ono, Elton John, Donna Summer,
Don Henley, Peter Gabriel, Guns n&#146; Roses, Aerosmith and
Nirvana (at Geffen Records). Mr.&nbsp;Geffen has also produced
successful live action films, including <I>Interview with a
Vampire </I>(1994), <I>Beetlejuice </I>(1988)&nbsp;and <I>Risky
Business </I>(1983). Following our separation from DreamWorks
Studios, Mr.&nbsp;Geffen will oversee DreamWorks Studios and
will remain one of its principal members.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nathan Myhrvold&nbsp;&#151; Director
Nominee.</FONT></I><FONT size="2"> Dr.&nbsp;Myhrvold is the
chief executive officer of Intellectual Ventures, a private
entrepreneurial firm he founded with his former Microsoft
colleague, Dr.&nbsp;Edward Jung. Before Intellectual Ventures,
Dr.&nbsp;Myhrvold spent 14&nbsp;years at Microsoft Corporation.
At Microsoft, he was a top technical and business strategist for
the company and was involved with founding the company&#146;s
scalable operating systems efforts which lead to the
Windows&nbsp;NT and Windows CE product lines. During his tenure,
Dr.&nbsp;Myhrvold held several executive positions, eventually
retiring as chief technology officer in May 2000. Before
assuming his role as chief technology officer at Microsoft,
Dr.&nbsp;Myhrvold was group vice president of applications and
content, which comprised a number of company divisions,
including desktop applications, consumer software and
Microsoft&#146;s online systems. Prior to that, he was senior
vice president of Microsoft&#146;s advanced technology division,
responsible for advanced product development in areas such as
interactive television, advanced graphics and identifying new
forms of consumer computing. Before joining Microsoft in 1986,
Dr.&nbsp;Myhrvold was founder and president of Dynamical
Systems. Prior to that he was a postdoctoral fellow in the
department of applied mathematics and theoretical physics at
Cambridge University and worked with Professor Stephen Hawking
on research in cosmology, quantum field theory in curved space
time and quantum theories of gravitation. Dr.&nbsp;Myhrvold
holds a doctorate in theoretical and mathematical physics and a
master&#146;s degree in mathematical economics from Princeton
University. He also has a master&#146;s degree in geophysics and
space physics and a bachelor&#146;s degree in mathematics, all
from the University of California, Los Angeles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Howard Schultz&nbsp;&#151; Director
Nominee.</FONT></I><FONT size="2"> Mr.&nbsp;Schultz is the
founder and chairman of the board of Starbucks Corporation and
has served as its chief global strategist since June 2000. From
Starbucks&#146; inception in 1985 to June 2000, he served as
chairman of the board and chief executive officer. From 1985 to
June 1994, Mr.&nbsp;Schultz was also Starbucks&#146; president.
From January 1986 to July 1987, Mr.&nbsp;Schultz was the
chairman of the board, chief executive officer and president of
Il Giornale Coffee Company, a predecessor to Starbucks. From
September 1982 to December 1985, Mr.&nbsp;Schultz was the
director of retail operations and marketing for Starbucks Coffee
Company, another predecessor to Starbucks. In 1997,
Mr.&nbsp;Schultz created The Starbucks
</FONT>

<P align="center"><FONT size="2">69
</FONT>

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<DIV align="left">
<FONT size="2">Foundation to raise awareness for literacy causes
and to give grants to organizations that promote literacy.
Mr.&nbsp;Schultz has received many prestigious awards in
recognition of his numerous business and community
contributions, including the Business Enterprise Trust Award for
courage, integrity and social vision in business; the
International Humanitarian Award for CARE, a world-wide relief
organization; the Jerusalem Fund of Aish HaTorah for individuals
making significant contributions to improving the lives of
people around the world; the National Leadership Award for
philanthropic and educational efforts to battle AIDS from AIDS
Action; the Business Leader of the Year Award from Georgetown
University and the Botwinick Prize for Business Ethics from
Columbia University. In January 2002, Mr.&nbsp;Schultz was named
one of the top 25&nbsp;Managers of the Year by Business Week
magazine.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Ann Daly&nbsp;&#151; Chief Operating
Officer.</FONT></I><FONT size="2"> Ms.&nbsp;Daly has served as
head of feature animation at DreamWorks Studios since July 1997,
where she guided the strategic, operational, administrative and
production-oriented concerns of the animation division, as well
as overseeing the worldwide video operations of DreamWorks
Studios. Prior to joining DreamWorks Studios, Ms.&nbsp;Daly
served as president of Buena Vista Home Video
(&#147;BVHV&#148;), North America, a division of The Walt Disney
Company, where she presided over what was then the single
largest home video company in the world. Ms.&nbsp;Daly was
responsible for marketing, sales, distribution, operations,
production and all other facets of the home video division.
During her 14-year tenure at Disney, she was a home video
industry pioneer, orchestrating many innovations such as the
direct-to-video business, where high quality, family-oriented
films were produced exclusively for the home video market. Under
Ms.&nbsp;Daly&#146;s direction, BVHV won several vendor awards
for marketing and advertising, as well as for its
state-of-the-art distribution, shipping and inventory
replenishment systems. Ms.&nbsp;Daly received her B.A. in
economics from The University of California, Los Angeles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Katherine Kendrick&nbsp;&#151; General
Counsel.</FONT></I><FONT size="2"> Ms.&nbsp;Kendrick joined
DreamWorks Studios in April 1996 as general counsel. Prior to
joining DreamWorks Studios, Ms.&nbsp;Kendrick was employed by
The Walt Disney Company in various legal roles, most recently as
vice president&nbsp;&#151; European legal affairs. Prior to
joining Disney, Ms.&nbsp;Kendrick was an associate at the law
firm of Latham&nbsp;&#38; Watkins in Los Angeles.
Ms.&nbsp;Kendrick has received several civic honors for her
legal work and serves on the boards of numerous civic and
charitable institutions, including The Next Generation Council
of The Motion Picture and Television Fund, the Advisory Board of
the Los Angeles Sports and Entertainment Commission, the
Kernochan Center for Law, Media and the Arts for Columbia
University School of Law, and Big Brothers/ Big Sisters of
Greater Los Angeles. Ms.&nbsp;Kendrick received her J.D. degree
from Columbia University and a B.A. in Economics from The
University of California, Berkeley. Ms.&nbsp;Kendrick is
currently serving on our board of directors. Upon consummation
of this offering, she will resign from our board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Kristina M. Leslie&nbsp;&#151; Chief Financial
Officer.</FONT></I><FONT size="2"> Ms.&nbsp;Leslie assumed the
role of chief financial officer of DreamWorks Studios in the
fall of 2003. Prior to becoming chief financial officer, she was
head of corporate finance and strategic planning since joining
DreamWorks Studios in June 1996, where she oversaw its long
range planning, banking and investor relations and participated
in all financing activities. Prior to joining DreamWorks
Studios, Ms.&nbsp;Leslie was director of financial planning at
Viacom following its acquisition of Paramount Communications,
where she had served in various finance positions including
treasury, investor relations and strategic planning since 1990.
Ms.&nbsp;Leslie received an M.B.A. from Columbia University and
a B.A. in economics from Bucknell University. Ms.&nbsp;Leslie is
currently serving on our board of directors. Upon consummation
of this offering, she will resign from our board.
</FONT>

<P align="left">
<B><FONT size="2">Board of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business and affairs will be managed under
the direction of our board of directors. Certain of our largest
stockholders, specifically Jeffrey Katzenberg, David Geffen and
Paul Allen, will have the right to sit on the board or, in
certain cases, to designate for nomination members of our board
pursuant to the terms of our restated certificate of
incorporation and a stockholder agreement that will become
effective upon consummation of this offering. See &#147;Related
Party Agreements&nbsp;&#151; Class&nbsp;B Stockholder
Agreement&#148; and &#147;Description of Capital Stock.&#148;
Upon consummation of this offering, the board will be composed
of seven directors, including Jeffrey Katzenberg, our chief
executive officer. Our by-laws will require that a majority of
</FONT>

<P align="center"><FONT size="2">70
</FONT>
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<DIV align="left">
<FONT size="2">our directors be independent under the applicable
rules
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;within
twelve months of the listing of our Class&nbsp;A common stock.
Steven Spielberg will not sit on, or designate a member of, our
board.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Chairman of the Board</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our expected chairman of the board, Roger Enrico,
will perform certain additional functions not typically
associated with the role of chairman of the board. We expect
that Mr.&nbsp;Enrico, as an employee, will be actively involved
in investor relations, corporate strategic planning, marketing
and promotional strategy, succession planning and employee
development and will oversee matters related to corporate
governance and Sarbanes-Oxley compliance. We will compensate
Mr.&nbsp;Enrico for these additional services with an equity
grant of stock &#146;appreciation rights (&#147;SARs&#148;) and
restricted stock units (&#147;RSUs&#148;) at the time of the
offering. The shares underlying these performance-based grants
will have a value of approximately $4.0&nbsp;million on the date
of the grant, and they will vest over a period of time and will
have exercise prices and performance criteria to be determined.
</FONT>

<P align="left">
<B><I><FONT size="2">Committees of the Board of
Directors</FONT></I></B>

<P align="left">
<I><FONT size="2">Audit Committee</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the consummation of this offering, we will
have an audit committee that will have responsibility for, among
other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">overseeing management&#146;s maintenance of the
    reliability and integrity of our accounting policies and
    financial reporting and our disclosure practices;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">overseeing management&#146;s establishment and
    maintenance of processes to assure that an adequate system of
    internal control is functioning;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">overseeing management&#146;s establishment and
    maintenance of processes to assure our compliance with all
    applicable laws, regulations and corporate policy;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reviewing our annual and quarterly financial
    statements prior to their filing and prior to the release of
    earnings;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reviewing the performance and qualifications of
    our independent accountants and making recommendations to the
    board of directors regarding the appointment or termination of
    the independent accountants and considering and approving any
    non-audit services proposed to be performed by the independent
    accountants.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We plan to nominate a new independent member to
our audit committee prior to consummation of this offering, a
second new independent member to our audit committee within
three months following the consummation of this offering and a
third new independent member within 12&nbsp;months following the
consummation of this offering so that all of our audit committee
members will be independent, as such term is defined in
Rule&nbsp;10A-3(b)(i) under the Securities Exchange Act of 1934,
as amended.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The audit committee will have the power to
investigate any matter brought to its attention within the scope
of its duties and to retain counsel for this purpose where
appropriate.
</FONT>

<P align="left">
<I><FONT size="2">Compensation Committee</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the consummation of this offering, we will
establish a compensation committee. The compensation committee
will have responsibility for, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reviewing key employee compensation policies,
    plans and programs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">monitoring performance and compensation of our
    employee-director, officers and other key employees;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">71
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">preparing recommendations and periodic reports to
    the board of directors concerning these matters;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">functioning as the committee that administers the
    incentive programs referred to in &#147;&#151;&nbsp;Executive
    Compensation, Employment Agreements&#148; below.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Nominating and Corporate Governance
Committee</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the consummation of this offering, we will
establish a nominating and corporate governance committee. The
nominating and corporate governance committee will have
responsibility for, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">recommending persons to be selected by the board
    as nominees for election as directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">recommending persons to be elected to fill any
    vacancies on the board;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">considering and recommending to the board
    qualifications for the office of director and policies
    concerning the term of office of directors and the composition
    of the board;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">considering and recommending to the board other
    actions relating to corporate governance.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of a stockholder agreement that
will be effective upon the consummation of this offering, the
nominating and corporate governance committee will initially be
composed of Paul Allen (or his successor designated in
accordance with our restated certificate of incorporation),
Jeffrey Katzenberg (or, if he is not our chief executive
officer, then his designee) and David Geffen (or his designee).
See &#147;Related Party Agreements&nbsp;&#151; Vulcan
Stockholder Agreement&#148; and &#147;Description of Capital
Stock.&#148; We will take advantage of the controlled company
exception to the &nbsp;rule that requires that director nominees
be selected, or recommended for the board&#146;s selection, by
the independent directors.
</FONT>

<P align="left">
<I><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the consummation of this offering, our
board of directors will form a compensation committee as
described above. None of our executive officers will serve as a
member of our compensation committee, and none of them have
served, or will be permitted to serve, on the compensation
committee, or other committee serving a similar function, of any
entity of which an executive officer is expected to serve as a
member of our compensation committee.
</FONT>

<P align="left">
<B><FONT size="2">Director Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not yet established the compensation of
our board of directors, which will be subject to the approval of
our compensation committee. Directors who are employees of
DreamWorks Animation, including our expected chairman of the
board, Roger Enrico, will receive no compensation for service as
members of either the board of directors or board committees.
However, Roger Enrico will be compensated as described above
under &#147;&#151;&nbsp;Chairman of the Board.&#148; In
addition, the Class&nbsp;C director will not receive any cash or
equity-based compensation as a director or committee member. It
is anticipated that, for the immediate future, other directors
who are not employees of DreamWorks Animation will not be paid
an annual cash retainer, but will receive, pursuant to our 2004
Equity Compensation
Plan, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SARs
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RSUs
annually. Although it is expected that such directors will
receive three&nbsp;years&#146; worth of grants (in the form of
SARs and RSUs) upon the completion of this offering, the normal
annual awards schedule will resume in 2007. In the future, in
addition to the normally scheduled grants, we expect that newly
elected non-employee directors (other than the Class&nbsp;C
director) will also receive grants
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SARs
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RSUs.
</FONT>

<P align="left">
<B><FONT size="2">Executive Compensation, Employment
Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not yet established the compensation of
our executive officers. We expect, however, that the
compensation of our executive officers will consist principally
of base salary, annual cash bonus and equity-based incentive
compensation, all subject to the approval of our compensation
committee.
</FONT>

<P align="center"><FONT size="2">72
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Salaries of our executive officers will be based,
among other factors, on the executive&#146;s responsibilities,
experience and performance, compensation data of other companies
and the competitive environment for attracting and retaining
executives. Following the consummation of this offering, these
assessments will be made by our compensation committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain summary
compensation information for certain executive officers of
DreamWorks Studios. In particular, it sets forth summary
compensation that was earned from DreamWorks Studios by our
chief executive officer and the three most highly compensated
executive officers of DreamWorks Studios who will become
executive officers of DreamWorks Animation for the fiscal year
ended December&nbsp;31, 2003. We expect that these same officers
will become the three most highly compensated executive officers
of DreamWorks Animation following the consummation of this
offering. During fiscal 2003, there were four executive officers
of DreamWorks Studios who will become executive officers of
DreamWorks Animation. We expect that Roger Enrico, our chairman
of the board nominee, who was not employed by us in 2003, will
be one of our four most highly compensated executive officers,
other than our chief executive officer. See
&#147;&#151;&nbsp;Board of Directors&nbsp;&#151; Chairman of the
Board&#148; for details regarding Roger Enrico&#146;s proposed
compensation.
</FONT>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Long-term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Annual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All Other</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Principal Position</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARS</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation<SUP>(1)</SUP></FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg, Chief Executive
    Officer<SUP>(2)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">143,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly, Chief Operating Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick, General Counsel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">550,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">25,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie, Chief Financial
    Officer<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2003
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">8,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Other compensation for Jeffrey Katzenberg
    includes $107,445 for the use of DreamWorks Studios&#146;
    aircraft for personal travel (based on the Department of
    Transportation&#146;s Standard Industry Fair Level mileage rates
    to determine the value of non-commercial aircraft flights for
    employer provided aircraft) and $36,500 for automobile use.
    Other compensation for each of the other executive officers
    reflect payments made to them for automobile use.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Katzenberg did not receive any salary
    for services performed at DreamWorks Studios in 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Ms.&nbsp;Leslie became the chief financial
    officer of DreamWorks Studios in September of 2003. Effective
    March&nbsp;15, 2004, Ms.&nbsp;Leslie&#146;s employment agreement
    was renegotiated and her annual salary was increased to $500,000.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth summary
compensation information that we expect certain of our executive
officers will receive upon the consummation of this offering. We
expect that Roger Enrico, our chairman of the board nominee, who
was not employed by us in 2003, will be one of our four most
highly compensated executive officers, other than our chief
executive officer and have therefore included him in this table.
</FONT>

<P align="center">
<B><FONT size="2">Summary Future Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Annual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Grant Date Value of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards of Common</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock Underlying</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Principal Position</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARS/RSUs<SUP>(1)</SUP></FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Roger Enrico, Chairman of the Board
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg, Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly, Chief Operating Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">8,000,000</FONT></TD>
    <TD align="left" valign="top" nowrap><SUP><FONT size="2">(2)</FONT></SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick, General Counsel
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">550,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie, Chief Financial
    Officer<SUP>(3)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">73
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each of the persons listed in this table will
    receive a grant of equity awards in DreamWorks Animation upon
    the consummation of this offering. These awards will be in the
    form of SARs, RSUs or stock options, or a combination of such
    awards, and will have exercise prices, vesting schedules and, in
    the case of Messrs.&nbsp;Enrico and Katzenberg, performance
    criteria to be determined. Dollar amounts in this column
    represent the estimated fair value of these equity awards on the
    grant date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As noted in the table below, prior to this
    offering, Ms.&nbsp;Daly will be awarded 175,385 phantom units in
    DreamWorks Studios which will be converted into comparable
    equity based awards of DreamWorks Animation. The value of the
    stock that will underlie these awards on the date of conversion
    will be $6,000,000.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Ms.&nbsp;Leslie became the chief financial
    officer of DreamWorks Studios in September of 2003. Effective
    March&nbsp;15, 2004, Ms.&nbsp;Leslie&#146;s employment agreement
    was renegotiated and her annual salary was increased to $500,000.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Employment Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to enter into employment agreements
with our executive officers prior to the effectiveness of the
registration statement of which this prospectus forms a part,
and those employment agreements will be included as exhibits to
the registration statement. In addition, we expect to enter into
an employment agreement with Roger Enrico, who we expect to
become chairman of our board of directors. See
&#147;&#151;&nbsp;Board of Directors&nbsp;&#151; Chairman of the
Board&#148; for details regarding the services Mr.&nbsp;Enrico
will perform for us and a description of Mr.&nbsp;Enrico&#146;s
proposed compensation. Mr.&nbsp;Enrico&#146;s employment
agreement will also be filed as an exhibit to the registration
statement of which this prospectus forms a part.
</FONT>

<P align="left">
<B><FONT size="2">Management Consulting Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to enter into consulting agreements
with Steven Spielberg and David Geffen prior to the consummation
of this offering, and those consulting agreements will be
included as exhibits to the registration statement of which this
prospectus forms a part.
</FONT>

<P align="left">
<B><FONT size="2">Option Plans</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table provides certain information
regarding options granted to the executive officers named in the
Summary Compensation Table above during 2003 by DreamWorks
Studios.
</FONT>

<P align="center">
<B><FONT size="2">Option Grants in Last Fiscal Year and Current
Fiscal Year to Date<SUP>(1)</SUP></FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at Assumed</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Rates of Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Price Appreciation for</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Term<SUP>(3)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise or</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Base Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Grant</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/SH)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date<SUP>(2)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%($)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly<SUP>(4)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1/1/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13.6</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">37.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">463,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,403,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">25,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1/1/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">11.4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">37.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">385,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,169,916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie<SUP>(5)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">9/8/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">37.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">154,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">467,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3/15/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13.4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">408,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,035,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Prior to this offering, there were no options or
    other equity-based awards outstanding with respect to our common
    stock. We expect to convert existing equity-based awards in
    DreamWorks Studios and its subsidiaries into equity-based awards
    for our common stock. Amounts in this table represent
    equity-based awards of DreamWorks Studios granted to the named
    executive officers in the last fiscal year and current fiscal
    year to date that will be converted into equity-based awards for
    our common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">74
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Options and other equity-based awards made by
    DreamWorks Studios were made without a termination date. Upon
    conversion into DreamWorks Animation options and equity-based
    awards, these options and equity-based awards will have a
    termination date that is 10&nbsp;years from the date of
    conversion.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts represent hypothetical values that could
    be achieved for the respective options and equity-based awards
    if exercised at the end of the assumed option term which we have
    assumed is 10&nbsp;years. These values are based on assumed
    rates of stock price appreciation of 5% and 10% compounded
    annually for a ten-year period based on the exercise price of
    the underlying securities on the date of the grant. These
    assumptions are not intended to forecast future appreciation of
    our stock price. The potential realizable value computation does
    not take into account federal or state income tax consequences
    of option exercises or sales of appreciated stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Prior to this offering, Ms.&nbsp;Daly will be
    awarded 175,385&nbsp;phantom units in DreamWorks Studios which
    will be converted into comparable equity based awards of
    DreamWorks Animation upon consummation of this offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Ms.&nbsp;Leslie was granted options on both
    September&nbsp;8, 2003 and March&nbsp;15, 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Conversion of Outstanding Equity-Based
Incentives</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the consummation of this offering, equity
and equity-based awards in DreamWorks Studios or its
subsidiaries held by our executive officers and employees prior
to the offering will be converted into one of four types of
equity or equity-based awards: (1)&nbsp;DreamWorks Animation
Class&nbsp;A common stock, which will be full-value shares
having no restriction on sale and no vesting restrictions,
(2)&nbsp;DreamWorks Animation RSUs, (3)&nbsp;DreamWorks
Animation SARs, and (4)&nbsp;DreamWorks Animation Class&nbsp;A
stock options. Upon conversion, the number of shares of
DreamWorks Animation Class&nbsp;A common stock that will
underlie these awards will
represent &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the total outstanding common stock of DreamWorks Animation.
</FONT>

<P align="left">
<B><FONT size="2">Exercise of Stock Options</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows aggregate exercises of
options to purchase equity interests in DreamWorks Studios in
the fiscal year ended December&nbsp;31, 2003, by the executive
officers named in the Summary Compensation Table in the
&#147;&#151;&nbsp;Executive Compensation&#148; section above.
</FONT>

<P align="center">
<B><FONT size="2">Aggregated Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option/SAR
Values<SUP>(1)(2)</SUP></FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Underlying Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of Unexercised In-the-</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options/SARs at</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">money Options/SARs at Fiscal</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Fiscal Year-End(#)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year-End($) Exercisable/</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Exercisable/ Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Unexercisable<SUP>(3)</SUP></FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">61,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">38,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,990,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">284,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">52,238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">39,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">585,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">222,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">18,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">17,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">222,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">There were no exercises of any DreamWorks Studios
    equity-based awards by the executives named in this table in the
    fiscal year ended December&nbsp;31, 2003 or year-to-date 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">75
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Upon the consummation of this offering, all of
    the equity and equity-based awards held by the executive
    officers named in this table will be converted into equity and
    equity-based awards of DreamWorks Animation in the following
    amounts:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts in this column reflect the difference
    between the fair market value of the securities underlying these
    equity-based awards and the exercise price of such awards.
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Number and Percent of Total of DreamWorks</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Animation Class&nbsp;A Common Stock</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Underlying Equity Based Awards</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">RSUs</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
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    <TD></TD>
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    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">#</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">#</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
</TR>

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    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jeffrey Katzenberg<SUP>(A)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Ann Daly<SUP>(B)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katherine Kendrick<SUP>(B)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kristina M. Leslie<SUP>(B)</SUP>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(A)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Jeffrey Katzenberg has not been granted any
    equity-based awards related to DreamWorks Studios. See
    &#147;&#151;&nbsp;Summary Future Compensation Table&#148; for a
    description of performance-based equity awards that will be
    granted upon the consummation of this offering.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(B)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents existing DreamWorks Studios
    equity-based awards that will be converted to DreamWorks
    Animation equity-based awards. See &#147;&#151;&nbsp;Summary
    Future Compensation Table&#148; for a description of
    performance-based equity awards that will be granted upon the
    consummation of this offering.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Planned Future Equity-Based
Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to establish the 2004 Equity
Compensation Plan for equity-based compensation prior to the
consummation of this offering. The plan will provide for the
granting to employees (including officers), directors and
consultants of RSUs, SARs and stock options, as well as other
equity-based awards. The plan will provide for the issuance both
of awards made with respect to the conversions that occur at the
time of this offering (as described above in &#147;Conversion of
Outstanding Equity-Based Incentives&#148;) and awards made after
the offering, from time to time, in the discretion of the
compensation committee of the board of directors. The
compensation committee of the board of directors will administer
the plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">RSUs are awards that will reflect the value of
one share of DreamWorks Animation Class&nbsp;A common stock and
may contain vesting restrictions. SARs are awards that will
permit the holder to receive the growth in stock price from
grant until exercise and may contain vesting restrictions.
</FONT>

<P align="center"><FONT size="2">76
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='114'></A>
</DIV>

<!-- link1 "RELATED PARTY AGREEMENTS" -->

<P align="center">
<B><FONT size="2">RELATED PARTY AGREEMENTS</FONT></B>

<P align="left">
<B><FONT size="2">Agreements Between DreamWorks Studios and Our
Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering, we
will enter into the Separation Agreement and a number of other
agreements with DreamWorks Studios for the purpose of
accomplishing the contribution to us of the businesses described
in this prospectus and of establishing the terms of our other
relationships with DreamWorks Studios. These agreements will
govern the relationship between DreamWorks Studios and us
subsequent to our legal separation from DreamWorks Studios.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Separation Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Separation Agreement sets forth the
agreements among us, DreamWorks Studios and its current
subsidiaries, DreamWorks Animation L.L.C. and DW Funding L.L.C.
regarding the principal transactions required to effect our
separation from DreamWorks Studios and other agreements
governing the relationship between DreamWorks Studios and us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The Separation.</FONT></I><FONT size="2"> To
effect the separation, it is expected that DW Funding will
transfer to DreamWorks Studios its animation film library free
from any encumbrances in connection with the DW Funding film
securitization facility. Following such transfer, DreamWorks
Studios will transfer to DreamWorks Animation L.L.C.:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">its animated films (including the films
    transferred to it by DW Funding);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all copyrights and other intellectual property
    relating to the animation films;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all intellectual property, contracts, leases and
    other documents specifically identified on a schedule to the
    Separation Agreement;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all accounting and other books, records and files
    relating to the business and operations of the animation group
    of DreamWorks Studios.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In return for such transfer, DreamWorks Animation
L.L.C. will assume all liabilities resulting from any
contributed asset, whether arising before, on or after the
separation date. In addition, we expect we will assume
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of indebtedness from DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Immediately after the contribution of the
contributed assets and the assumption of the assumed liabilities:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Studios will distribute its 99%
    interest in DreamWorks Animation L.L.C. to its members;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Inc., a wholly owned subsidiary of
    DreamWorks Studios that owns 1% of DreamWorks Animation L.L.C.
    as its sole asset, will merge with and into us and its shares
    will be converted into shares of Class&nbsp;B common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all of the members of DreamWorks Studios will
    contribute their interests in DreamWorks Animation L.L.C. to us
    in exchange for shares of our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each member of DreamWorks Studios will contribute
    a portion of the common stock it receives from us to DreamWorks
    Studios to be used as collateral for its revolving credit
    facility;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each member of DreamWorks Studios who so elects
    will contribute all of its common stock in us (that is not
    otherwise being sold in this offering or contributed to
    DreamWorks Studios for use as collateral for its revolving
    credit facility and other than one share of Class&nbsp;C common
    stock that will be held by Vulcan directly) to Holdco, a newly
    formed limited liability limited partnership that will be
    directly or indirectly controlled by Jeffrey Katzenberg and
    David Geffen, in exchange for partnership interests in Holdco;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">77
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Studios will transfer to us its 40%
    interest in Pacific Data Images LLC in exchange for shares of
    our Class&nbsp;A common stock; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our wholly owned merger subsidiary will merge
    with and into Pacific Data Images, Inc., and shares of Pacific
    Data Images, Inc. common stock will be converted into shares of
    our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the separation transactions described
above, we will be a holding company with two operating
subsidiaries, DreamWorks Animation L.L.C. and Pacific Data
Images, Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as expressly set forth in the Separation
Agreement or in any other ancillary agreement, neither we nor
DreamWorks Studios will make any representation or warranty as
to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the assets, businesses or liabilities transferred
    or assumed as part of the separation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any consents or approvals required in connection
    with the transfers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the value or freedom from any security interests
    of any assets transferred;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the absence of any defenses or freedom from
    counterclaim with respect to any claim of either us or
    DreamWorks Studios;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the legal sufficiency of any assignment, document
    or instrument delivered to convey title to any asset transferred.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as expressly set forth in any ancillary
agreement, all assets will be transferred on an &#147;as
is,&#148; &#147;where is&#148; basis, and the respective
transferees will agree to bear the economic and legal risks that
any conveyance was insufficient to vest in the transferee good
and marketable title, free and clear of any security interest
and that any necessary consents or approvals were not obtained
or that requirements of laws or judgments were not complied with.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Releases and
Indemnification.</FONT></I><FONT size="2"> The Separation
Agreement will provide for a full and complete release and
discharge of all liabilities between DreamWorks Studios and us,
and our respective subsidiaries and affiliates, except as
expressly set forth in the Separation Agreement. The liabilities
released or discharged will include liabilities arising under
any contractual agreements or arrangements existing or alleged
to exist between or among any such entities on or before the
consummation of this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will also agree to indemnify, hold harmless
and defend DreamWorks Studios, its members, each of their
respective affiliates and each of their respective directors,
officers and employees, from and against all liabilities
relating to, arising out of or resulting from:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our failure or the failure of any of our
    affiliates (other than DreamWorks Studios or any of its members)
    or any other person or entity to pay, perform or otherwise
    promptly discharge any liabilities associated with the
    contributed businesses, or any contracts associated with the
    contributed businesses, in accordance with their respective
    terms;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any material breach by us or any of our
    affiliates of the Separation Agreement or any of the ancillary
    agreements;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any untrue statement or alleged untrue statement
    of a material fact or omission or alleged omission to state a
    material fact required to be stated in the registration
    statement or this prospectus or necessary to make the statements
    in the registration statement or this prospectus not misleading.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios will agree to indemnify, hold
harmless and defend us, each of our affiliates and each of our
respective directors, officers and employees from and against
all liabilities relating to, arising out of or resulting from:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the failure of DreamWorks Studios or any
    affiliate of DreamWorks Studios or any other person or entity to
    pay, perform or otherwise promptly discharge any liabilities of
    DreamWorks Studios or its affiliates (other than liabilities
    contributed to us);
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">78
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the DreamWorks Studios businesses or any
    liability of DreamWorks Studios or its affiliates other than
    liabilities associated with the separation of the
    businesses;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any material breach by DreamWorks Studios or any
    of its affiliates of the Separation Agreement or any of the
    ancillary agreements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Separation Agreement will also specify
procedures with respect to claims subject to indemnification and
related matters.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Non-competition</FONT></I><FONT size="2">. The
Separation Agreement will contain non-competition agreements
between us and DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Theme Park
Activities</FONT></I><FONT size="2">. The Separation Agreement
will provide that, to the extent we wish to exploit theme park
rights, we will only do so through Universal Studios for so long
as Steven Spielberg has certain contractual relationships with
us or if he, his wife, his or her issue (or trusts for the
primary benefit of any of them) or a private charitable
foundation organized by him and/or his wife directly or
indirectly owns or controls our Class&nbsp;A common stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Distribution Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Term of Agreement and
Exclusivity</FONT></I><FONT size="2">. We will enter into a
Distribution Agreement with DreamWorks Studios prior to the
consummation of this offering whereby we will grant to
DreamWorks Studios the exclusive worldwide right to distribute
all of our animated feature films, including our previously
released films, and direct-to-video pictures completed and
available for release through the later of (i)&nbsp;delivery of
12&nbsp;animated feature films, beginning with <I>Shark
Tale</I>, and (ii)&nbsp;December&nbsp;31, 2010, unless, in
either case, terminated earlier as described below. In general,
the term of the Distribution Agreement will be extended to the
extent of the term, if longer, of any of DreamWorks
Studios&#146; sub-distribution, servicing and licensing
agreements that we pre-approve (such as DreamWorks Studios&#146;
existing arrangements with Universal Studios, CJ Entertainment
and Kadokawa Entertainment). In addition, even if we terminate
our distribution relationship with DreamWorks Studios, our
existing and future films generally will still be subject to the
terms of those pre-approved agreements. The Distribution
Agreement also grants DreamWorks Studios identical rights with
respect to all animated feature films and direct-to-video
pictures we have previously released. Our <I>Father of the Pride
</I>television show will not be covered by the Distribution
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Distribution of our films generally includes
(1)&nbsp;domestic and international theatrical exhibition,
(2)&nbsp;domestic and international home video exhibition,
(3)&nbsp;domestic and international television licensing,
including pay-per-view, pay television, network, basic cable and
syndication, (4)&nbsp;non-theatrical exhibition, such as on
airlines, in schools and in armed forces institutions and
(5)&nbsp;Internet, radio (for promotional purposes only) and new
media rights. We retain all other rights to exploit our films,
including commercial tie-in and promotional rights with respect
to each film, as well as merchandising, interactive, literary
publishing, music publishing and soundtrack rights. Once the
license to distribute one of our animated films or
direct-to-video pictures is acquired by DreamWorks Studios, it
will have the right to exploit the animated film or
direct-to-video picture in the manner described above for
16&nbsp;years from its initial general theatrical release, or
10&nbsp;years from initial release, with respect to
direct-to-video pictures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Distribution
Services</FONT></I><FONT size="2">. DreamWorks Studios will be
directly responsible for the initial U.S.&nbsp;theatrical
release of all of our animated films, but may engage one or more
sub-distributors and service providers for all other markets,
subject to our prior written approval with respect to entities
not currently so engaged by DreamWorks Studios. DreamWorks
Studios is currently party to a distribution agreement with
Universal Studios that provides that Universal Studio&#146;s
affiliate will distribute and market DreamWorks Studios&#146;
films (including ours) in international theatrical markets
excluding Japan, Korea and the People&#146;s Republic of China.
In Japan, DreamWorks Studios has contracted with Kadokawa
Entertainment to provide such services and in Korea and the
People&#146;s Republic of China, DreamWorks Studios has
contracted with CJ Entertainment. For worldwide home video
fulfillment services (excluding Japan and Korea), DreamWorks
Studios has an agreement with Universal Studios to provide
marketing, distribution and other fulfillment services. Such
services are provided in Japan by Kadokawa Entertainment and in
Korea by CJ Entertainment.
</FONT>

<P align="center"><FONT size="2">79
</FONT>

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<DIV align="left">
<FONT size="2">DreamWorks Studios has also entered into output
agreements with many of the major pay and broadcast television
providers throughout the world. In the past, as a division of
DreamWorks Studios, our films have generally been covered by
these license and output agreements. We expect that under the
Distribution Agreement we will continue to benefit from
DreamWorks Studios&#146; existing agreements and relationships.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The agreement will provide that DreamWorks
Studios will advertise, publicize, promote, distribute and
exploit our animated feature films and direct-to-video pictures
in a manner consistent with the customary and reasonable
business practices of the motion picture industry and DreamWorks
Studios&#146; prevailing and commercially reasonable practices.
Specifically, the distribution, promotional and marketing
services DreamWorks Studios provides with respect to our
theatrically released animated feature films must be
substantially comparable to the distribution, promotional and
marketing services provided by DreamWorks Studios in connection
with the initial theatrical and home video release of our films
released prior to the effectiveness of the Distribution
Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Distribution Approvals and
Controls</FONT></I><FONT size="2">. Under the agreement,
DreamWorks Studios will be required to consult and submit to us
a detailed plan and budget regarding the theatrical and home
video marketing, release and distribution of each of our films.
We will have certain approval rights over these plans and are
entitled, subject to certain limitations, to determine the
initial domestic theatrical release dates for two films per year
and to approve the release date in the top 15 major
international territories. Generally, DreamWorks Studios will
not be permitted to theatrically release any film with an MPAA
rating of PG or less within the period beginning six weeks prior
to, and ending four weeks following, the initial domestic
theatrical release date of one of our films, and in the four
weeks surrounding the initial theatrical release date in the top
15 major international territories. Similar restrictions will
apply with respect to the home video distribution of DreamWorks
Studios&#146; and our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Expenses and Fees</FONT></I><FONT size="2">.
The Distribution Agreement will provide that we are solely
responsible for all of the costs of developing and producing our
animated feature films and direct-to-video pictures, including
contingent compensation and residual costs. DreamWorks Studios
will be responsible for all of the out-of-pocket costs, charges
and expenses incurred in the distribution, advertising,
marketing, publicizing and promotion of each film (collectively,
&#147;Distribution Expenses&#148;), including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">marketing materials such as theatrical and home
    video trailers and television spots;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advertising space in any print or electronic
    media;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">film festivals, premieres, advance screenings and
    other special events promoting the films, and all associated
    expenses such as talent travel and accommodations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">home video cassettes, DVDs, CD-ROMs and other
    such home video devices and prints, including for creation,
    manufacture, editing, dubbing, subtitling, rescoring, delivery
    and use of the foregoing or any other existing or future means
    of exploitation;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">checking and collecting gross receipts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">trade dues and assessments by trade organizations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">taxes and government fees;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">remittance and conversion of gross receipts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">license fees, duties, other fees or any other
    amounts paid to permit use of our feature films;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">home video distribution expenses;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">costs, charges and expenses charged to an
    accepted by DreamWorks Studios pursuant to its sub-distribution
    and services agreements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and DreamWorks Studios will mutually agree on
the amount of Distribution Expenses to be incurred with respect
to the initial theatrical and home video release of each film in
the domestic territory and in the top 15 major international
territories, including all print and advertising costs and media
buys. Unless we and
</FONT>

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</FONT>
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<DIV align="left">
<FONT size="2">DreamWorks Studios otherwise agree, the aggregate
amount of Distribution Expenses to be incurred will be equal to
or greater than 80% of the average amount of Distribution
Expenses incurred by DreamWorks Studios to release our four most
recent films. However, if we determine in good faith that a
film&#146;s gross receipts will be materially enhanced by the
expenditure of additional Distribution Expenses, we may cause
DreamWorks Studios to increase such expenditures, provided that
we will be solely responsible for reimbursing DreamWorks Studios
for those additional expenditures within 10 business days of
receiving an invoice from DreamWorks Studios.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios will be entitled to
(i)&nbsp;retain a fee of 8.0% of revenue (without deduction for
early distribution and marketing costs of third-party
distribution and fulfillment services fees) and (ii)&nbsp;recoup
all of its distribution and marketing costs prior to our
recognizing any revenue. If a feature film or a direct-to-video
picture does not generate revenue, net of the 8.0% distribution
fee, sufficient for DreamWorks Studios to recoup its
Distribution Expenses, DreamWorks Studios is not entitled to
recoup those costs from proceeds of our other feature films or
direct-to-video pictures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Retained Rights</FONT></I><FONT size="2">.
Other than the rights to distribute our animated feature films
described above, we will retain all rights to exploit our films,
including during the term of the license, the right to make
sequels, exploit the soundtracks, music, lyrics or other sound
recordings related to our films and the right to license our
films and characters to merchandisers and retailers. These
rights include the right to make documentaries concerning any of
our films, such as &#147;the making of&#148; and &#147;behind
the scenes&#148; productions. Upon expiration of the applicable
license term, we will have the exclusive right to further
exploit our films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Creative Control</FONT></I><FONT size="2">. We
will retain the exclusive right to make all decisions and
initiate any action with respect to the development and
production of each of our films, including the right to abandon
the development or production of a film, the right to exercise
final cut and the right to delegate final cut to the director of
any of our films. Creatively, we will be limited by few
restrictions, including that each film we deliver to DreamWorks
Studios must (i)&nbsp;be filmed in color and in the English
language, (ii)&nbsp;be at least 75 minutes long, (iii)&nbsp;be
an animated film or hybrid animated/live-action film and
(iv)&nbsp;obtain a rating by the MPAA no more restrictive than
PG-13.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Assignment</FONT></I><FONT size="2">.
DreamWorks Studios (i)&nbsp;may assign its rights and
obligations under the Distribution Agreement to any entity in
which it has any direct or indirect ownership interest,
(ii)&nbsp;if DreamWorks Studios ceases to operate its domestic
theatrical distribution business, DreamWorks Studios may assign
or sub-license its domestic theatrical rights with respect to
our films to Universal Studios under the same terms and
conditions as set forth in the Distribution Agreement (in which
case Universal Studios would continue to enjoy its rights and
obligations, with respect to our films, that it currently enjoys
under its sub-distribution and fulfillment servicing agreement
with DreamWorks Studios) and (iii)&nbsp;DreamWorks Studios may
assign to any entity that acquires substantially all of
DreamWorks Studios motion picture business&nbsp;&#151; whether
by acquisition, merger or otherwise.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Termination</FONT></I><FONT size="2">. Upon
the occurrence of certain events of default, which include the
failure of either party to make a payment and the continuance
thereof for five business days, material uncured breach of the
agreement and certain bankruptcy-related events, the
non-breaching party may terminate the agreement. If DreamWorks
Studios ceases business operations or DreamWorks Studios&#146;
agreement with Universal Studios is terminated by either party
thereto, then we may terminate the agreement. If we terminate
the agreement, we generally can require DreamWorks Studios to
stop distributing our films in the various territories and
markets in which DreamWorks Studios directly distributes our
films, subject, in each case, to the terms of any output or
other agreements to which the films are then subject (in which
case they will no longer be entitled to the distribution fee) or
permit them to continue distribution in territories and markets
that we choose. Unless otherwise agreed, termination of the
Distribution Agreement will not affect the rights that any
sub-distributor or service provider has with respect to our
films pursuant to sub-distribution, servicing and licensing
agreements that we have approved.
</FONT>

<P align="center"><FONT size="2">81
</FONT>
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Services Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and DreamWorks Studios will enter into a
Services Agreement whereby DreamWorks Studios will agree to
provide us with various corporate support services, which we
expect to include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">certain accounting functions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">insurance administration;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">information systems management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">payroll services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">legal advisory and consulting services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">human resources administration;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">certain procurement services;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other general support services.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios also may provide us additional
services that we and DreamWorks Studios may identify from time
to time in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that the charges for these services
will generally allow DreamWorks Studios to fully recover the
allocated direct costs of providing these services, plus all
out-of-pocket costs and expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, the services to be provided under the
Services Agreement will be provided by DreamWorks Studios for so
long as the Distribution Agreement is in effect, unless another
termination date has been agreed upon by both parties with
respect to a particular service.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Escrow and Distribution
    Arrangement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Vulcan, entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen and all other
members of DreamWorks Studios who so elect will contribute their
shares of our common stock not sold in this offering to Holdco.
DreamWorks Studios&#146; members that elect to contribute their
shares of our common stock to Holdco will be entitled to receive
a minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from a combination of sales of secondary
shares in this offering and a subsequent follow-on offering of
secondary shares from the common stock held by Holdco. The
follow-on offering must be completed before May&nbsp;31, 2006,
and is subject, in the case of entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen, to a
365&nbsp;day lock-up period. In addition, any shares of our
common stock held by DreamWorks Studios as collateral for its
revolving credit facility that are released as collateral prior
to receipt by the participating DreamWorks Studios members of a
minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from this offering and the follow-on
offering will automatically be contributed by DreamWorks Studios
to Holdco. Without the consent of its limited partners, Holdco
will not conduct any activities other than those related to the
activities described in this section.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the receipt by the participating
DreamWorks Studios members of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from this offering and the follow-on
offering, shares of our common stock contributed to Holdco will
be held in the form of Class&nbsp;B common stock that will be
voted by Jeffrey Katzenberg and David Geffen or entities
controlled by them (except in the event of a class vote of the
Class&nbsp;A common stock, in which case the shares will be
voted by the members of DreamWorks Studios who have contributed
their shares to Holdco as if they had not contributed their
shares to Holdco and had received shares of Class&nbsp;A common
stock). In order to elect the Class&nbsp;C director, Vulcan will
hold one share of its Class&nbsp;C common stock directly rather
than through Holdco. Once the participating DreamWorks Studios
members have received total net proceeds of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
from this offering and the follow-on offering and the remaining
shares are distributed by
</FONT>

<P align="center"><FONT size="2">82
</FONT>
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<DIV align="left">
<FONT size="2">Holdco to the participating Dreamworks Studios
members as described below, only those shares held by Jeffrey
Katzenberg, David Geffen (or entities controlled by them) and
DreamWorks Studios will remain Class&nbsp;B common stock. All
other shares will be converted by Holdco to Class&nbsp;A common
stock prior to their distribution, other than the shares of
Class&nbsp;C common stock to be distributed to Vulcan.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the date that is 180&nbsp;days following
consummation of this offering, either of Jeffrey Katzenberg and
David Geffen (or entities controlled by them), acting together,
or Vulcan may select the timing of one follow-on secondary
offering (which must occur prior to May&nbsp;31, 2006). Upon the
triggering of the follow-on offering, Holdco will cause
appropriate actions to be taken for the sale of a portion of its
shares and receipt by the participating DreamWorks Studios
members of the proceeds from such offering. If Jeffrey
Katzenberg and David Geffen, or entities controlled by them,
initiate the follow-on offering, the distribution of remaining
shares by Holdco to the participating DreamWorks Studios members
will occur promptly after the closing of the follow-on offering
and receipt of at least an aggregate of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in net proceeds from this offering and the follow-on offering by
the participating DreamWorks Studios members. Remaining shares
held by Holdco after the follow-on offering will be distributed
by Holdco to its partners based on the gross price per share in
such follow-on offering (calculated before the discount to be
paid to the underwriters).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If Vulcan initiates the follow-on offering, the
pricing and distribution of shares held by Holdco (and not sold
in the offering) will occur after receipt by the participating
DreamWorks Studios members of total net proceeds from this
offering and the follow-on offering of at least
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
at the conclusion of a 20&nbsp;consecutive trading day pricing
period initiated by Jeffrey Katzenberg and David Geffen or
entities controlled by them. The pricing period may be initiated
at any time after the closing of such follow-on offering and
prior to May&nbsp;31, 2006, and valuation of the shares to be
distributed by Holdco will be based on the volume-weighted
average trading price of our shares over the pricing period.
Vulcan and entities controlled by Steven Spielberg, Jeffrey
Katzenberg and David Geffen will agree to certain trading and
hedging limitations until the release of shares by Holdco. If
the valuation determined during the pricing period is higher
than the price realized in the follow-on offering, the amount of
net cash proceeds received by the participating DreamWorks
Studios members from the follow-on offering will be deemed,
solely for purposes of determining the allocation of shares to
be distributed by Holdco after the follow-on offering, to be the
amount of net cash proceeds that would have been received if the
shares sold in the follow-on offering had been sold at the
valuation determined during the pricing period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the participating DreamWorks Studios members
have not received a minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net proceeds from this offering and the follow-on offering
prior to May&nbsp;31, 2006, Vulcan will have the ability to
initiate an additional follow-on offering during the 18-month
period beginning on May&nbsp;31, 2006. In this event, the
distribution of remaining shares held by Holdco and not sold in
the follow-on offerings will not occur until closing of the
subsequent follow-on offering triggered by Vulcan. The shares
remaining after the subsequent follow-on offering will be
distributed to the participating DreamWorks Studios investors
based on the gross price per share in the subsequent follow-on
offering (calculated before the discount to be paid to the
underwriters).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The distribution of secondary sale proceeds and
shares held by Holdco after the follow-on offering or offerings
will be as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">first, pro rata (based on the valuation
    methodology described above) necessary to satisfy each
    participating DreamWorks Studios member&#146;s unreturned
    DreamWorks Studios&#146; capital as of the date of this offering
    (reduced by such member&#146;s receipt of net cash proceeds in
    this offering and the follow-on offering or offerings);&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">second, pro rata according to the applicable
    DreamWorks Studios member&#146;s participation percentage in
    DreamWorks Studios as of the date of this offering.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Vulcan Stockholder Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will enter into a stockholder agreement with
DreamWorks Studios, Holdco, M&#38;J K Dream Limited Partnership
(a limited partnership controlled by Jeffrey Katzenberg),
certain of Jeffrey Katzenberg&#146;s estate
</FONT>

<P align="center"><FONT size="2">83
</FONT>

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<DIV align="left">
<FONT size="2">planning vehicles, DG-DW, L.P. (a limited
partnership controlled by David Geffen) and Vulcan upon
consummation of this offering. The Vulcan stockholder agreement
will cover matters of corporate governance, restrictions on
transfer of common stock and conversion of Class&nbsp;B common
stock.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Corporate Governance</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Executive Committee.</FONT></I><FONT size="2">
The Vulcan stockholder agreement will provide that in the event
that the board forms an Executive Committee, the Class&nbsp;C
director will have the right to be a member of the Executive
Committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nominating and Corporate Governance
Committee.</FONT></I><FONT size="2"> The Vulcan stockholder
agreement will further provide that the we will use our best
efforts to cause the Nominating and Corporate Governance
Committee to be composed of the Class&nbsp;C director, Jeffrey
Katzenberg (or if he is not our chief executive officer, then
his designee) and David Geffen (or his designee).
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Restrictions on Transfer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Without our prior written consent and the prior
written consent of Vulcan, each Class&nbsp;B common stockholder
will agree not to transfer any shares of Class&nbsp;B common
stock held by such Class&nbsp;B common stockholder without first
converting such shares of Class&nbsp;B common stock to shares of
Class&nbsp;A common stock in accordance with our restated
certificate of incorporation, except:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to any other Class&nbsp;B common stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">transfers among Jeffrey Katzenberg, M&#38;J K and
    the Katzenberg estate planning vehicles party to the Vulcan
    stockholder agreement; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">in a third-party tender offer or exchange offer
    (i)&nbsp;that is recommended by the board or that has been
    publicly endorsed by both of Jeffrey Katzenberg and David Geffen
    (for so long as they continue to beneficially own Class&nbsp;B
    common stock), (ii)&nbsp;that is made to all holders of common
    stock and (iii)&nbsp;in which Equivalent Consideration (as
    defined in our restated certificate of incorporation) is offered
    in respect of each share of common stock. See &#147;Description
    of Capital Stock&nbsp;&#151; Common Stock&nbsp;&#151; Equivalent
    Consideration in Certain Transactions.&#148;
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Agreement to Convert</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Vulcan stockholder agreement will provide
that from and after the first date on which the total number of
outstanding shares of Class&nbsp;B common stock is less than 50%
of the number of shares of Class&nbsp;B common stock outstanding
immediately after the distribution of shares by Holdco, if any
Class&nbsp;B common stockholder (other than DreamWorks Studios
and Holdco) and certain of its affiliates ceases to hold at
least 50% of the number of shares of Class&nbsp;B common stock
it held immediately after the distribution of shares by Holdco,
such Class&nbsp;B common stockholder will be permitted to
transfer its remaining shares of Class&nbsp;B common stock to
any other Class&nbsp;B common stockholder that continues to hold
at least 50% of the number of shares of Class&nbsp;B common
stock it held immediately after the distribution of shares by
Holdco, in accordance with the right of first offer procedures
described below under &#147;&#151;&nbsp;Class&nbsp;B Stockholder
Agreement.&#148; Following compliance with the right of first
offer procedures, such Class&nbsp;B common stockholder will
immediately convert all of its remaining shares of Class&nbsp;B
common stock into Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event that a Class&nbsp;B common
stockholder (other than DreamWorks Studios) ceases to be
controlled by either Jeffrey Katzenberg or David Geffen, then
such Class&nbsp;B common stockholder will be permitted to
transfer any of its Class&nbsp;B common stock to any other
Class&nbsp;B common stockholder controlled by either Jeffrey
Katzenberg or David Geffen, in accordance with the right of
first offer procedures, and, following compliance with the right
of first offer procedures, such Class&nbsp;B common stockholder
will immediately convert all of its remaining shares of
Class&nbsp;B common stock into Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event that each Class&nbsp;B common
stockholder other than DreamWorks Studios has converted its
shares of Class&nbsp;B common stock as described above, or if
DreamWorks Studios ceases to be controlled by at
</FONT>

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<DIV align="left">
<FONT size="2">least one of Jeffrey Katzenberg or David Geffen,
then DreamWorks Studios will immediately convert all remaining
shares of Class&nbsp;B common stock held of record by it into
Class&nbsp;A common stock.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Term</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Vulcan stockholder agreement will terminate
when all outstanding shares of Class&nbsp;B common stock have
been converted to Class&nbsp;A common stock. In addition, the
Vulcan stockholder agreement will provide that Vulcan will cease
to have any rights or obligations under the agreement if Vulcan
ceases to beneficially own a minimum percentage to be agreed
upon of our common stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Class&nbsp;B Stockholder
    Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios, Holdco, M&#38;J K Dream
Limited Partnership, certain of Jeffrey Katzenberg&#146;s estate
planning vehicles and DG-DW, L.P. will enter into a stockholder
agreement upon consummation of this offering. The Class&nbsp;B
stockholder agreement will cover matters of corporate governance
and restrictions on transfer of Class&nbsp;B common stock, both
as described below.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Corporate Governance</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Class&nbsp;B stockholder agreement will
provide that each of M&#38;J K and DG-DW will have the right to
designate one individual for election to the board. For so long
as Jeffrey Katzenberg is our chief executive officer, he will be
the M&#38;J K designee.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Restrictions on Transfer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, without the consent of M&#38;J K and
DG-DW, each party to the Class&nbsp;B stockholder agreement will
agree not to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">transfer, other than pursuant to the right of
    first offer procedures described below, any shares of
    Class&nbsp;B common stock (or shares of Class&nbsp;A common
    stock into which such shares of Class&nbsp;B common stock have
    been converted) beneficially owned by such party, other than, in
    the case of Holdco, to any member of DreamWorks Studios in
    connection with the distribution described above under
    &#147;&#151;&nbsp;Escrow and Distribution Arrangement,&#148; and
    other than any transfers among Jeffrey Katzenberg, M&#38;J K
    Dream Limited Partnership and the Katzenberg estate planning
    vehicles party to the Class&nbsp;B stockholder agreement, and
    other than transfers of Class&nbsp;A common stock by DG-DW to
    charities and not-for-profit organizations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">grant any proxy with respect to Class&nbsp;B
    common stock (or shares of Class&nbsp;A common stock into which
    such shares of Class&nbsp;B common stock have been converted)
    beneficially owned by such party (other than to Jeffrey
    Katzenberg or David Geffen), deposit shares of such common stock
    in a voting trust or subject any such common stock to any
    arrangement or agreement with respect to the voting of such
    common stock or other agreement having similar effect;&nbsp;or
    </FONT></TD>
</TR>

</TABLE>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">convert any shares of Class&nbsp;B common stock
    beneficially owned by such party into shares of Class&nbsp;A
    common stock (other than in connection with a permitted transfer
    as described above).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, DG-DW will agree for so long as
Jeffrey Katzenberg is the chief executive officer not to
transfer any common stock if such transfer would result in the
total voting power of Jeffrey Katzenberg, David Geffen and
entities controlled by them falling below 51%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">De Minimis
Transfers.</FONT></I><FONT size="2"> Following the date that is
one year after consummation of this offering (and after the
distribution of shares held by Holdco), each party to the
Class&nbsp;B stockholder agreement will be entitled to make one
or more transfers of less
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock; provided that with respect to any
party, the aggregate number of shares of Class&nbsp;A common
stock transferred pursuant to such &#147;de minimis
transfers&#148; during any three month period may not
exceed &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Right of First
Offer.</FONT></I><FONT size="2"> Generally, any transfer of
common stock by any party to the Class&nbsp;B stockholder
agreement (including a conversion of Class&nbsp;B common stock
into Class&nbsp;A common stock), other than de minimis
transfers, the distribution of shares by Holdco, transfers of
Class&nbsp;A common stock to charitable and not-for-profit
organizations by entities controlled by David Geffen and
transfers permitted under the Vulcan stockholder agreement, is
subject to a right of first offer to each Class&nbsp;B
stockholder controlled by Jeffrey Katzenberg or David Geffen.
Upon any such transfer, the transferring party must make an
irrevocable offer to each Class&nbsp;B stockholder controlled by
Jeffrey Katzenberg or David Geffen (if not the transferring
party) to sell all (but not less than all) of the common stock
to be transferred at the price set by the transferring
stockholder in the case of a proposed private placement, or the
current market value, in all other cases. If the Class&nbsp;B
stockholders controlled by Jeffrey Katzenberg or David Geffen do
not respond to the offer notice within the required response
time period or elect not to purchase the offered Class&nbsp;B
common stock, the transferring stockholder is free to transfer
the offered Class&nbsp;B common stock in the form of
Class&nbsp;A common stock or to convert the Class&nbsp;B common
stock, as applicable.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Term</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Class&nbsp;B stockholder agreement will
terminate when all outstanding shares of Class&nbsp;B common
stock have been converted to Class&nbsp;A common stock, and the
rights and obligations of each party to the Class&nbsp;B
stockholder agreement will terminate upon the date on which such
party ceases to hold of record any shares of Class&nbsp;B common
stock in accordance with the terms of the Class&nbsp;B
stockholder agreement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Registration Rights Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The registration rights agreement will provide
that Steven Spielberg, Jeffrey Katzenberg, David Geffen, Vulcan,
entities controlled by them and other investors in DreamWorks
Studios will have registration rights with respect to our stock.
Steven Spielberg, Jeffrey Katzenberg, David Geffen, Vulcan,
certain other stockholders and entities controlled by them will
have the right to require us to effect additional registration
statements, or &#147;demand registrations,&#148; subject to
customary blackout provisions and minimum registrable amounts
and subject to the terms of the escrow and distribution
arrangements and subject to the lock-up agreements with the
underwriters. In addition to our obligations with respect to
demand registrations, each member of DreamWorks Studios will
have &#147;piggyback&#148; registration rights, subject to
minimum registrable amounts. If we propose to register any of
our securities, other than a registration on Form&nbsp;S-8 or
S-4, we will be required to give each party to the registration
rights agreement the opportunity to participate in such
registration.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Trademark License Agreement/ Trademark
    Assignment Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our separation from DreamWorks
Studios, we will enter into a trademark license agreement
pursuant to which DreamWorks Studios will grant us a fully paid,
irrevocable license to use certain trademarks owned by
DreamWorks Studios. In addition, DreamWorks Studios will assign
to us certain of its trademarks pursuant to a trademark license
agreement.
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Glendale Animation Campus</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 1996, we entered into an agreement with a
financial institution for the construction of an animation
campus in Glendale, California, and the subsequent lease of the
facility upon its completion in early 1998. The lease on the
Glendale animation campus, which was acquired and financed by
the financial institution for $76.5&nbsp;million, qualified as
an operating lease for us. In March 2002, we renegotiated the
lease through the creation of a special purpose entity that
acquired the property from the financial institution for
$73.0&nbsp;million and the special purpose entity leased the
facility back to us for a five-year term. We intend to sub-lease
a portion of the property to DreamWorks Studios and we expect
enter into a lease with it prior to the consummation of this
offering.
</FONT>

<P align="left">
<B><FONT size="2">Other Related Party Agreements</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Tax Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the completion of this offering, we
anticipate that Vulcan will enter into a series of transactions
which will result in a partial increase in the tax basis of our
tangible and intangible assets. Consequently, we expect that
such partial increase in tax basis will reduce the amount of tax
that we may pay in the future. We expect to enter into a tax
agreement with Vulcan that will provide for, among other things,
the payment by us to Vulcan of a portion of the cash tax savings
that we actually realize as a result of this partial increase in
the tax basis of our tangible and intangible assets.
</FONT>

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<DIV align="left">
<A name='116'></A>
</DIV>

<!-- link1 "PRINCIPAL AND SELLING STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL AND SELLING STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the consummation of this offering,
DreamWorks Animation, Inc. will have no class of equity
securities either issued or outstanding other than the
1,000&nbsp;shares of common stock that were issued to DreamWorks
Studios upon our formation. The subsidiaries, assets and
liabilities of DreamWorks Studios that will constitute our
business upon the completion of this offering are currently
owned by DreamWorks Studios. DreamWorks Studios is controlled by
its managing members, Jeffery Katzenberg, David Geffen and
Steven Spielberg, who generally have the exclusive right to
conduct the business and affairs of DreamWorks Studios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our Class&nbsp;A, Class&nbsp;B and Class&nbsp;C common stock.
The following table sets forth certain information regarding the
beneficial ownership of our common stock (1)&nbsp;immediately
prior to the consummation of the offering, but after giving
effect to the separation transactions; and (2)&nbsp;as adjusted
to reflect the sale of the shares of common stock in this
offering. The table sets forth stockholder information with
respect to:
</FONT>
<P>

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<TR>
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    <TD width="96%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of our director nominees;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of the executive officers listed in the
    Summary Compensation Table above;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our directors and named executive officers as a
    group;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">persons owning more than 5% of a class of our
    common stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of the selling stockholders.
    </FONT></TD>
</TR>

</TABLE>

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    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
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    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
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    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
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<TR>
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    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Shares of Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Number of Shares of Our Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Received in Our Separation<SUP>(1)</SUP></FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Owned After the Offering</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;B</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;C</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Offered</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;B</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class&nbsp;C</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
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    <TD></TD>
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    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
</TR>

<TR>
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</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Current directors and director
    nominees</FONT></B></DIV>
    </TD>
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Jeffrey Katzenberg
    </FONT></DIV>
    </TD>
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</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">David Geffen
    </FONT></DIV>
    </TD>
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<TR>
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Roger A. Enrico
    </FONT></DIV>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Lewis W. Coleman
    </FONT></DIV>
    </TD>
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<TR>
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Nathan Myhrvold
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    </TD>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Howard Schultz
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Paul Allen
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Named officers who are not directors</FONT></B></DIV>
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Ann Daly
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Katherine Kendrick
    </FONT></DIV>
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<TR>
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Kristina M. Leslie
    </FONT></DIV>
    </TD>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Directors and executive officers of DreamWorks
    Animation, Inc. as a group (9&nbsp;persons)
    </FONT></DIV>
    </TD>
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</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Persons owning more than 5% of a class of our
    equity securities</FONT></B></DIV>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
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    <FONT size="1">DreamWorks Studios L.L.C.&nbsp;</FONT></DIV>
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Holdco
    </FONT></DIV>
    </TD>
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<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Selling stockholders<SUP>(2)</SUP></FONT></B></DIV>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp; *&nbsp; &nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Less than 1%.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unless otherwise indicated, each beneficial owner
    listed above has represented that he, she or it possesses sole
    voting and sole investment power with respect to the shares
    beneficially owned by such person, entity or group and includes
    all options currently exercisable or exercisable within
    60&nbsp;days
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004. The percentages of beneficial ownership as to each person,
    entity or group assume the exercise or conversion of all options
    held by such person, entity or group.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DreamWorks Studios&#146; members that elect to
    sell in this offering will be added at a later date.
    </FONT></TD>
</TR>

</TABLE>

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<DIV align="left">
<A name='115'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our authorized capital stock consists
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock, par value $0.01&nbsp;per
share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;B common stock, par value $0.01&nbsp;per
share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;C common stock, par value $0.01 per share,
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of preferred stock, par value $0.01&nbsp;per share. Immediately
following this offering:
</FONT>
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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">of
    the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;authorized
    shares of Class&nbsp;A common
    stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be issued and outstanding;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">of
    the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;authorized
    shares of Class&nbsp;B common
    stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be issued and outstanding, all of which will be held by
    Jeffrey Katzenberg, David Geffen, Holdco and DreamWorks Studios
    after completion of this offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">of
    the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;authorized
    shares of Class&nbsp;C common
    stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be issued and outstanding, all of which will be held by
    Vulcan after distribution of shares by Holdco; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">no shares of our preferred stock will be
    outstanding.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summary description relating to our
capital stock does not purport to be complete. The rights of the
holders of our capital stock will be set forth in our restated
certificate of incorporation, as well as the Vulcan stockholder
agreement and the Class&nbsp;B stockholder agreement, the forms
of each of which are filed as exhibits to the registration
statement of which this prospectus forms a part. The summary set
forth below is qualified by reference to such exhibits and to
the applicable provisions of the Delaware General Corporation
Law.
</FONT>

<P align="left">
<B><FONT size="2">Common Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The relative rights of the Class&nbsp;A common
stock, the Class&nbsp;B common stock and the Class&nbsp;C common
stock are substantially identical in all respects, except for
voting rights and conversion rights.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
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<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Voting Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of Class&nbsp;A common stock entitles
the holder to one vote, each share of Class&nbsp;B common stock
entitles the holder to fifteen votes and each share of
Class&nbsp;C common stock entitles the holder to one vote with
respect to each matter presented to our stockholders on which
the holders of common stock are entitled to vote. In addition,
the Class&nbsp;C common stock, voting as a single class, is
entitled to elect one director. The Class&nbsp;C designated
director will be Paul Allen for so long as, in his reasonable
determination, he is reasonably able to serve as a director and
such service would not cause him any economic detriment. In the
event that Paul Allen is not able to serve as a director, the
Class&nbsp;C common stockholder will consult with our chairman
of the board before appointing Paul Allen&#146;s replacement.
The holders of Class&nbsp;A common stock, Class&nbsp;B common
stock and Class&nbsp;C common stock are not entitled to cumulate
their votes in the election of directors. Except as otherwise
provided in our restated certificate of incorporation or
required by law, all matters to be voted on by our stockholders
must be approved by a majority, or, in the case of election of
directors (other than the director elected by the Class&nbsp;C
common stockholder), by a plurality, of the votes entitled to be
cast by all shares of Class&nbsp;A common stock, Class&nbsp;B
common stock and Class&nbsp;C common stock present in person or
represented by proxy, voting together as a single class.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
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<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of Class&nbsp;A common stock,
Class&nbsp;B common stock and Class&nbsp;C common stock will
share equally in any dividend declared by our board of
directors, subject to any preferential rights of any outstanding
preferred stock. Dividends consisting of shares of Class&nbsp;A
common stock, Class&nbsp;B common stock, Class&nbsp;C common
stock or any of our other securities or the securities of any
other legal entity may be paid only as follows:
</FONT>
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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a share distribution consisting of Class&nbsp;A
    common stock (or convertible securities that are convertible
    into, exchangeable for or evidence the right to purchase shares
    of Class&nbsp;A common stock) with respect
    </FONT></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">to shares of Class&nbsp;A common stock,
    Class&nbsp;B common stock and Class&nbsp;C common stock, on an
    equal per share basis; or consisting of shares of Class&nbsp;A
    common stock (or convertible securities that are convertible
    into, exchangeable for or evidence the right to purchase shares
    of Class&nbsp;A common stock) with respect to shares of
    Class&nbsp;A common stock and, on an equal per share basis,
    shares of Class&nbsp;B common stock (or convertible securities
    that are convertible into, exchangeable for or evidence the
    right to purchase shares of Class&nbsp;B common stock) with
    respect to shares of Class&nbsp;B common stock and, on an equal
    and per share basis, shares of Class&nbsp;C common stock (or
    convertible securities that are convertible into, exchangeable
    for or evidence the right to purchase shares of Class&nbsp;C
    common stock) with respect to shares of Class&nbsp;C common
    stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a share distribution consisting of shares of any
    class or series of our securities or any other person other than
    Class&nbsp;A common stock, Class&nbsp;B common stock or
    Class&nbsp;C common stock (and other than convertible securities
    that are convertible into, exchangeable for or evidence the
    right to purchase shares of Class&nbsp;A common stock,
    Class&nbsp;B common stock or Class&nbsp;C common stock), either
    on the basis of a distribution of identical securities, on an
    equal per share basis, with respect to shares of Class&nbsp;A
    common stock, Class&nbsp;B common stock and Class&nbsp;C common
    stock or on the basis of a distribution of one class or series
    of securities with respect to shares of Class&nbsp;A common
    stock and Class&nbsp;C common stock and another class or series
    of securities with respect to shares of Class&nbsp;B common
    stock, provided that the securities so distributed (and, if
    applicable, the securities into which the distributed securities
    are convertible, or for which they are exchangeable, or which
    the distributed securities evidence the right to purchase) do
    not differ in any respect other than their relative voting
    rights and related differences in conversion and share
    distribution provisions, with shares of Class&nbsp;B common
    stock receiving the class or series having the higher relative
    voting rights (without regard to whether such rights differ to a
    greater or lesser extent than the corresponding differences in
    voting rights and related differences in conversion and share
    distribution provisions between the Class&nbsp;A common stock
    and the Class&nbsp;C common stock, on the one hand, and the
    Class&nbsp;B common stock, on the other hand), but if the
    securities so distributed constitute capital stock of one of our
    subsidiaries, such rights cannot differ to a greater extent than
    the corresponding differences in voting rights, conversion and
    share distribution provisions between the Class&nbsp;A common
    stock and the Class&nbsp;C common stock, on the one hand, and
    the Class&nbsp;B common stock, on the other hand, and such
    distribution must otherwise be made on an equal per share basis.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
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</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Subdivision or Combination</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we in any manner subdivide or combine the
outstanding shares of Class&nbsp;A common stock, Class&nbsp;B
common stock or Class&nbsp;C common stock, the outstanding
shares of other classes of common stock will be proportionately
subdivided or combined in the same manner and on the same basis
as the outstanding shares of Class&nbsp;A common stock,
Class&nbsp;B common stock or Class&nbsp;C common stock, as the
case may be, that have been subdivided or combined.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of Class&nbsp;B common stock and each
share of Class&nbsp;C common stock is convertible at any time
and from time to time at the option of the holder thereof into
one share of Class&nbsp;A common stock. Solely for the limited
purpose of effecting the distribution of shares of Class&nbsp;C
common stock by Holdco to Vulcan in accordance with the
procedures described under &#147;Related Party
Agreements&nbsp;&#151; Escrow and Distribution Agreement,&#148;
the Class&nbsp;B common stock is convertible into Class&nbsp;C
common stock. The Class&nbsp;A common stock has no conversion
rights.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event that Vulcan transfers any shares of
Class&nbsp;C common stock other than to an entity controlled by
Vulcan, such shares will automatically convert into Class&nbsp;A
common stock. In addition, if, at any time, the total number of
shares of Class&nbsp;C common stock is less than two-thirds of
the total number of shares of Class&nbsp;C common stock
distributed by Holdco to Vulcan, all shares of Class&nbsp;C
common stock outstanding at such time will automatically convert
into Class&nbsp;A common stock.
</FONT>

<P align="center"><FONT size="2">90
</FONT>
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Equivalent Consideration in Certain
    Transactions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event of any merger, consolidation, share
exchange, reclassification of the outstanding shares of
Class&nbsp;A common stock, Class&nbsp;B common stock or
Class&nbsp;C common stock or other reorganization to which we
are a party, in which the shares of Class&nbsp;A common stock,
Class&nbsp;B common stock and Class&nbsp;C common stock will be
exchanged for or converted into cash or other property or our
securities or the securities of any other person, each share of
common stock will be entitled to receive Equivalent
Consideration (as defined in our restated certificate of
incorporation) on a per share basis. Consideration to be paid or
received by a holder of Class&nbsp;A common stock, Class&nbsp;B
common stock or Class&nbsp;C common stock in connection with
such a transaction pursuant to any employment, consulting,
severance or other arrangement is not deemed to be
&#147;consideration&#148; that is included in the determination
of &#147;Equivalent Consideration&#148;.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our stockholders have no preemptive or other
rights to subscribe for additional shares. All holders of common
stock, regardless of class, are entitled to share equally on a
share-for-share basis in any assets available for distribution
to common stockholders upon our liquidation, dissolution or
winding up. All outstanding shares are, and all shares offered
by this prospectus will be, when sold, validly issued, fully
paid and nonassessable.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Registration Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of our stockholders as of the completion
of this offering have certain registration rights with respect
to our common stock. See &#147;Related Party
Agreements&nbsp;&#151; Registration Rights Agreement.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors is authorized to provide
for the issuance of preferred stock in one or more series and to
fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications,
limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and
liquidation preference and to fix the number of shares to be
included in any such series. Any preferred stock so issued may
rank senior to our common stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding
up, or both. In addition, any such shares of preferred stock may
have class or series voting rights.
</FONT>

<P align="left">
<B><FONT size="2">Corporate Opportunities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation will
provide for the allocation of certain corporate opportunities
between us and DreamWorks Studios and certain of its affiliates.
</FONT>

<P align="left">
<B><FONT size="2">Certain Anti-Takeover and Other Provisions of
the Charter and By-laws and Delaware Law</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions of our restated certificate of
incorporation and by-laws could deter, delay or prevent a
third-party from acquiring us, even if doing so would benefit
our stockholders.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stockholder Meetings</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation and
by-laws provide that until such time as the outstanding shares
of Class&nbsp;B common stock cease to represent a majority of
the combined voting power of the voting stock, special meetings
of the stockholders may be called only upon written request of
holders of not less than a majority of the combined voting power
of the voting stock, upon request of a majority of the board or
upon request of the chief executive officer. Effective on and
after such time as the outstanding shares of Class&nbsp;B common
stock cease to represent a majority of the combined voting power
of the voting stock, special meetings of the stockholders may be
called only upon the request of a majority of the board or by
any holder of Class&nbsp;B common stock.
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
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</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Requirements for Advance Notice of
    Stockholder Nominations and Proposals</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our by-laws establish advance notice procedures
with respect to stockholder proposals and the nomination of
candidates for election as directors. In order for any matter to
be &#147;properly brought&#148; before a meeting, a stockholder
must comply with requirements regarding advance notice and
provide certain information to us.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
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</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stockholder Action by Written
    Consent</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation and
by-laws provide that until such time as the outstanding shares
of Class&nbsp;B common cease to represent a majority of the
combined voting power of the voting stock, any action required
or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing,
setting forth the action so taken, must be signed by the holders
of our outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such
action at a meeting at which all shares of our stock entitled to
vote thereon were present and voted. Effective on and after such
time as the outstanding shares of Class&nbsp;B common stock
cease to represent a majority of the combined voting power of
the voting stock, subject to the rights of the holders of any
series of preferred stock, any action required or permitted to
be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be
effected by any consent in writing by such stockholders.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Amendment of Certificate of Incorporation
    and By-laws</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation
provides that, until such time as the outstanding shares of
Class&nbsp;B common stock cease to represent a majority of the
combined voting power of the voting stock, the affirmative vote
of the holders of a majority of the combined voting power of the
voting stock, voting together as a single class, will be
required for stockholders to adopt, amend, alter or repeal any
provision of the by-laws and on and after such time as the
outstanding shares of Class&nbsp;B common stock cease to
represent a majority of the combined voting power of the voting
stock, the affirmative vote of the holders of 80% of the
combined voting power of the voting stock, voting together as a
single class, will be required for stockholders to adopt, amend,
alter or repeal any provision of the by-laws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the provisions in our restated
certificate of incorporation relating to amendment of the
certificate of incorporation and by-laws, inapplicability to the
Company of Delaware General Corporation Law Section&nbsp;203,
advance notice of director nominations, corporate opportunities,
stockholder meetings and action by written consent may not be
amended, altered, changed or repealed in any respect unless such
amendment, alteration, change or repeal is approved by the
affirmative vote of not less than 80% of the combined voting
power of the voting stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Business Combinations under Delaware
    Law</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation
expressly states that we have elected not to be governed by
Section&nbsp;203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from engaging in
a &#147;business combination&#148;, as defined in
clause&nbsp;(c)(3) of that section, with an &#147;interested
stockholder&#148;, as defined in clause&nbsp;(c)(5) of that
section, for a period of three years after the date of the
transaction in which the stockholder became an interested
stockholder.
</FONT>

<P align="left">
<B><FONT size="2">Limitation of Liability of Officers and
Directors&nbsp;&#151; Indemnification</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation limits
the liability of directors to the fullest extent permitted by
the Delaware General Corporation Law. In addition, our
certificate of incorporation provides that we will indemnify our
directors and officers to the fullest extent permitted by that
law.
</FONT>

<P align="center"><FONT size="2">92
</FONT>

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<P align="left">
<B><FONT size="2">Trading</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to apply to have our Class&nbsp;A
common stock approved for quotation on
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;under
the symbol
&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#148;.
</FONT>

<P align="left">
<B><FONT size="2">Transfer Agent and Registrar</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The transfer agent and registrar of our common
stock
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="center"><FONT size="2">93
</FONT>

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<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "SHARES ELIGIBLE FOR FUTURE SALE" -->

<P align="center">
<B><FONT size="2">SHARES ELIGIBLE FOR FUTURE SALE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the shares of our Class&nbsp;A common
stock sold in this offering will be freely tradable without
restriction under the Securities Act of 1933, except for any
shares that may be acquired by an affiliate of DreamWorks
Animation, Inc., as that term is defined in Rule&nbsp;144 under
the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are
controlled by, or are under common control with, DreamWorks
Animation, Inc. and may include directors and officers of
DreamWorks Animation, Inc. as well as significant stockholders
of DreamWorks Animation, Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The shares of our Class&nbsp;A and Class&nbsp;B
common stock held by DreamWorks Studios and its members and
Holdco are &#147;restricted securities&#148; as defined in
Rule&nbsp;144, and may not be sold other than through
registration under the Securities Act or under an exemption from
registration, such as the one provided by Rule&nbsp;144.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, Rule&nbsp;144 provides that a person
who has beneficially owned &#147;restricted&#148; shares for at
least one year will be entitled to sell on the open market in
brokers&#146; transactions, within any three-month period, a
number of shares that does not exceed the greater of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">1% of the then outstanding shares of common
    stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average weekly trading volume of the common
    stock on the open market during the four calendar weeks
    preceding such sale.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales under Rule&nbsp;144 are also subject to
post-sale notice requirements and the availability of current
public information about the issuer.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event that any person who is deemed to be
our affiliate purchases shares of our common stock in this
offering or acquires shares of our common stock pursuant to one
of our employee benefit plans, the shares held by that person
are required under Rule&nbsp;144 to be sold in brokers&#146;
transactions, subject to the volume limitations described above.
Shares properly sold in reliance upon Rule&nbsp;144 to persons
who are not affiliates are thereafter freely tradable without
restriction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed to effect one or more secondary
follow-on offerings of our Class&nbsp;A common stock after this
offering. Jeffrey Katzenberg and David Geffen (or entities
controlled by them), acting together, or Vulcan may select the
timing of one follow-on secondary offering, which must occur
during the period beginning six months after this offering and
ending on May&nbsp;31, 2006. We have also agreed that the
DreamWorks Studios members that elect to participate in the
follow-on offering will be entitled to receive a minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from a combination of sales of secondary
shares in this offering and sales of shares in the follow-on
secondary offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the participating DreamWorks Studios&#146;
members have not received a minimum of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of net cash proceeds from a combination of sales of secondary
shares in this offering and the follow-on offering prior to
May&nbsp;31, 2006, Vulcan will have the ability to initiate an
additional follow-on offering during the subsequent 18-month
period beginning May&nbsp;31, 2006. See &#147;Related Party
Agreements&nbsp;&#151; Escrow and Distribution Arrangement.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed not to offer or sell any of our shares
without the prior consent of the underwriters of this offering,
for 365&nbsp;days after the date of this prospectus and each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180&nbsp;day lockup. In addition, sales
of our Class&nbsp;A common stock will also be restricted by
lock-up agreements that we, our directors and executive officers
and certain of our employees will enter into with the
underwriters. These lock-up agreements will restrict them,
subject to specified exceptions, from selling or otherwise
disposing of any shares for a minimum period of 180&nbsp;days
after the date of this prospectus without the prior consent of
the underwriters. In addition, Vulcan and entities controlled by
Steven Spielberg, Jeffrey Katzenberg and David Geffen will agree
to certain trading and hedging limitations until the release of
shares by Holdco.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we expect DreamWorks Studios to
pledge
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;B common stock as security for its obligations
under its revolving credit agreement. Under certain circumstances
</FONT>

<P align="center"><FONT size="2">94
</FONT>

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<DIV align="left">
<FONT size="2">following an event of default by DreamWorks
Studios under that revolving credit agreement, the lenders will
be entitled to take possession of the pledged shares of common
stock (after converting any pledged Class&nbsp;B common stock
into Class&nbsp;A common stock) and sell them in the open
market, subject to applicable bankruptcy, securities and other
laws.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have been advised by the underwriters that
they may at their discretion waive the lock-up agreements;
however, they have no current intention of releasing any shares
subject to a lock-up agreement. The release of any lock-up would
be considered on a case-by-case basis. In considering any
request to release shares covered by a lock-up agreement, the
representatives would consider, among other factors, the
particular circumstances surrounding the request, including but
not limited to the number of shares requested to be released,
market conditions, the possible impact on the market for our
Class&nbsp;A common stock, the trading price of our Class&nbsp;A
common stock, historical trading volumes of our Class&nbsp;A
common stock, the reasons for the request and whether the person
seeking the release is one of our or DreamWorks Studios&#146;
officers or directors, or is DreamWorks Animation, Inc. or
DreamWorks Studios. No agreement has been made between the
representatives and us or any of our stockholders pursuant to
which the representatives will waive the lock-up restrictions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales of substantial amounts of our common stock
in the open market, or the availability of such shares for sale,
could adversely affect the price of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All shares issued in this offering or to
employees as described in the previous section, other than
shares issued to affiliates, generally will be freely tradable.
</FONT>

<P align="center"><FONT size="2">95
</FONT>
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<DIV align="left">
<A name='118'></A>
</DIV>

<!-- link1 "MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES FOR NON-UNITED STATES STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">MATERIAL UNITED STATES FEDERAL TAX
CONSEQUENCES</FONT></B>

<DIV align="center">
<B><FONT size="2">FOR NON-UNITED STATES STOCKHOLDERS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This is a general summary of material United
States Federal income and estate tax considerations with respect
to your acquisition, ownership and disposition of Class&nbsp;A
common stock if you are a beneficial owner of shares other than:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a citizen or resident of the United States;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a corporation, or other entity taxable as a
    corporation created or organized in, or under the laws of, the
    United States or any political subdivision of the United States;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an estate, the income of which is subject to
    United States Federal income taxation regardless of its source;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a trust, if a court within the United States is
    able to exercise primary supervision over the administration of
    the trust and one or more United States persons have the
    authority to control all substantial decisions of the trust; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a trust that existed on August&nbsp;20, 1996, was
    treated as a United States person on August&nbsp;19, 1996, and
    elected to be treated as a United States person.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary does not address all of the United
States Federal income and estate tax considerations that may be
relevant to you in light of your particular circumstances or if
you are a beneficial owner subject to special treatment under
United States income tax laws (such as a &#147;controlled
foreign corporation,&#148; &#147;passive foreign investment
company,&#148; &#147;foreign personal holding company,&#148;
company that accumulates earnings to avoid United States Federal
income tax, foreign tax-exempt organization, financial
institution, broker or dealer in securities or former United
States citizen or resident). This summary does not discuss any
aspect of state, local or non-United States taxation. This
summary is based on current provisions of the Internal Revenue
Code of 1986, as amended (&#147;Code&#148;), Treasury
regulations, judicial opinions, published positions of the
United States Internal Revenue Service (&#147;IRS&#148;) and all
other applicable authorities, all of which are subject to
change, possibly with retroactive effect. This summary is not
intended as tax advice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a partnership holds our common stock, the tax
treatment of a partner will generally depend on the status of
the partner and the activities of the partnership. If you are a
partner of a partnership holding our common stock, you should
consult your tax advisor.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WE URGE PROSPECTIVE NON-UNITED STATES
STOCKHOLDERS TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME,
ESTATE AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND
DISPOSING OF SHARES OF CLASS A COMMON STOCK.
</FONT>

<P align="left">
<B><FONT size="2">Dividends</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, any distributions we make to you with
respect to your shares of Class&nbsp;A common stock that
constitute dividends for United States Federal income tax
purposes will be subject to United States withholding tax at a
rate of 30% of the gross amount, unless you are eligible for a
reduced rate of withholding tax under an applicable income tax
treaty and you provide proper certification of your eligibility
for such reduced rate (usually on an IRS Form W-8BEN). A
distribution will constitute a dividend for United States
Federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under the Code.
Any distribution not constituting a dividend will be treated
first as reducing your basis in your shares of Class&nbsp;A
common stock and, to the extent it exceeds your basis, as gain
from the disposition of your shares of Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Dividends we pay to you that are effectively
connected with your conduct of a trade or business within the
United States (and, if certain income tax treaties apply, are
attributable to a United States permanent establishment
maintained by you) generally will not be subject to United
States withholding tax if you comply with applicable
certification and disclosure requirements. Instead, such
dividends generally will be subject to
</FONT>

<P align="center"><FONT size="2">96
</FONT>

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<DIV align="left">
<FONT size="2">United States Federal income tax, net of certain
deductions, at the same graduated individual or corporate rates
applicable to United States persons. If you are a corporation,
effectively connected income may also be subject to a
&#147;branch profits tax&#148; at a rate of 30% (or such lower
rate as may be specified by an applicable income tax treaty).
Dividends that are effectively connected with your conduct of a
trade or business but that under an applicable income tax treaty
are not attributable to a United States permanent establishment
maintained by you may be eligible for a reduced rate of United
States withholding tax under such treaty, provided you comply
with certification and disclosure requirements necessary to
obtain treaty benefits.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Sale or Other Disposition of Class&nbsp;A
Common Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You generally will not be subject to United
States Federal income tax on any gain realized upon the sale or
other disposition of your shares of Class&nbsp;A common stock
unless:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the gain is effectively connected with your
    conduct of a trade or business within the United States (and,
    under certain income tax treaties, is attributable to a United
    States permanent establishment you maintain);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">you are an individual, you hold your shares of
    Class&nbsp;A common stock as capital assets, you are present in
    the United States for 183&nbsp;days or more in the taxable year
    of disposition and you meet other conditions, and you are not
    eligible for relief under an applicable income tax
    treaty;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we are or have been a &#147;United States real
    property holding corporation&#148; for United States Federal
    income tax purposes (which we believe we are not and have never
    been, and do not anticipate we will become) and you hold or have
    held, directly or indirectly, at any time within the shorter of
    the five-year period preceding disposition or your holding
    period for your shares of Class&nbsp;A common stock, more than
    5% of our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gain that is effectively connected with your
conduct of a trade or business within the United States
generally will be subject to United States Federal income tax,
net of certain deductions, at the same rates applicable to
United States persons. If you are a corporation, the branch
profits tax also may apply to such effectively connected gain.
If the gain from the sale or disposition of your shares is
effectively connected with your conduct of a trade or business
in the United States but under an applicable income tax treaty
is not attributable to a permanent establishment you maintain in
the United States, your gain may be exempt from United States
tax under the treaty. If you are described in the second bullet
point above, you generally will be subject to United States
Federal income tax at a rate of 30% on the gain realized,
although the gain may be offset by some United States source
capital losses realized during the same taxable year.
</FONT>

<P align="left">
<B><FONT size="2">Information Reporting and Backup
Withholding</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must report annually to the IRS the amount of
dividends or other distributions we pay to you on your shares of
Class&nbsp;A common stock and the amount of tax we withhold on
these distributions regardless of whether withholding is
required. The IRS may make copies of the information returns
reporting those dividends and amounts withheld available to the
tax authorities in the country in which you reside pursuant to
the provisions of an applicable income tax treaty or exchange of
information treaty.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The United States imposes a backup withholding
tax on dividends and certain other types of payments to United
States persons. You will not be subject to backup withholding
tax on dividends you receive on your shares of Class&nbsp;A
common stock if you provide proper certification (usually on an
IRS Form&nbsp;W-8BEN) of your status as a non-United States
person or you are a corporation or one of several types of
entities and organizations that qualify for exemption (an
&#147;exempt recipient&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Information reporting and backup withholding
generally are not required with respect to the amount of any
proceeds from the sale of your shares of Class&nbsp;A common
stock outside the United States through a foreign office of a
foreign broker that does not have certain specified connections
to the United States. However, if you sell your shares of
Class&nbsp;A common stock through a United States broker or the
United States office of a foreign broker, the broker will be
required to report the amount of proceeds paid to you to the IRS
and also backup withhold on that amount unless you provide
appropriate certification (usually on an IRS
</FONT>

<P align="center"><FONT size="2">97
</FONT>

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<DIV align="left">
<FONT size="2">Form&nbsp;W-8BEN) to the broker of your status as
a non-United States person or you are an exempt recipient.
Information reporting (and backup withholding if the appropriate
certification is not provided) also apply if you sell your
shares of Class&nbsp;A common stock through a foreign broker
deriving more than a specified percentage of its income from
United States sources or having certain other connections to the
United States.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any amounts withheld with respect to your shares
of Class&nbsp;A common stock under the backup withholding rules
will be refunded to you or credited against your United States
Federal income tax liability, if any, by the IRS if the required
information is furnished in a timely manner.
</FONT>

<P align="left">
<B><FONT size="2">Estate Tax</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Class&nbsp;A common stock owned or treated as
owned by an individual who is not a citizen or resident (as
defined for United States Federal estate tax purposes) of the
United States at the time of his or her death will be included
in the individual&#146;s gross estate for United States Federal
estate tax purposes and therefore may be subject to United
States Federal estate tax unless an applicable estate tax treaty
provides otherwise. Recently enacted legislation reduces the
maximum Federal estate tax rate over an 8-year period beginning
in 2002 and eliminates the tax for estates of decedents dying
after December&nbsp;31, 2009. In the absence of renewal
legislation, these amendments will expire and the Federal estate
tax provisions in effect immediately prior to 2002 will be
restored for estates of decedents dying after December&nbsp;31,
2010.
</FONT>

<P align="center"><FONT size="2">98
</FONT>

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<DIV align="left">
<A name='119'></A>
</DIV>

<!-- link1 "UNDERWRITING" -->

<P align="center">
<B><FONT size="2">UNDERWRITING</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We, the selling stockholders and the underwriters
named below will enter into an underwriting agreement with
respect to the shares being offered. Subject to certain
conditions, each underwriter will severally agree to purchase
the number of shares indicated in the following table. Goldman,
Sachs&nbsp;&#38; Co. and J.P.&nbsp;Morgan Securities Inc. are
the joint book-running managers for this offering and the
representatives of the underwriters.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">Underwriters</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goldman, Sachs&nbsp;&#38; Co.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">J.P.&nbsp;Morgan Securities Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters are committed to take and pay
for all of the shares being offered, if any are taken, other
than the shares covered by the option described below unless and
until this option is exercised.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the underwriters sell more shares than the
total number set forth in the table above, the underwriters have
an option to buy up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
from us and the selling stockholders to cover such sales. They
may exercise that option for 30&nbsp;days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables show the per share and total
underwriting discounts and commissions to be paid to the
underwriters by us and the selling stockholders. Such amounts
are shown assuming both no exercise and full exercise of the
underwriters&#146; option to purchase additional shares.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><B><FONT size="1">Paid by Us</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Full Exercise</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per Share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><B><FONT size="1">Paid by the Selling Stockholders</FONT></B></TD>
</TR>

<TR>
    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Full Exercise</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per Share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares sold by the underwriters to the public
will initially be offered at the initial public offering price
set forth on the cover of this prospectus. Any shares sold by
the underwriters to securities dealers may be sold at a discount
of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed to a lock-up period of 365&nbsp;days after
the date of this prospectus with the underwriters. Each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180&nbsp;day lock-up period with the
underwriters. In addition to these lock-up agreements, sales of
our Class&nbsp;A common stock will also be restricted by lock-up
agreements for a minimum of 180&nbsp;days that we, our directors
and executive officers and certain of our employees will enter
into with the underwriters. These lock-up agreements restrict
us, our stockholders and our directors and executive officers,
subject to specified exceptions, from offering, selling,
contracting to sell, pledging, hedging or otherwise disposing
of, directly or indirectly, or filing with the SEC a
registration statement under the Securities Act relating to, any
shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock,
or publicly disclosing the intention to make any offer, sale,
pledge, disposition or filing, for the
</FONT>

<P align="center"><FONT size="2">99
</FONT>
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<DIV align="left">
<FONT size="2">applicable number of days after the date of this
prospectus without the prior written consent of Goldman,
Sachs&nbsp;&#38; Co. and J.P.&nbsp;Morgan Securities Inc.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have reserved for sale at the
initial public offering price up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of the common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to
the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the
other shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the offering, there has been no public
market for the shares. The initial public offering price has
been negotiated among us, the selling stockholders and the
representatives. Among the factors to be considered in
determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to apply for listing of our
Class&nbsp;A common stock
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;under
the symbol &#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the offering, the underwriters
may purchase and sell shares of common stock in the open market.
These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in
the offering. &#147;Covered&#148; short sales are sales made in
an amount not greater than the underwriters&#146; option to
purchase additional shares from us and the selling stockholders
in the offering. The underwriters may close out any covered
short position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. &#147;Naked&#148;
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of
the offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters may also impose a penalty bid.
This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by
it because the representatives have repurchased shares sold by
or for the account of such underwriter in stabilizing or short
covering transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Purchases to cover a short position and
stabilizing transactions may have the effect of preventing or
retarding a decline in the market price of our common stock, and
together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of our common
stock. As a result, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued at any
time. These transactions may be effected
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
in the over-the-counter market or otherwise.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each underwriter will represent, warrant and
agree that:&nbsp;(i)&nbsp;it has not offered or sold and, prior
to the expiry of a period of six months from the closing date,
will not offer or sell any shares to persons in the United
Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995
(as amended); (ii)&nbsp;it has only communicated or caused to be
communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in
investment activity (within the meaning of section&nbsp;21 of
the Financial Services and Markets Act 2000 (&#147;FSMA&#148;))
received by it in connection with the issue or sale of any
shares in circumstances in which section&nbsp;21(1) of the FSMA
does not apply to the Issuer; and (iii)&nbsp;it has complied
</FONT>

<P align="center"><FONT size="2">100
</FONT>

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<DIV align="left">
<FONT size="2">and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the
shares in, from or otherwise involving the United Kingdom.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The shares may not be offered or sold,
transferred or delivered, as part of their initial distribution
or at any time thereafter, directly or indirectly, to any
individual or legal entity in the Netherlands other than to
individuals or legal entities who or which trade or invest in
securities in the conduct of their profession or trade, which
includes banks, securities intermediaries, insurance companies,
pension funds, other institutional investors and commercial
enterprises which, as an ancillary activity, regularly trade or
invest in securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The shares may not be offered or sold by means of
any document other than to persons whose ordinary business is to
buy or sell shares or debentures, whether as principal or agent,
or in circumstances which do not constitute an offer to the
public within the meaning of the Companies Ordinance
(Cap.&nbsp;32) of Hong Kong, and no advertisement, invitation or
document relating to the shares may be issued, whether in Hong
Kong or elsewhere, which is directed at, or the contents of
which are likely to be accessed or read by, the public in Hong
Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to shares which are or are
intended to be disposed of only to persons outside Hong Kong or
only to &#147;professional investors&#148; within the meaning of
the Securities and Futures Ordinance (Cap.&nbsp;571) of Hong
Kong and any rules made thereunder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus and any other document or material
in connection with the offer or sale, or invitation or
subscription or purchase, of the shares may not be circulated or
distributed, nor may the shares be offered or sold, or be made
the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than under circumstances in which such offer, sale or invitation
does not constitute an offer or sale, or invitation for
subscription or purchase, of the shares to the public in
Singapore.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each underwriter has acknowledged and agreed that
the securities have not been registered under the Securities and
Exchange Law of Japan and are not being offered or sold and may
not be offered or sold, directly or indirectly, in Japan or to
or for the account of any resident of Japan, except
(1)&nbsp;pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and
(ii)&nbsp;in compliance with any other applicable requirements
of Japanese law. As part of the offering, the underwriters may
offer securities in Japan to a list of 49 offerees in accordance
with the above provisions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters do not expect sales to
discretionary accounts to exceed five percent of the total
number of shares offered.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that our share of the total expenses
of the offering, excluding underwriting discounts and
commissions, will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and the selling stockholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us and our affiliates, for which they
received or will receive customary fees and expenses.
J.P.&nbsp;Morgan Securities Inc. is an affiliate of Chemical
Investments, Inc., which owns shares of DreamWorks Studios&#146;
Class&nbsp;S stock. As a result of such ownership, in connection
with our separation from DreamWorks Studios, Chemical
Investments, Inc. will be entitled to
receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock. J.P.&nbsp;Morgan Securities
Inc. is also an affiliate of JPMorgan Chase Bank, which is the
administrative agent and a lender under DreamWorks Studios&#146;
senior credit facilities and J.P.&nbsp;Morgan Securities Inc.
was the sole lead arranger and sole book runner of DreamWorks
Studios&#146; senior credit facilities. A portion of the
proceeds from this offering will be used to repay borrowings
under DreamWorks Studios&#146; senior credit facilities that we
will assume in connection with our separation from DreamWorks
Studios. Because more than 10% of the net proceeds of this
offering will be paid to affiliates of the underwriters, this
offering is being conducted pursuant to Conduct
Rule&nbsp;2710(h) of the National Association of Securities
Dealers, Inc. (&#147;NASD&#148;). That rule requires that the
price at which shares of our common stock are to be distributed
to the public can be no higher than that recommended by a
</FONT>

<P align="center"><FONT size="2">101
</FONT>

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<DIV align="left">
<FONT size="2">&#147;qualified independent underwriter,&#148; as
defined by the NASD. Goldman, Sachs&nbsp;&#38; Co. has served in
that capacity and performed due diligence investigations and
reviewed and participated in the preparation of the registration
statement of which this prospectus is a part. Goldman,
Sachs&nbsp;&#38; Co. has received $10,000 from us as
compensation for such role.
</FONT>
</DIV>

<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of our common stock offered hereby
will be passed upon for us by Cravath, Swaine&nbsp;&#38; Moore
LLP, New York, New York. Certain legal matters will be passed
upon for the underwriters by Simpson Thacher&nbsp;&#38; Bartlett
LLP, New York, New York. Each of Cravath, Swaine&nbsp;&#38;
Moore LLP and Simpson Thacher&nbsp;&#38; Bartlett LLP has acted
as counsel to DreamWorks Studios from time to time in certain
matters.
</FONT>

<DIV align="left">
<A name='121'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ernst&nbsp;&#38; Young LLP, independent
registered public accounting firm, have audited our combined
financial statements at December&nbsp;31, 2002 and 2003, and for
each of the three years in the period ended December&nbsp;31,
2003, as set forth in their report. We have included our
combined financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst&nbsp;&#38; Young
LLP&#146;s report, given on their authority as experts in
accounting and auditing.
</FONT>

<DIV align="left">
<A name='122'></A>
</DIV>

<!-- link1 "ADDITIONAL INFORMATION" -->

<P align="center">
<B><FONT size="2">ADDITIONAL INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not previously been subject to the
reporting requirements of the Securities Exchange Act of 1934,
as amended. We filed with the Securities and Exchange Commission
(the &#147;Commission&#148;) a registration statement on
Form&nbsp;S-1 (the &#147;Registration Statement&#148;) under the
Securities Act, with respect to the offer and sale of common
stock pursuant to this prospectus. This prospectus, filed as a
part of the registration statement, does not contain all of the
information set forth in the registration statement or the
exhibits and schedules thereto in accordance with the rules and
regulations of the Commission and no reference is hereby made to
such omitted information. Statements made in this prospectus
concerning the contents of any contract, agreement or other
document filed as an exhibit to the registration statement are
summaries of the terms of such contracts, agreements or
documents and are not necessarily complete. Reference is made to
each such exhibit for a more complete description of the matters
involved and such statements shall be deemed qualified in their
entirety by such reference. The registration statement and the
exhibits and schedules thereto filed with the Commission may be
inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by
the Commission at its principal office at Judiciary Plaza,
450&nbsp;Fifth Street, N.W., Washington,&nbsp;D.C. 20549 and at
the regional offices of the Commission located at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, CA 90036-3648. The
Commission also maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other
information regarding registrants that file electronically with
the Commission. For further information pertaining to the common
stock offered by this prospectus and DreamWorks Animation, Inc.
reference is made to the registration statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon completion of this offering, we will become
subject to the information and periodic reporting requirements
of the Securities and Exchange Act and will file periodic
reports and other information with the Commission. These
periodic reports and other information will be available for
inspection and copying at the Commission&#146;s public reference
facilities and the web site of the Commission referred to above.
</FONT>

<P align="center"><FONT size="2">102
</FONT>
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<DIV align="left">
<FONT size="2"> <A name='123'></A>
</FONT>
</DIV>

<!-- link1 "INDEX TO FINANCIAL STATEMENTS" -->

<P align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Report of Independent Registered Public
    Accounting Firm
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Combined Financial Statements:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Combined Balance Sheets as of December&nbsp;31,
    2002 and 2003 and March&nbsp;31, 2004 (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Combined Statements of Operations for the years
    ended December&nbsp;31, 2001, 2002 and 2003 and the three months
    ended March&nbsp;31, 2003 and 2004 (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Combined Statements of Owner&#146;s Equity
    (Deficiency) for the years ended December&nbsp;31, 2001, 2002
    and 2003 and the three months ended March&nbsp;31, 2004
    (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Combined Statements of Cash Flows for the years
    ended December&nbsp;31, 2001, 2002 and 2003 and the three months
    ended March&nbsp;31, 2003 and 2004 (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes to Combined Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</FONT></B>

<P align="left">
<FONT size="2">DreamWorks L.L.C., owner of DreamWorks Animation
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying combined balance
sheets of DreamWorks Animation (a division of DreamWorks L.L.C.
as defined in Note&nbsp;1) as of December&nbsp;31, 2002 and
2003, and the related combined statements of operations,
owner&#146;s equity (deficiency), and cash flows for each of the
three years in the period ended December&nbsp;31, 2003. These
financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the financial statements referred
to above present fairly, in all material respects, the combined
financial position of DreamWorks Animation at December&nbsp;31,
2002 and 2003, and the combined results of its operations and
its cash flows for each of the three years in the period ended
December&nbsp;31, 2003, in conformity with U.S.&nbsp;generally
accepted accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As more fully described in Note&nbsp;1, the
Company changed its method of accounting for film inventories as
of January&nbsp;1, 2001, its method of accounting for goodwill
and intangible assets as of January&nbsp;1, 2002, and its method
of accounting for consolidation of variable interest entities as
of December&nbsp;31, 2003.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">/s/ ERNST&nbsp;&#38; YOUNG LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Los Angeles, California
</FONT>

<DIV align="left">
<FONT size="2">July&nbsp;9, 2004
</FONT>
</DIV>

<P align="center"><FONT size="2">F-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">COMBINED BALANCE SHEETS</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="14" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables from employees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">475,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant, and equipment, net of
    accumulated depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred costs, net of amortization of $341,
    $838, and $964, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="14"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="14" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND OWNER&#146;S EQUITY
    (DEFICIENCY)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advances and unearned revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Obligations under capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,732</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt allocated by DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">418,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,612</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">498,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">686,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">698,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-controlling minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">669,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF OPERATIONS</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Years Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">661,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">456,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">295,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">509,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">438,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(142,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(167,649</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense, net of interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(812</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,585</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,541</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,005</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,419</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,730</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,300</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes and cumulative
    effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(184,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,861</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,618</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(85</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before cumulative effect of
    accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,743</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Unaudited pro forma combined statement of
    operations data (see Note&nbsp;14):</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes and cumulative
    effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(184,739</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,861</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,618</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(36,349</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,839</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(85</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before cumulative effect of
    accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting changes, net of
    tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(50,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-4
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF OWNER&#146;S EQUITY
(DEFICIENCY)</FONT></B>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity at January&nbsp;1, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">483,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net transfers to DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity at December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">480,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net transfers to DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(277,860</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity at December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net transfers to DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(685</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s deficiency at December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net transfers to DreamWorks Studios (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,658</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s deficiency at March&nbsp;31, 2004
    (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Division of Dreamworks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF CASH FLOWS</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(189,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cumulative effect of accounting changes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,522</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization and write off of film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,367</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">291,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,686</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Compensation expense pursuant to Employee Equity
    Participation Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,255</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,387</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">877</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues recorded against advances and unearned
    revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,074</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,046</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53,249</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,451</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,523</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for doubtful accounts and video returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(58,129</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,166</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,848</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,822</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Change in operating assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(238,819</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">221,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables from employees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(720</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(236,301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(191,202</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(241,956</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(62,673</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,718</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(280</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,066</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(550</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,236</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,488</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,589</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unearned revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by (used in) operating
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,527</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(170,025</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Investing activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of property, plant, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,663</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,267</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,108</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(179</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,663</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,267</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,108</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(179</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Financing Activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfers to DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(277,860</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(685</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(227,692</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,658</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in debt allocated from
    DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,317</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred debt costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,327</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(152</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(152</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments on capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(594</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(626</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(643</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(180</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(180</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advances
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by (used in) financing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40,171</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">173,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,982</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,235</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase (decrease) in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(832</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Organization and Summary of Significant
    Accounting Policies</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Basis of Presentation and
    Business</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The combined financial statements of DreamWorks
Animation (&#147;DreamWorks Animation&#148; or the
&#147;Company&#148;) present the stand-alone financial position,
results of operations, and cash flows of the animation
businesses and activities of DreamWorks L.L.C. and its
consolidated subsidiaries (&#147;DreamWorks Studios&#148; or the
&#147;Parent&#148;). The businesses and activities of DreamWorks
L.L.C.&#146;s animation business include the development,
production and exploitation of animated films in the domestic
and international theatrical, home video, television and other
markets, as well the activities of its consumer products
division. DreamWorks Studios is a limited liability company
engaged primarily in the businesses of development, production
and distribution of live action and animated feature films. The
combined financial statements of the Company reflect all
adjustments, including allocations of costs incurred by
DreamWorks Studios, necessary for a fair presentation of the
operations of the Company. (See Note&nbsp;2).
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interim Financial Data</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited combined financial statements of
the Company for the three months ended March&nbsp;31, 2003 and
2004 have been prepared on the same basis as the audited
combined financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring
adjustments) necessary to state fairly the financial information
set forth therein, in accordance with U.S. generally accepted
accounting principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The results of operations for the three months
ended March&nbsp;31, 2004 are not necessarily indicative of the
results to be expected for the full fiscal year.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Changes in Accounting
    Principles</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2000, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position No.&nbsp;00-2,
&#147;Accounting by Producers or Distributors of Films&#148;
(the &#147;SOP&#148;), which became effective for the Company on
January&nbsp;1, 2001. The SOP established new accounting
standards for producers and distributors of films and television
programming, including changes in revenue recognition and
accounting for advertising, development, and overhead costs. In
addition, the SOP provided that development costs for abandoned
projects and certain indirect overhead costs should be charged
directly to expense, instead of capitalized to film costs.
Accordingly, the Company recorded a one-time cumulative
adjustment in 2001, which reduced Film Inventories, Net Income
and Owner&#146;s Equity by approximately $83&nbsp;million. As
permitted by the SOP, the Company has presented unclassified
combined balance sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company adopted Financial Accounting
Standards Board (&#147;FASB&#148;) Statement of Financial
Accounting Standards (&#147;FAS&#148;) No.&nbsp;142,
&#147;Goodwill and Other Intangible Assets&#148;, on
January&nbsp;1, 2002. Under FAS&nbsp;142, goodwill and
indefinite-lived intangible assets are no longer amortized but
are reviewed annually for impairment, or more frequently if
impairment indicators arise. With respect to goodwill and
intangible assets acquired prior to July&nbsp;1, 2001, the
amortization and impairment provisions of FAS&nbsp;142 are
effective upon adoption of FAS&nbsp;142. Pursuant to
FAS&nbsp;142, goodwill must be assessed for impairment at least
annually or upon an adverse change in operations that
more-likely-than-not reduces the fair value of a reporting unit
below its carrying value. Upon adoption of FAS&nbsp;142, the
Company had unamortized goodwill of $26.5&nbsp;million and
amortization ceased as of January&nbsp;1, 2002. The impact of
adopting the non-amortization provisions of FAS&nbsp;142 was to
reduce net loss by approximately $1.5&nbsp;million for both of
the years ended December&nbsp;31, 2002 and 2003, and
$0.4&nbsp;million for both of the three months ended
March&nbsp;31, 2003 and 2004.
</FONT>

<P align="center"><FONT size="2">F-7
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued Interpretation
No.&nbsp;46, &#147;Consolidation of Variable Interest
Entities&#148; (&#147;Interpretation&nbsp;46&#148;). In November
2003, the FASB revised certain provisions of
Interpretation&nbsp;46. Interpretation 46 requires a variable
interest entity (defined as a corporation, partnership, trust or
any other legal structure used for business purposes that either
does not have equity investors with voting rights or has equity
investors that do not provide sufficient financial resources for
the entity to support its activities) to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the variable interest entity&#146;s activities or
entitled to receive a majority of the entity&#146;s residual
returns, or both. The consolidation requirements of
Interpretation 46, as revised, apply immediately to variable
interest entities created after January&nbsp;31, 2003. The
consolidation requirements for older entities were effective on
December&nbsp;31, 2003. Upon adoption of Interpretation 46, the
Company consolidated the special-purpose entity that acquired
its Glendale animation campus in March 2002 (see Note&nbsp;6).
Such consolidation has resulted in an increase in property,
plant and equipment of $70.2&nbsp;million, net of accumulated
depreciation, an increase in debt and a non-controlling minority
interest of $70.1&nbsp;million and $2.9&nbsp;million,
respectively, and a cumulative effect of a change in accounting
principle of $2.5&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Supplemental Cash Flow
    Information</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash paid for taxes for the years ended
December&nbsp;31, 2001, 2002 and 2003 was $1.4&nbsp;million,
$2.2&nbsp;million and $1.8&nbsp;million, respectively, and was
$0.1&nbsp;million and $0.3&nbsp;million for the three months
ended March&nbsp;31, 2003 and 2004, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, in connection with the adoption of
Interpretation&nbsp;46, the Company recorded property, plant and
equipment, net of accumulated depreciation, of
$70.2&nbsp;million, other debt of $70.1&nbsp;million,
non-controlling minority interest of $2.9&nbsp;million, and a
cumulative effect of accounting change of $2.5&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cash and Cash Equivalents and Concentration
    of Credit Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash and cash equivalents consist of cash on
deposit and high quality money market investments, principally
commercial paper and commercial paper mutual funds, with
maturities when purchased of three months or less.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and accounts receivable. Cash and
cash equivalents consist of cash on deposit and high-quality
money market investments, principally commercial paper and
commercial paper mutual funds, with maturities when purchased of
three months or less. The Company limits its exposure to credit
loss by placing its cash and cash equivalents in short term
investments with high-credit, quality financial institutions.
Significant accounts receivable are due from Universal Studios,
Inc. (&#147;Universal&#148;), the Company&#146;s international
theatrical distributor and worldwide home video fulfillment
services provider. As of December&nbsp;31, 2002 and 2003, and
March&nbsp;31, 2004, approximately 82%, 68% and 44%,
respectively, of accounts receivable was due from Universal (See
Note&nbsp;3). Accounts receivable resulting from revenues earned
in other markets are derived from sales to customers located
principally in North America, Europe and Asia. The Company
performs ongoing credit evaluations of its customers and
generally does not require collateral.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Financial Instruments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of cash and cash equivalents,
accounts receivable, accounts payable, and advances approximates
carrying value due to the short-term maturity of such
instruments. The fair value of interest rate swap and foreign
exchange agreements is the estimated amount the Company would
receive or pay to
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">terminate the agreements, taking into account
current interest or exchange rates and the current
creditworthiness of the counterparties.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has entered into interest rate
swap agreements to serve as a hedge against interest rate
fluctuations associated with the Company&#146;s payment
obligations under its real estate lease agreement. (See
Note&nbsp;6). Accordingly, DreamWorks Studios has attributed
interest rate swap agreements with a notional amount of
$73&nbsp;million to the Company. These interest rate swap
agreements do not qualify for special hedge accounting and, as a
result, changes in the fair value of such interest rate swap
agreements has been reflected in Other Income (Expense) in the
combined statements of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Animation has entered into loan
agreements with two banks for financing of the production of a
film (see Note&nbsp;6). In connection with these agreements, the
Company entered into foreign currency exchange transactions to
limit the Company&#146;s foreign exchange rate exposure
associated with its purchase of British pounds to finance the
film. These agreements do not qualify for special hedge
accounting and, as a result, the fair value of such foreign
currency exchange transactions has been included in Other Income
(Expense) in the combined statements of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The accompanying combined financial statements
also reflect the allocations of DreamWorks Studios&#146;
indebtedness and the effects of DreamWorks Studios&#146;
interest rate swap agreements as described in Note&nbsp;6.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Inventories, Revenue and
    Costs</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Inventories</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Film inventories are stated at the lower of cost
or fair value. These inventories consist of development and
production costs, including capitalized overhead and interest.
The Company also maintains home video product in inventory,
which primarily consists of digital videodiscs and videocassette
tapes and are stated at the lower of cost or market.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenue</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following are the conditions that must be met
in order to recognize revenue in accordance with the SOP:
(i)&nbsp;persuasive evidence of a sale or licensing arrangement
with a customer exists; (ii)&nbsp;the film is complete and has
been delivered or is available for immediate and unconditional
delivery; (iii)&nbsp;the license period of the arrangement has
begun and the customer can begin its exploitation, exhibition or
sale; (iv)&nbsp;the arrangement fee is fixed or determinable and
(v)&nbsp;collection of the arrangement fee is reasonably
assured. Amounts received from customers prior to the
availability date of the product are included in unearned
revenue. Revenue is recognized upon meeting the criteria for
revenue recognition required by the SOP as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Theatrical:</FONT></I><FONT size="2"> Revenue
from the theatrical distribution of films is recognized as the
films are exhibited in theaters.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Pay Television and Free
Television:</FONT></I><FONT size="2"> Revenue from both pay and
free television licensing agreements are recognized at the time
the production is made available for exhibition in those markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Home Video:</FONT></I><FONT size="2"> Revenue
from the sale of home video units is recognized at the time the
product is made available for retail sale. The Company follows
the practice of providing for future returns of home video
product at the time the products are sold. These provisions are
based on historical experience. Actual returns are charged
against the reserve. Revenue associated with the licensing of
home video product under revenue-sharing agreements is recorded
as earned under the terms of the underlying agreements.
</FONT>

<P align="center"><FONT size="2">F-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Costs</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventories are amortized and contingent
compensation and residuals are accrued on an individual film
basis in the proportion that current revenues bear to total
remaining estimated lifetime revenues as required by the SOP.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Distribution and marketing costs, including
advertising and marketing are expensed as incurred. Theatrical
print costs are expensed upon release of the film. During the
years ended December&nbsp;31, 2001, 2002 and 2003, and the three
months ended March&nbsp;31, 2003 and 2004, the Company included
$275.0&nbsp;million, $212.2&nbsp;million, $142.0&nbsp;million,
$14.6&nbsp;million and $30.1&nbsp;million, respectively, of
distribution and marketing costs in costs of revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Home video manufacturing costs are charged to
costs of revenue at the time home video revenues are recognized.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property, Plant and Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are stated at the
lower of cost or fair value. Depreciation of property, plant and
equipment is calculated using the straight-line method over the
useful life of the asset, ranging from three to forty years.
Leasehold improvements are amortized using the straight-line
method over the life of the asset, not to exceed the length of
the lease. Amortization of assets acquired under capital leases
is included in depreciation expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Talent Commitments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company enters into contracts with talent
(primarily performers, writers and producers) for the
development of new product. Advance payments made under such
contracts, net of expected recoupments from productions, are
amortized on a straight-line basis over the term of the
commitment.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios paid no federal income taxes
as an entity as the operations of DreamWorks Studios were
included in the taxable income of its individual members. The
tax expense in the accompanying combined statements of
operations principally represent foreign withholding taxes and
state franchise taxes. See Note&nbsp;14 for pro forma income tax
information reflecting the income tax provision that the Company
would have recorded if the Company had been subject to federal
taxation as a corporation and had filed separate tax returns for
all periods presented. Income taxes are recorded based on the
liability method, which requires recognition of deferred tax
assets and liabilities based on differences between financial
reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with U.S.&nbsp;generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes, including estimates of ultimate revenues and
ultimate costs of film and television product. Actual results
could differ from those estimates.
</FONT>

<P align="center"><FONT size="2">F-10
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill of approximately $29.1&nbsp;million,
associated with DreamWorks Studios&#146; 2000 acquisition of a
majority interest in Pacific Data Images, Inc. (&#147;PDI&#148;)
has been allocated to the Company. At December&nbsp;31, 2003,
the Company has determined that there was no impairment of
goodwill.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Deferred Costs</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Costs associated with negotiating the
Company&#146;s animation facility lease, which consist
principally of legal costs and bank fees, are deferred and
amortized to rent expense using the straight-line method over
the life of the lease.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock-Based Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company follows the provisions of
FAS&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;FAS&nbsp;123&#148;). The provisions of
FAS&nbsp;123 allow companies to either expense the estimated
fair value of equity awards or to continue to follow the
intrinsic value method set forth in Accounting Principles Board
Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148; (&#147;APB&nbsp;25&#148;). The Company has
elected to continue to apply APB&nbsp;25 in accounting for its
preexisting stock options which were outstanding at the time of
the acquisition of PDI. DreamWorks Studios uses stock
appreciation rights (which allow all employees to share in the
growth in value of DreamWorks Studios) as its principal
stock-based compensation plan. The vested amount of these awards
are recorded at their redemption value, and DreamWorks Studios
has allocated to the Company the redemption liability and the
associated compensation expense related to the Company&#146;s
employees. Compensation expense, determined using the
accelerated expense attribution method under FASB Interpretation
No.&nbsp;28, &#147;Accounting for Stock Appreciation Rights and
Other Variable Stock Option Plans&#148;, is adjusted to reflect
changes in redemption value (See Note&nbsp;8).
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Long-Lived
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company records impairment losses on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets&#146;
carrying amount. In such cases, the amount of the impairment is
determined based on the relative fair values of the impaired
assets.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recent Accounting
    Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued
FAS&nbsp;No.&nbsp;148, &#147;Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure&#148;
(&#147;FAS&nbsp;148&#148;). FAS&nbsp;148 amends FAS&nbsp;123 to
provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for
stock-based employee compensation. In addition, FAS&nbsp;148
amends the disclosure provisions of FAS&nbsp;123 to require
prominent disclosure of the effects of an entity&#146;s
accounting policy with respect to stock-based employee
compensation on reported operating results, including per share
amounts, in annual and interim financial statements. The
disclosure provisions of FAS&nbsp;148 were effective immediately
upon issuance in 2002. As of December&nbsp;31, 2003, the Company
has no immediate plans to adopt the fair value method of
accounting for stock-based employee compensation.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Relationship to DreamWorks Studios</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the periods covered by the combined
financial statements, DreamWorks Studios provided all marketing
and overhead services to the Company, including executive
management, domestic theatrical
</FONT>

<P align="center"><FONT size="2">F-11
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">marketing and distribution, oversight of
international theatrical distribution and worldwide home video
distribution, worldwide television sales, accounting and
finance, legal, employee benefits, risk management and
information technology. DreamWorks Studios has allocated such
costs to the Company to reflect the amounts that DreamWorks
Studios believes is a fair and reasonable allocation of its
costs to provide these services to the Company. In general,
these allocations have been calculated based on the percentage
that the Company&#146;s films, headcount, revenue or other
criteria constitute of the total films, headcount, revenue or
other criteria of DreamWorks Studios (including those of the
Company). Certain of these costs that are significantly or
exclusively related to the production of films are included in
capitalized overhead in accordance with the SOP and are reported
as Film Inventories in the accompanying combined balance sheets.
All other allocations have been included in Selling, General and
Administrative Expenses in the accompanying combined statements
of operations. Costs, including capitalized costs, allocated
from DreamWorks Studios for the years ended December&nbsp;31,
2001, 2002 and 2003 are $40.2&nbsp;million, $34.2&nbsp;million
and $34.6&nbsp;million, respectively, and were $9.4&nbsp;million
and $9.9&nbsp;million for the three-months ended March&nbsp;31,
2003 and 2004, respectively. DreamWorks Studios has provided all
working capital required for the development, production, and
marketing of films, as well as overhead, through centralized
cash management. The net impact of DreamWorks Studios&#146;
funding of the Company&#146;s operations, after the allocation
of its indebtedness (Note&nbsp;6), have been reflected as a
component of Owner&#146;s Equity (Deficiency) in the
accompanying combined financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allocations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Worldwide Marketing and
Distribution:</FONT></I><FONT size="2"> Certain overhead
expenses for the marketing and distribution of the
Company&#146;s films have been allocated to the Company by
DreamWorks Studios. These costs include the salaries, fringe
benefits, and operating expenses of the employees in DreamWorks
Studios&#146; theatrical, home video, marketing and television
sales/distribution departments. The allocation of the overhead
associated with these functions has been based on several
factors, including: (1)&nbsp;marketing costs incurred for the
Company&#146;s films as a percentage of marketing costs incurred
for all DreamWorks Studios&#146; films; (2)&nbsp;the number of
films the Company has released as a percentage of all DreamWorks
Studios&#146; films released in a given year and
(3)&nbsp;estimates of time spent on the Company&#146;s releases
as a percentage of time spent on all DreamWorks Studios&#146;
releases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Executive
Management:</FONT></I><FONT size="2"> Executive management
expense is comprised of the expenses relating to the principals
and chief operating officers employed by DreamWorks Studios,
including the costs associated with transportation provided by
DreamWorks Studios to the Company&#146;s executives. These costs
have been allocated to the Company based on a combination of
(1)&nbsp;revenue generated by the Company as a percentage of
DreamWorks Studios consolidated revenue and (2)&nbsp;the
Company&#146;s headcount as a percentage of DreamWorks Studios
consolidated headcount.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Finance and
Accounting:</FONT></I><FONT size="2"> DreamWorks Studios has
allocated accounting and finance services related costs,
including the costs of financial systems, to the Company based
on several factors, including: (1)&nbsp;revenue generated by the
Company as a percentage of DreamWorks Studios consolidated
revenue; (2)&nbsp;the Company&#146;s headcount as a percentage
of DreamWorks Studios total headcount and (3)&nbsp;estimates of
time spent on the Company&#146;s finance projects as a
percentage of time spent on all DreamWorks Studios finance
projects.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Legal:</FONT></I><FONT size="2"> Costs related
to legal services, other than outside legal fees and film
specific trademark related expenses, which have been directly
charged to the Company, have been allocated to the Company based
on actual time spent by DreamWorks Studios&#146; attorneys on
matters related primarily to the Company or the Company&#146;s
films.
</FONT>

<P align="center"><FONT size="2">F-12
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Human Resources:</FONT></I><FONT size="2">
DreamWorks Studios has allocated human resources costs,
including management, benefits administration and employee
relations to the Company based on the Company&#146;s headcount
as a percentage of the consolidated headcount of DreamWorks
Studios. Other costs related to human resources, such as
recruiting and relocation costs have been directly incurred by
the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Occupancy and Facilities
Management:</FONT></I><FONT size="2"> The costs of facilities,
facilities management and mail services have been allocated to
the Company based on the square footage that the Company has
occupied at of the Company&#146;s Glendale animation campus and
the Company&#146;s Redwood City production facility as a
percentage of total square footage of all DreamWorks Studios
facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Insurance:</FONT></I><FONT size="2"> Property
insurance premiums have historically been allocated to the
Company based on the Company&#146;s insurable asset values as a
proportion of DreamWorks Studios&#146; total insurable asset
values. Asset values are representative of the asset&#146;s fair
market or replacement value as determined at the time of premium
renewal. The insurance premiums for policies such as errors and
omissions, directors and officers, travel, and excess liability,
have been allocated to the Company based on (1)&nbsp;the
Company&#146;s headcount as a percentage of the consolidated
headcount of DreamWorks Studios and (2)&nbsp;the number of films
the Company has released as a percentage of all DreamWorks
Studios&#146; films released in a given year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Information
Technology:</FONT></I><FONT size="2"> DreamWorks Studios has
allocated to the Company the costs of network infrastructure and
administrative desktop computer support. This allocation has
been based on the Company&#146;s headcount as a percentage of
total DreamWorks Studios headcount, in each case excluding the
headcount of the Company&#146;s Redwood City facility, as the
costs related to Redwood City have been directly incurred by the
Company. For telecommunications, the Company has been allocated
a fixed fee for every telephone user, which includes the costs
of the equipment and related maintenance and support costs. The
Company has also been charged for actual local and long distance
usage.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Other Allocations:</FONT></I><FONT size="2">
The Company has been allocated certain other costs, including
(1)&nbsp;costs to track, deliver and store various film and film
related content (for example, film elements, photos and
artwork); (2)&nbsp;costs to oversee dubbing of the
Company&#146;s films and (3)&nbsp;costs to oversee the placement
of musical content in the Company&#146;s films.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios provides fringe benefits to
the Company&#146;s employees. DreamWorks Studios pays all costs
of the employer provided benefits package, including health and
401(k) plans and employer payroll taxes, and allocates such
costs to the Company based on a percentage of total salaries
incurred by or allocated to the Company in relation to the total
salaries incurred by DreamWorks Studios. Employee fringe expense
allocated to the Company for the years ended December&nbsp;31,
2001, 2002 and 2003 was $6.3&nbsp;million, $7.6&nbsp;million and
$9.7&nbsp;million, respectively, and $2.4&nbsp;million and
$3.2&nbsp;million for the three-months ended March&nbsp;31, 2003
and 2004, respectively, which were recorded as Selling, General
and Administrative expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company leases its animation campus in
Glendale, California (see Note&nbsp;6). The Company incurs all
costs related to the operation of the facility, and allocates
occupancy costs to DreamWorks Studios. DreamWorks Studios was
allocated occupancy expense of approximately $9.4&nbsp;million,
$8.9&nbsp;million, and $9.0&nbsp;million for the years ended
December&nbsp;31, 2001, 2002 and 2003, respectively, and
$1.8&nbsp;million and $2.8&nbsp;million for the three-months
ended March&nbsp;31, 2003 and 2004, respectively. A portion of
these costs has been reallocated to the Company through the
departmental allocations discussed above.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Distribution, Licensing and Other Operating
    Agreements</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In prior years, DreamWorks Studios entered into
several agreements with Universal and its affiliates to provide
international theatrical distribution and international and
domestic home video fulfillment services. In 2001, DreamWorks
Studios amended and extended its agreements with Universal (the
&#147;2001 Universal
</FONT>

<P align="center"><FONT size="2">F-13
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">Agreement&#148;). In accordance with the
Universal Agreement, DreamWorks Studios received an advance
against amounts due to DreamWorks Studios based on the projected
net receipts, as defined, of pictures in release and pictures in
production or pre-production (the &#147;2001 Advance&#148;).
DreamWorks Studios is required to provide to Universal quarterly
estimates of projected cash receipts, net of projected expenses,
distribution and service fees, due to DreamWorks Studios from
Universal in the markets where Universal provides distribution
and fulfillment services (the &#147;Pipeline Estimate&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 2001 Advance is calculated as the lesser of
$100&nbsp;million or 87% of the Pipeline Estimate. At each of
December&nbsp;31, 2002, and 2003, and at March&nbsp;31, 2004,
the 2001 Advance was calculated to be $100&nbsp;million. A
portion of the 2001 Advance has been allocated to the Company
based on the relative share of the Company&#146;s net receipts
included in the Pipeline Estimate. Accordingly, at
December&nbsp;31, 2002 and 2003 and March&nbsp;31, 2004,
$32.3&nbsp;million, $12.8&nbsp;million and $12.2&nbsp;million,
respectively, of the 2001 Advance has been allocated to the
Company and is included in Advances and Unearned Revenue in the
accompanying combined balance sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2003, DreamWorks Studios entered into
a new amended and restated agreement with Universal (the
&#147;2003 Universal Agreement&#148;). The 2003 Universal
Agreement extends the terms of the international theatrical
distribution and international and domestic home video
fulfillment services agreements until December&nbsp;31, 2010,
with an option for Universal to extend the term for an
additional one or two years if certain performance thresholds
are not met. Pursuant to the 2003 Universal Agreement,
DreamWorks Studios retains responsibility for all direct
distribution costs and Universal receives a fee for distribution
and fulfillment services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the 2003 Universal Agreement,
Universal agreed to pay to DreamWorks Studios an additional
advance of $75&nbsp;million (the &#147;2003 Advance&#148;), of
which $37.5&nbsp;million was received in December 2003 and
$37.5&nbsp;million was received in March 2004. The entire 2003
Advance is based on projected net receipts, as defined, of the
Company&#146;s animated features released subsequent to
December&nbsp;31, 2002. As a result, 100% of the 2003 Advance
has been allocated to the Company and is included in Advances
and Unearned Revenue in the accompanying combined balance sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If future Pipeline Estimates fall below the
levels required to maintain the maximum advance, the excess
advance must be repaid within five business days. The advances
are otherwise not recoupable or refundable until the earlier of
a payment default or termination of the Universal Agreements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has received advances from
Home Box&nbsp;Office, Inc. (&#147;HBO&#148;) against license
fees payable for future film product under an exclusive 10-year
domestic pay television license agreement between HBO and
DreamWorks Studios. Since the advances are identified for each
film, the Company has been allocated the portion of the advances
related to its animated features. During the years ended
December&nbsp;31, 2001, 2002 and 2003, the Company recognized as
revenue $20&nbsp;million, $10&nbsp;million and $10&nbsp;million
of such advances, respectively, in each case representing a
portion of the license fee due from HBO upon availability of the
underlying films. No such revenues were recognized in the three
months ended March&nbsp;31, 2003 and 2004. Unrecognized advances
of $10&nbsp;million were allocated to the Company at
December&nbsp;31, 2002. As of December&nbsp;31, 2003 and
March&nbsp;31, 2004, there were no unrecognized advances from
HBO. DreamWorks Studios and the Company are obligated to refund
the advances if the advances exceed the license fees earned by
the films in accordance with the HBO agreement.
</FONT>

<P align="center"><FONT size="2">F-14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Film Inventories</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is an analysis of film inventories
(in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In development:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Animated feature films
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In production:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Animated feature films
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">318,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Television series
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In release, (net of amortization):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Animated feature films
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total film inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">471,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">422,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">475,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company anticipates that 96% of completed and
released film inventories as of December&nbsp;31, 2003 will be
amortized over the next three years. The Company further
anticipates that 54% of &#147;in release&#148; inventory will be
amortized during 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest capitalized to film inventories during
the years ended December&nbsp;31, 2002 and 2003 and the three
months ended March&nbsp;31, 2004 totaled $10.2&nbsp;million,
$6.9&nbsp;million, and $2.2&nbsp;million, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Property, Plant and Equipment</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are comprised of
the following (in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,262</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer hardware and software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment acquired under capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land and buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,383</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,644</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the years ended December&nbsp;31, 2001, 2002,
and 2003 and the three months ended March&nbsp;31, 2003 and 2004
the Company recorded depreciation and amortization expense
(other than film amortization) of $2.9&nbsp;million,
$3.1&nbsp;million, $3.6&nbsp;million, $0.8&nbsp;million and
$1.3&nbsp;million, respectively. Accumulated depreciation and
amortization includes depreciation of assets acquired under
capital leases. On December&nbsp;31, 2003, the Company adopted
Interpretation 46, as revised, and has consolidated the
special-purpose entity that acquired the Glendale animation
campus, which increased property, plant and equipment as of
December&nbsp;31, 2003, and will increase non-film depreciation
and amortization in the future (see Note&nbsp;6).
</FONT>

<P align="center"><FONT size="2">F-15
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Debt</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has allocated its debt and
related interest to the Company based on the proportion of the
Company&#146;s capital invested in films in production as a
percentage of total capital invested by DreamWorks Studios in
all films in production. Management of the Company believes that
this allocation best reflects the Company&#146;s actual use of
capital. For the years ended December&nbsp;31, 2001, 2002 and
2003, interest allocated to the Company amounted to
$17.4&nbsp;million, $15.3&nbsp;million and $20.5&nbsp;million,
respectively, and for the three months ended March&nbsp;31, 2003
and 2004, interest allocated to the Company was
$5.6&nbsp;million and $5.1&nbsp;million, respectively. Of these
amounts, interest capitalized to Film Inventories in accordance
with FAS&nbsp;34 &#147;Capitalization of Interest Cost&#148;,
totaled $16.8&nbsp;million, $10.2&nbsp;million and
$6.9&nbsp;million for the years ended December&nbsp;31, 2001,
2002 and 2003, respectively, and $1.7&nbsp;million and
$2.2&nbsp;million for the three months ended March&nbsp;31, 2003
and 2004, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios&#146; indebtedness is
principally based on variable rates based on LIBOR, Eurodollar
or commercial paper rates, plus a margin. Substantially all of
the assets of the Company have been pledged as collateral to the
lenders under the revolving credit facility of DreamWorks
Studios, and its subsidiaries, including the Company, have
guaranteed this facility. In addition, a portion of the
Company&#146;s assets held by DW&nbsp;Funding, L.L.C., a wholly
owned subsidiary of DreamWorks Studios, have been pledged as
collateral under its securitization documents. DreamWorks
Studios&#146; existing credit facility places restrictions on
its ability to sell assets or make distributions to its members,
and such restrictions extend to the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios utilizes interest rate swap
agreements to hedge the interest rate sensitivity of its
indebtedness. These agreements do not qualify for special hedge
accounting and, as a result, changes in the fair value of such
agreements have been charged to operations. The impact of these
agreements has been allocated to the Company in a manner similar
to the allocation of debt. Accordingly, the net change in the
fair value of these contracts has been charged to Other Income
(Expense), and the allocated fair value of these contracts has
been reflected in Accrued Liabilities. For the years ended
December&nbsp;31, 2001, 2002 and 2003, and for the three months
ended March&nbsp;31, 2003 and 2004, the Company recorded other
expense of $10.0&nbsp;million, $19.9&nbsp;million,
$0.6&nbsp;million, 3.1 million, and $7.3&nbsp;million,
respectively, related to the allocated changes in the fair value
of these instruments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DreamWorks Studios has entered into interest rate
swap agreements and has allocated to the Company agreements with
aggregate notional principal amounts of $76.5&nbsp;million for
the year ended December&nbsp;31, 2001, and $73.0&nbsp;million
for the years ended December&nbsp;31, 2002 and 2003. These
contracts are intended to serve as a hedge against the interest
rate fluctuations associated with the Company&#146;s animation
campus indebtedness. Pursuant to these agreements, DreamWorks
Studios paid and allocated to the Company fixed rates of
interest ranging from 6.06% to 6.20% in 2002 and 2003 (weighted
average of 6.16%) and received and allocated to the Company
floating LIBOR-based rates of interest (weighted average of
2.14% at December&nbsp;31, 2001, 1.51% at December&nbsp;31, 2002
and 1.18% at December&nbsp;31, 2003).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002 and 2003 and
March&nbsp;31, 2004, the Company estimates it would have been
required to pay approximately $33.9&nbsp;million,
$31.8&nbsp;million and $38.3&nbsp;million, respectively, to
terminate the all the aforementioned swap agreements. These
amounts have been recorded in Accrued Liabilities in the
accompanying combined financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 1996, DreamWorks Animation entered into an
agreement with a financial institution for the construction of
an animation campus in Glendale, California, and the subsequent
lease of the facility upon its completion in early 1998. The
lease on the property, which was acquired and financed by the
financial institution for $76.5&nbsp;million, qualified as an
operating lease for the Company. In March 2002, the Company
renegotiated the lease through the creation of a special-purpose
entity that acquired the property from the
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">financial institution for $73.0&nbsp;million and
the special-purpose entity leased the facility to the Company
for a five-year term. This transaction was structured to qualify
as an operating lease and obligated the Company to provide a
residual value guarantee of approximately $61&nbsp;million. The
entire amount of the obligation, $70.1&nbsp;million at
March&nbsp;31, 2004, is due and is payable in March&nbsp;2007.
In connection with the adoption of Interpretation&nbsp;46, the
special-purpose entity has been consolidated by the Company as
of December&nbsp;31, 2003 (see Note&nbsp;5).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2003, the Company entered into an
agreement to acquire an animated film currently in production.
Pursuant to the acquisition agreement, the Company will pay
approximately $45.0&nbsp;million to acquire substantially all
rights to the film. In connection with the acquisition,
DreamWorks Studios entered into loan agreements for the
financing of the production costs of up to approximately
$28.7&nbsp;million. Of this amount, $6.6&nbsp;million and
$11.6&nbsp;million had been incurred as of December&nbsp;31,
2003 and March&nbsp;31, 2004, respectively. This obligation is
included in Other Debt and Film Inventories in the accompanying
combined balance sheets. The Company has entered into certain
foreign exchange transactions intended to hedge the fluctuations
of foreign currency payments related to the acquisition of this
film. Pursuant to these transactions, the Company is obligated
to purchase up to 16.7&nbsp;million British pounds at an
exchange rate specified in the transaction documents. At
December&nbsp;31, 2003 and March&nbsp;31, 2004, the banks would
be required to pay the Company approximately $1.2&nbsp;million
and $1.8&nbsp;million, respectively, to terminate the foreign
currency agreements. These amounts have been recorded in Other
Assets in the accompanying combined financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Commitments and Contingencies</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the lease expense related to the
Glendale animation campus (until its consolidation on
December&nbsp;31, 2003), the Company is allocated lease expense
by DreamWorks Studios for certain non-cancelable office space
and equipment operating leases. Certain of these office leases
contain escalations in the monthly rental amounts. DreamWorks
Studios has also entered into several operating leases for
furniture, computers and production equipment with terms ranging
from three to five years. These leases also provide for certain
termination and purchase options. For the years ended
December&nbsp;31, 2001, 2002 and 2003, and the three months
ended March&nbsp;31, 2003 and 2004, the Company incurred lease
expense, including that allocated by DreamWorks Studios, of
approximately $13.6&nbsp;million, $9.8&nbsp;million,
$11.6&nbsp;million, $2.7&nbsp;million, and $1.5&nbsp;million,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 1997, DreamWorks Studios entered into
a capital lease with Pacific Enterprises for the energy
management assets associated with the Company&#146;s Glendale
animation campus. This capital lease has been attributed to the
Company, and, accordingly, the Company has reflected an asset of
approximately $7.0&nbsp;million. As of December&nbsp;31, 2003,
$3.7&nbsp;million of the related capital lease obligation
remains outstanding. Payments of obligations under the capital
lease totaled approximately $0.6&nbsp;million in each of the
years ended December&nbsp;31, 2001, 2002 and 2003 and
$0.2&nbsp;million in each of the three months ended
March&nbsp;31, 2003 and 2004.
</FONT>

<P align="center"><FONT size="2">F-17
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease payments of all leases are
as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operating</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subtotal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less amount representing interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(668</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,732</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company estimates that during the year ending
December&nbsp;31, 2004, it will pay approximately
$7.5&nbsp;million of its accrued contingent compensation and
residual costs as of December&nbsp;31, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company also has a purchase commitment
related to the acquisition of a film as described in Note&nbsp;6.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, DreamWorks Studios is involved
in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company does not believe
that adverse decisions in any pending or threatened proceedings,
or any amount which the Company might be required to pay by
reason thereof, would have a material adverse effect on the
financial condition or operating results of the Company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Employee Benefit Plans</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">401(k) Plans</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company participates in DreamWorks
Studio&#146;s defined contribution retirement plan (the
&#147;Plan&#148;) under provisions of Section&nbsp;401(k) of the
Internal Revenue Code (&#147;IRC&#148;). Substantially all
employees not covered by collective bargaining agreements are
eligible to participate in the Plan. The maximum contribution
for the employer match is equal to 50% of the employees&#146;
contribution, up to 4% of their compensation, as limited by Sec.
415 of the IRC. The costs of the employer match, as well as all
costs of administering the Plan are included in DreamWorks
Studios fringe benefit allocation to the Company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Employee Equity Participation
    Plan</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company participates in DreamWorks
Studios&#146; Employee Equity Participation Plan (the
&#147;Equity Plan&#148;). DreamWorks Studios may grant to
employees or consultants either actual or phantom shares of
Class&nbsp;E stock (the &#147;Shares&#148;) or alternative
Class&nbsp;E stock (the &#147;Alternative Shares&#148;), with
the aggregate outstanding Shares or Alternative Shares not to
exceed 10% of the equity of DreamWorks Studios. Most of the
Shares or Alternative Shares granted vest ratably over seven
years and the employees become fully vested in their Shares or
Alternative Shares on the seventh anniversary date of the
granting of such Shares or Alternative Shares. The employees and
consultants may redeem the Shares or Alternative Shares for cash
or subordinated debt of DreamWorks Studios, at a predetermined
interest rate, at the greater of a percentage of fair market
value or the stipulated minimums provided in the Equity Plan,
after a three-year blackout period, provided that DreamWorks
Studios achieves certain defined operating performance
thresholds. If these thresholds are not achieved, the redemption
price will be based on a percentage of fair market value only.
</FONT>

<P align="center"><FONT size="2">F-18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the years ended December&nbsp;31, 2001 and
2002, compensation expense attributable to the Company&#146;s
employees pursuant to the Equity Plan of $1.3&nbsp;million and
$0.3&nbsp;million, respectively, was allocated to the Company.
During the years ended December&nbsp;31, 2002 and 2003,
DreamWorks Studios determined that the fair market value of the
Shares and Alternative Shares had decreased from the previously
determined fair market value. Accordingly, for the year ended
December&nbsp;31, 2002, the amount of recorded compensation
expense was reduced to reflect the reduction in fair value as of
December&nbsp;31, 2002. For the year ended December&nbsp;31,
2003, the Company reversed previously recorded compensation
expense related to the Equity Plan aggregating $2.3&nbsp;million
to reflect the reduction in fair value as of December&nbsp;31,
2003. As of December&nbsp;31, 2002 and 2003 and March&nbsp;31,
2004, deferred compensation liabilities associated with the
Equity Plan of $8.7&nbsp;million, $6.4&nbsp;million and
$5.3&nbsp;million, respectively, were allocated to the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the acquisition of PDI in
2000, the Company inherited a stock option plan that was
previously established by PDI. As of March&nbsp;31, 2004, there
were approximately 2.6&nbsp;million stock options outstanding
under this plan, for the purchase of approximately 19% of the
outstanding stock of PDI, substantially all of which were
vested. There have been no additional grants or exercises of
stock options since the acquisition of PDI in 2000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Related Party Transactions</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has made loans to certain of its
executives and employees pursuant to various notes receivable
arrangements. These arrangements require interest to be paid at
rates ranging from 0% to 5.88%. Payments are due under terms
ranging from 1&nbsp;to 10&nbsp;years. Amounts due at
December&nbsp;31, 2002 and 2003 and March&nbsp;31, 2004 are
reflected in Receivables from Employees in the accompanying
combined balance sheets. Interest income associated with these
notes receivable for the years ended December&nbsp;31, 2001,
2002 and 2003 and for the three months ended March&nbsp;31, 2003
and 2004 was not material.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company provides services to DreamWorks
Studios related to the licensing of products based on DreamWorks
Studios&#146; films and characters in such films. In the years
ended December&nbsp;31, 2001, 2002 and 2003 and the three months
ended March&nbsp;31, 2003 and 2004, revenues earned from
licensing activities on behalf of DreamWorks Studios totaled
$1.8&nbsp;million, $0.7&nbsp;million, $3.7&nbsp;million,
$0.4&nbsp;million and $0.2&nbsp;million, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Segment and Geographic Information</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company operates in a single segment: the
production and distribution of animated films. Revenues
attributable to foreign countries were approximately
$214.0&nbsp;million, $199.1&nbsp;million and $135.6&nbsp;million
for the years ended December&nbsp;31, 2001, 2002 and 2003,
respectively, and were approximately $30.3&nbsp;million and
$32.5&nbsp;million, respectively, for the three-months ended
March&nbsp;31, 2003 and 2004. Long-lived assets located in
foreign countries were not material.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the terms of the distribution
agreements in place at DreamWorks Studios, whereby DreamWorks
Studios has not been responsible for collecting foreign
currency, there is a relatively short period between revenue
recognition and cash payment. DreamWorks Studios generally has
not used foreign currency swap transactions to hedge foreign
currency exchange risks associated with these distribution
agreements.
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Valuation and Qualifying Accounts and
    Reserves</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of the valuation and
qualifying accounts included in the combined balance sheets for
the years ended December&nbsp;31, 2001, 2002, and 2003 and the
three months ended March&nbsp;31, 2004 (in thousands):
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Charged to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deductions (Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beginning</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Credited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Returns and Bad</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Debt Write-offs)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">End of Period</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,894</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(43,552</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,433</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,476</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,421</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,589</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,241</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">March&nbsp;31, 2004 (unaudited)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(141</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2001, the animated film, <I>Shrek</I>, was
released in the home video market. At the time of release, the
Company estimated a return reserve based on its historical
experience and sales data available at the time. In 2002, the
actual sales of units at the retail level exceeded the
Company&#146;s estimates and, accordingly, the return reserve
was reduced.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, the Company collected receivables from
customers in bankruptcy which had been previously reserved.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Accrued Liabilities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accrued liabilities consists of the following:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of derivative instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,913</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued distribution costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Subsequent Event (unaudited)</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2004, DreamWorks Animation, Inc. filed a
registration statement with the Securities and Exchange
Commission to issue shares of Class&nbsp;A common stock of
DreamWorks Animation, Inc. Upon consummation of the offering,
the assets, liabilities and subsidiaries that comprise the
Company will be contributed, by merger or otherwise, into
DreamWorks Animation, Inc.
</FONT>

<P align="center"><FONT size="2">F-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the offering, DreamWorks
Animation expects to enter into a distribution agreement with
DreamWorks Studios (the &#147;Distribution Agreement&#148;).
Pursuant to the Distribution Agreement, the Company will grant
DreamWorks Studios the exclusive right to distribute throughout
the world all of its animated feature films that it delivers to
Dreamworks Studios through the later of (i)&nbsp;delivery of
12&nbsp;animated feature films, beginning with <I>Shark
Tale</I>, and (ii)&nbsp;December&nbsp;31, 2010. DreamWorks
Studios will be responsible for (1)&nbsp;the domestic and
international theatrical exhibition of our films, (2)&nbsp;the
domestic and international home video exhibition of our films
and direct-to-video pictures, (3)&nbsp;the domestic and
international television licensing of the films, including
pay-per-view, pay television, network, basic cable and
syndication, and (4)&nbsp;non-theatrical exhibition of the
films, such as on airlines, in schools and in armed forces
institutions. DreamWorks Studios will also grant Internet, radio
(for promotional purposes only) and new media rights with
respect to the films. DreamWorks Animation will retain all other
rights to exploit the films, including the right to make sequels
and commercial tie-in and promotional rights with respect to
each film, as well as merchandising, interactive, literary
publishing, music publishing, soundtrack, radio, legitimate
stage and theme park rights.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the Distribution Agreement,
DreamWorks Animation will be responsible for all of the costs
and developing and producing its animated feature films and for
contingent compensation and residual payments. DreamWorks
Studios will generally be responsible for all out-of-pocket
costs, charges and expenses incurred in the distribution
(including prints and the manufacture of home video units),
advertising, marketing, publicizing and promotion of the films,
and has agreed to make expenditures consistent with historical
levels with respect to its films. The Distribution Agreement
will also provide that DreamWorks Studios will be entitled to
(1)&nbsp;retain a fee of 8.0% of revenue (without deduction for
any distribution and marketing fees and third-party distribution
and fulfillment services fees) and (2)&nbsp;recoup all of its
distribution and marketing costs prior to the Company
recognizing any revenue.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Pro Forma Provision for Income Taxes
    (unaudited)</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the consummation of the transactions
described in Note&nbsp;13, the Company will be taxed at regular
corporate rates. Deferred tax assets and liabilities will be
recognized for the tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities will be measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. A deferred tax asset valuation allowance will be
recorded if it is more likely than not that all or a portion of
the recorded deferred tax assets will not be realized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For informational purposes, the consolidated
statements of operations include a pro forma adjustment for
income taxes that would have been recorded if the Company had
been incorporated historically, calculated in accordance with
FAS&nbsp;No.&nbsp;109, &#147;Accounting for Income Taxes&#148;.
</FONT>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">DREAMWORKS ANIMATION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(A Division of DreamWorks L.L.C.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Information for the three months ended
March&nbsp;31, 2003 and 2004 is unaudited)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant components of the pro forma provision
for (benefit from) income taxes on income (loss), before
cumulative effect of accounting changes, are as follows (in
thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Years Ended December 31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State and local
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Foreign
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,940</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current provision (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,733</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State and local
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred provision (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total income tax provision
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma federal and state tax benefit for
the years 2002 and 2003 is fully offset by valuation allowances
arising in each of those years, since the resulting net
operating loss carryforwards created would require a valuation
allowance as the likelihood of their realization could not be
established at such time.
</FONT>

<P align="center"><FONT size="2">F-22
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

<P align="center">
<FONT size="4">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</FONT>

<P align="center">
<FONT size="4">Class&nbsp;A Common Stock
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<FONT size="4">(LOGO TO COME)
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B>PROSPECTUS</B>

<P align="center">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004
</FONT>

<P align="center">
<B><FONT size="4">Goldman, Sachs &#38; Co.</FONT></B>

<P align="center">
<B><FONT size="4">JPMorgan</FONT></B>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, common shares
only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common shares.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
action is being taken in any jurisdiction outside the United
States to permit a public offering of the common shares or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
and
including &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers&#146; obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
</FONT>

<P align="center">
<HR size="1" width="100%" align="center" noshade>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<B><FONT size="2" color="#E8112D">The information in this
preliminary prospectus is not complete and may be changed. These
securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. <BR>
 </FONT></B>
</TD></TR></TABLE>

<P align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>

<DIV align="center">
<B><FONT size="2" color="#E8112D">Subject to Completion, dated
July&nbsp;20, 2004</FONT></B>
</DIV>

<P align="center">
<B><FONT size="4">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></B>

<P align="center">
<B><FONT size="6">DreamWorks Animation, Inc.</FONT></B>

<P align="center">
<B><FONT size="4">Class&nbsp;A Common Stock</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><FONT size="2">This
Prospectus is being furnished to you as a stockholder of record
of Pacific Data Images, Inc. (&#147;PDI&#148;) in connection
with the combination of the businesses of PDI and DreamWorks
Animation, Inc. (the &#147;Company&#148;) pursuant to an
Agreement and Plan of Merger (the &#147;Merger Agreement&#148;),
dated as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004, by and among PDI, the Company, and DWA Acquisition Corp.,
a wholly owned subsidiary of the Company (&#147;Merger
Sub&#148;), which provides for the merger of Merger Sub with and
into PDI, with PDI becoming a wholly owned subsidiary of the
Company (the &#147;Merger&#148;).
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concurrently with
the Merger, the Company and certain Selling Stockholders (as
defined herein) are
selling &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock, respectively, and an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise their over-allotment option in
full, in an underwritten public offering (the
&#147;Offering&#148;). It is currently anticipated that the
initial public offering price in the Offering will be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the proposed
Merger, each share of PDI&#146;s outstanding capital stock (the
&#147;Shares&#148;), other than those shares canceled in
accordance with the Merger Agreement or held by persons
exercising appraisal rights, will be converted into the right to
receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock, $.01 par value, of the Company
based on an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
PDI and the Company expect to complete the Merger simultaneously
with the consummation of the Offering.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PDI has already
received the requisite shareholder consent to approve the Merger
under the California General Corporation Law (the
&#147;CGCL&#148;). As a stockholder of record of PDI, you are
entitled to dissenter&#146;s rights under Chapter&nbsp;13 of the
CGCL. The procedures for exercising these rights are explained
on page&nbsp;[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;] of this Prospectus.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this
offering, there has been no public market for our common stock.
We intend to apply for listing of our Class&nbsp;A common stock
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;under
the symbol
&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.&#148;
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><B>See
&#147;Risk Factors&#148; beginning on page&nbsp;11 to read about
factors you should consider before buying shares of our
Class&nbsp;A common stock.</B>

<P align="left">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><FONT size="2">Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.</FONT></B>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is expected that
the conversion of Shares into Common Stock will occur
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="center">
<B><FONT size="2">The Conversion</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Merger is being consummated in connection
with our initial public offering and pursuant to the Separation
Agreement between us and DreamWorks Studios. DreamWorks Studios,
the owner
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the common stock of PDI and in its capacity as a majority
shareholder, has approved the Merger Agreement. See
&#147;Related Party Agreements&nbsp;&#151; Separation
Agreement.&#148; In the Merger, shareholders of record of PDI
will
receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock in exchange for each share of
PDI common stock. In accordance with Section&nbsp;13 of the
CGCL, shareholders electing not to exchange their PDI shares for
our Class&nbsp;A common stock are entitled to receive
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share for each share of PDI common stock, an amount determined
by us to represent their fair market value. See &#147;The PDI
Merger.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Common stock outstanding immediately after this
    Merger:
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(1)(2)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(3)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;C
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares<SUP>(4)</SUP>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Use of Proceeds
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We will not receive any proceeds from the
    conversion of the Shares into our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Dividend Policy
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We do not anticipate paying any dividends on our
    common stock in the foreseeable future.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Voting Rights
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">In general, the Class&nbsp;A, Class&nbsp;B and
    Class&nbsp;C are substantially identical on all matters. In
    addition, each class of stock has the following characteristics.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15
    votes per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;C
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors. In addition, the right to elect one director voting
    as a separate class.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Proposed Trading Symbol
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Risk Factors
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">See &#147;Risk Factors&#148; beginning on
    page&nbsp;11 of this prospectus for a discussion of factors that
    you should carefully consider before deciding to invest in
    shares of our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents the number of shares of our
    Class&nbsp;A common stock that would be required to convert all
    of
    the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock of PDI that are not held by DreamWorks Studios,
    assuming that the initial public offering price in the Offering
    is
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
    Stockholders of PDI (other than DreamWorks Studios) have
    dissenter&#146;s rights under Section&nbsp;13 of the CGCL. To
    the extent these rights are exercised, the number of shares of
    our Class&nbsp;A common stock required in the conversion would
    decrease.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not include any of the options that were
    issued and outstanding as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004, under our 2004 Equity Compensation Plan to purchase a
    total
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock at a weighted average exercise
    price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock available for future issuance of
    options and restricted stock under our 2004 Equity Compensation
    Plan.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, DreamWorks Studios will
    hold &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares,
    Holdco will
    own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    and entities controlled by each of Jeffrey Katzenberg and David
    Geffen will hold one share.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be held by Vulcan.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">6
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="left">
<FONT size="2">from taking advantage of certain corporate
opportunities. See &#147;Description of Capital
Stock&nbsp;&#151; Corporate Opportunities.&#148; So long as
Jeffrey Katzenberg, David Geffen, or entities controlled by
them, and DreamWorks Studios continue to collectively own shares
of our Class&nbsp;B common stock with significant voting power,
Jeffrey Katzenberg and David Geffen, or entities controlled by
them, will continue to collectively be able to strongly
influence or effectively control our decisions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under certain circumstances, Jeffrey Katzenberg
and David Geffen, or entities controlled by them, could cease to
have a majority of the voting control of our common stock, in
which case other significant stockholders may be able to
strongly influence or effectively control our decisions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, pursuant to the tax agreement that
we expect to enter into with Vulcan in connection with our
separation from DreamWorks Studios, future income taxes to
various tax authorities may be reduced as a result of the
partial increase in the tax basis of our tangible and intangible
assets. We will be required to pay to Vulcan a portion of the
amounts by which income taxes are actually reduced, subject to
repayment provisions if it is determined that these tax savings
should not have been available to us. As a result, the interests
of Vulcan and the holders of our Class&nbsp;A common stock could
differ.
</FONT>

<P align="left">
<B><FONT size="2">You will experience immediate and substantial
dilution as a result of the conversion.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior investors have paid substantially less per
share for our common stock than the assumed initial public
offering price in the Offering, and the initial public offering
price will be the basis on which your shares of PDI common stock
will be converted into shares of our Class&nbsp;A common stock.
Accordingly, if you do not exercise your dissenter&#146;s rights
under Section&nbsp;B of the CGCL, the common stock you receive
in as a result of the conversion will result in immediate and
substantial dilution of your investment. Based upon the issuance
and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of common stock by us at an assumed initial public
offering price of $&nbsp;&nbsp;&nbsp;per share in the Offering
(the midpoint of the price range set forth on the cover page of
the IPO Prospectus), you will incur immediate dilution of
approximately $&nbsp;&nbsp;in the net tangible book value per
share pursuant to the conversion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also have
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
stock options to purchase common stock with exercise prices that
are below the assumed initial public offering price of the
common stock. To the extent that these options are exercised,
there will be further dilution.
</FONT>

<P align="left">
<B><FONT size="2">Anti-takeover provisions of our charter and
by-laws, as well as Delaware law may reduce the likelihood of
any potential change of control or unsolicited acquisition
proposal that you might consider favorable.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The anti-takeover provisions of Delaware law
impose various impediments to the ability of a third-party to
acquire control of us, even if a change in control would be
beneficial to our existing stockholders. Additionally,
provisions of our charter and by-laws could deter, delay or
prevent a third-party from acquiring us, even if doing so would
benefit our stockholders. These provisions include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the division of our capital stock into
    Class&nbsp;A common stock and Class&nbsp;C common stock, each
    entitled to one vote per share, and Class&nbsp;B common stock,
    entitled to 15&nbsp;votes per share, all of which will initially
    be owned or controlled by Jeffrey Katzenberg, David Geffen,
    Holdco and DreamWorks Studios;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the right of the holder of Class&nbsp;C common
    stock (voting as a separate class) to elect one director;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the authority of the board to issue preferred
    stock with terms as the board may determine;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the prohibition of cumulative voting in the
    election of directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">following such time as the outstanding shares of
    Class&nbsp;B common stock cease to represent a majority of the
    combined voting power of the voting stock, prohibition on
    stockholder action by written consent;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limitations on who may call special meetings of
    stockholders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advance notice requirements for stockholder
    proposals;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">following such time as the outstanding shares of
    Class&nbsp;B common stock cease to represent a majority of the
    combined voting power of the voting stock, super-majority voting
    requirements for stockholders to amend the by-laws;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">stockholder super-majority voting requirements to
    amend certain provisions of the charter.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">23
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<DIV align="left">
<FONT size="2"> <A name='104'></A>
</FONT>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not receive any cash proceeds from the
conversion of the Shares into our Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that we will receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in net proceeds from the sale of Class&nbsp;A common stock in
the Offering, assuming an initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range set forth on the cover page of
the IPO Prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses and assuming no
exercise of the underwriters&#146; over-allotment option.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to retain approximately
$175&nbsp;million of the net proceeds of the Class&nbsp;A common
stock offered by us for general corporate and working capital
purposes, including possible acquisitions, joint ventures and
investments. In addition, we will use the remaining net proceeds
to repay all or a portion of the indebtedness that we intend to
assume from DreamWorks Studios in connection with our
separation, which we expect will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
We expect that the debt that we assume will have a maturity date
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
bear an interest rate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;basis
points above LIBOR. We have no current agreements or commitments
with respect to any potential acquisitions, joint ventures or
investments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not receive any of the proceeds from the
sale of shares of our Class&nbsp;A common stock in the Offering
by the selling stockholders.
</FONT>

<P align="center"><FONT size="2">25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">[Concurrent Conversion-Alternative
Page]</FONT></B>

<DIV align="left">
<A name='105'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently intend to retain all our earnings to
finance the growth and development of our business. We do not
anticipate paying any dividends on our common stock in the
foreseeable future. Any future change in our dividend policy
will be made at the discretion of our board of directors and
will depend on contractual restrictions contained in our credit
facility or other agreements, our results of operations,
earnings, capital requirements and other factors considered
relevant by our board of directors.
</FONT>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Your interest in our Class&nbsp;A common stock
will be diluted to the extent of the difference between the
initial public offering price per share of our Class&nbsp;A
common stock in the Offering and the net tangible book value per
share of our common stock after the Offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided
by the number of shares of common stock then outstanding. Our
net tangible book value as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 was approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or approximately $&nbsp;&nbsp;&nbsp;per share based
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding as of such date. After giving effect
to our sale of shares of Class&nbsp;A common stock in the
Offering and the conversion of shares pursuant to the Merger at
the initial public offering price of $&nbsp;&nbsp;&nbsp;per
share (the midpoint of the price range set forth on the cover
page of the IPO prospectus), and after deducting estimated
underwriting discounts and estimated offering expenses, our net
tangible book value as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 would have been
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
or $&nbsp;&nbsp;&nbsp;per share of common stock (assuming no
exercise of the underwriters&#146; over-allotment option). This
represents an immediate increase in the net tangible book value
of $&nbsp;&nbsp;&nbsp;per share to existing common stockholders
and an immediate and substantial dilution of
$&nbsp;&nbsp;&nbsp;per share to new stockholders receiving
common stock in the Offering and the conversion. Tangible assets
consist of trade receivables, receivables due from DreamWorks
Studios, film inventories, property, plant and equipment and
other tangible assets of $&nbsp;&nbsp;&nbsp;million, which
include non-trade receivables of $&nbsp;&nbsp;&nbsp;million
included in other current assets and investments of
$&nbsp;&nbsp;&nbsp;million included in other assets. The
following table illustrates this dilution per share:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumed initial public offering price per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value per share as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in net tangible book value per share
    attributable to the Offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value per share after giving
    effect to the Offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution per share to new holders of Class&nbsp;A
    Common Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The foregoing discussion and tables assume no
exercise of outstanding stock options. As
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004, there were options outstanding to purchase a total
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock at a weighted average exercise
price of $&nbsp;&nbsp;&nbsp;per share. To the extent that any of
these options are exercised, there may be further dilution to
new investors.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "[Concurrent Conversion -- Alternative Page] CAPITALIZATION" -->

<P align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>

<P align="center">
<B><FONT size="2">CAPITALIZATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth, as of
March&nbsp;31, 2004, (a)&nbsp;our historical capitalization and
(b)&nbsp;our pro forma as adjusted capitalization, which gives
effect to our issuance and sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock offered hereby (at an assumed
initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the midpoint of the range of the initial public offering
price set forth on the cover page of the IPO Prospectus, and
after deducting the underwriting discount and estimated expenses
of the offering and assuming no exercise of the
underwriters&#146; over-allotment option) and the application of
the net proceeds of the Offering as described under the heading
&#147;Use of Proceeds.&#148;
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of March&nbsp;31, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Obligations under capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt allocated by DreamWorks Studios
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Owner&#146;s equity (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock, par value
    $.01&nbsp;per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;B common stock, par value
    $.01&nbsp;per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;C common stock, par value $.01 per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding, pro forma as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; and owner&#146;s equity
    (deficiency)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not include (a)&nbsp;options issued under
    our 2004 Equity Compensation Plan
    for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock with a weighted average exercise
    price
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share, and
    (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock reserved for issuance under our
    2004 Equity Compensation Plan under which options
    for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock will be issued on the date hereof at the
    offering price set forth on the cover page of the IPO Prospectus.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">27
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="center">
<B><FONT size="2">THE PDI MERGER</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">PDI is a subsidiary of DreamWorks Studios and
will become a subsidiary of the Company after the separation. As
of July&nbsp;19, 2004, DreamWorks Studios owned 91.9% of the
common stock issued and outstanding of PDI. In connection with
our initial public offering, the Board of Directors of PDI has
determined that it is in the best interests of PDI and its
shareholders to consummate the Merger.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The Merger.</FONT></I><FONT size="2"> In order
to combine PDI&#146;s business with ours, PDI has entered into
the Merger Agreement with us which provides for the merger of
DWA Acquisition Corp. with and into PDI with PDI being the
surviving corporation and becoming our wholly owned subsidiary.
The Merger Agreement provides that upon consummation of the
Merger:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each outstanding share of DWA Acquisition
    Corp.&#146;s capital stock shall be converted into and become
    one fully paid and nonassessable share of PDI common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All shares of PDI common stock that are owned by
    PDI (as treasury stock), us or DWA Acquisition Corp. shall be
    cancelled and retired with no consideration delivered in
    exchange;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each issued and outstanding share of PDI common
    stock, other than shares cancelled and retired as described
    above and shares, if any, held by persons exercising
    dissenters&#146; rights, will be converted into the right to
    receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Approval of the Merger Agreement and the
Articles Amendment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Consents Required by Applicable Law and the
Articles of Incorporation.</FONT></I><FONT size="2"> The CGCL
and our Articles of Incorporation require that in order to
consummate the Merger, the principal terms of the Merger
Agreement must be approved by more than 50% of the outstanding
shares of PDI&#146;s common stock. PDI has already received the
requisite shareholder consent to approve the Merger under the
CGCL and the Articles of Incorporation.
</FONT>

<P align="left">
<B><FONT size="2">Fairness Opinion</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Section&nbsp;1203 of the CGCL, the Board of
Directors of PDI is required to deliver to the shareholders of
PDI an affirmative opinion as to the fairness of the
consideration to the shareholders of PDI (the &#147;Fairness
Opinion&#148;). The Fairness Opinion will be delivered under
separate cover.
</FONT>

<P align="left">
<B><FONT size="2">California Dissenters&#146; Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A brief description of the procedure that you
must follow if you wish to exercise your dissenter&#146;s rights
under the CGCL is set forth below. <B>Please note that the
description set forth below is only a summary, does not purport
to be complete and is qualified in its entirety by
Sections&nbsp;1300, 1301, 1302, 1303 and 1304 of the CGCL.</B>
</FONT>

<P align="center"><FONT size="2">95
</FONT>
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<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;If you wish to exercise your
dissenter&#146;s rights under the CGCL, you must deliver to PDI
a written demand for purchase of your Shares at the following
address:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Pacific Data Images, Inc.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">c/o&nbsp;DreamWorks Animation
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">1000&nbsp;Flower Street
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Glendale, California 91201
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Attention: Katherine Kendrick
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The demand must be received by PDI within thirty
(30)&nbsp;days after the mailing of this notice. The demand must
include a statement of the price that you claim is the fair
market value of the Shares as of the day before the announcement
of the proposed merger, along with the number and class of the
Shares. For purposes of the CGCL, PDI has determined that
$&nbsp;represents the fair market value of each share of common
stock of PDI as of the day before the first announcement of the
terms of the proposed merger, excluding any appreciation or
depreciation in consequence of the proposed merger, but adjusted
for any stock split, reverse stock split or share dividend that
becomes effective thereafter. You must deliver your share
certificate to PDI within the same thirty (30)&nbsp;day period
described above, so that that the certificate may be stamped as
representing dissenting shares and returned to you.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;If we do not agree on the price per
Share, you must file suit in court for a determination of the
price. You must file this suit within six (6)&nbsp;months after
this notice was mailed. In certain cases, PDI can be required to
pay your attorney and appraiser fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(3)&nbsp;If we agree on the price per Share or if
a price is fixed by a court, you must surrender the certificates
representing your Shares in order to receive payment of the
price.
</FONT>

<P align="left">
<B><FONT size="2">Contact Information for Questions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you have any questions about the proposed
merger or the information contained in this notice, please
contact our outside
attorney, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;at &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</FONT>

<P align="center"><FONT size="2">96
</FONT>

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<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="center">
<B><FONT size="2">CERTAIN UNITED STATES FEDERAL INCOME
TAX</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSEQUENCES OF THE PDI MERGER</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This section describes the material U.S. federal
income tax consequences associated with the exchange of PDI
common stock for shares of Class&nbsp;A common stock pursuant to
the Merger. This section only applies to you if you are an
individual who is treated as a U.S. citizen or resident of the
United States for U.S. federal income tax purposes, your PDI
common stock is fully vested, you hold your PDI common stock as
a &#147;capital asset&#148; and you are not subject to any
special U.S. federal income tax rules. <B>We encourage you to
consult your own tax advisor concerning the tax consequences of
the Merger and your ownership of shares of Class&nbsp;A common
stock, including any federal, state, local, gift and estate tax
consequences and non-U.S. tax consequences, in light of your
particular circumstances.</B>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Conversion of PDI common stock into shares of
Class&nbsp;A common stock pursuant to the Merger will not be
treated as a taxable event for U.S. federal income tax purposes.
Accordingly, a holder of PDI common stock will not recognize any
income, gain or loss for U.S. federal income tax purposes in
connection with his or her conversion of PDI common stock for
shares of our Class&nbsp;A common stock pursuant to the Merger.
In addition, any such PDI common stockholder will have the same
tax basis and holding period in the shares of Class&nbsp;A
common stock received pursuant to the Merger as he or she had in
the PDI common stock surrendered therefor, as measured
immediately before the exchange.
</FONT>

<P align="center"><FONT size="2">99
</FONT>

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<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<P align="center">
<B><FONT size="2">DESCRIPTION OF PDI CAPITAL STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">PDI is a California corporation incorporated in
August 1980. PDI&#146;s business is conducted through its
subsidiary, Pacific Data Images, LLC, a Delaware limited
liability company (&#147;PDI LLC&#148;). In April, 1997,
DreamWorks Studios and PDI formed a joint venture, Pacific Data
Images, LLC (&#147;PDI LLC&#148;) that was initially 60% owned
by PDI and 40% owned by DreamWorks Studios. In April 2000,
DreamWorks Studios acquired approximately 86.3% of the
outstanding common stock of PDI. As of July&nbsp;19, 2004,
DreamWorks Studios owned approximately 91.9% of the outstanding
common stock of PDI (75.2% fully diluted) and the remaining
common stock was owned by current and former employees of PDI.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">PDI is authorized to issue one class of shares
designated Common Stock in the aggregate amount of
30,000,000&nbsp;shares. As of July 2004, 11,326,243&nbsp;shares
of PDI common stock are issued and outstanding. PDI has no other
capital authorized, issued or outstanding.
</FONT>

<P align="center">
<B><FONT size="2">PLAN OF DISTRIBUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because the merger of PDI with and into DWA
Acquisition Corp. will result in holders of PDI common stock
(other than DreamWorks Studios and persons exercising
dissenter&#146;s rights) automatically receiving the right to
receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock, the transaction will not be
underwritten.
</FONT>

<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of our common stock to be issued in
connection with the Merger will be passed upon for us by
Cravath, Swaine&nbsp;&#38; Moore LLP, New York, New York.
Cravath, Swaine&nbsp;&#38; Moore LLP has acted as counsel to
DreamWorks Studios from time to time in certain matters.
</FONT>

<DIV align="left">
<A name='121'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ernst&nbsp;&#38; Young LLP, independent
registered public accounting firm, have audited our combined
financial statements at December&nbsp;31, 2002 and 2003, and for
each of the three years in the period ended December&nbsp;31,
2003, as set forth in their report. We have included our
combined financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst&nbsp;&#38; Young
LLP&#146;s report, given on their authority as experts in
accounting and auditing.
</FONT>

<DIV align="left">
<A name='122'></A>
</DIV>

<!-- link1 "ADDITIONAL INFORMATION" -->

<P align="center">
<B><FONT size="2">ADDITIONAL INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not previously been subject to the
reporting requirements of the Securities Exchange Act of 1934,
as amended. We filed with the Securities and Exchange Commission
(the &#147;Commission&#148;) a registration statement on
Form&nbsp;S-1 (the &#147;Registration Statement&#148;) under the
Securities Act, with respect to the offer and sale of common
stock pursuant to the IPO prospectus and the conversion of PDI
common stock into our Class&nbsp;A common stock pursuant to the
Merger. This prospectus, filed as a part of the registration
statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules thereto
in accordance with the rules and regulations of the Commission
and no reference is hereby made to such omitted information.
Statements made in this prospectus concerning the contents of
any contract, agreement or other document filed as an exhibit to
the registration statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more
complete description of the matters involved and such statements
shall be deemed qualified in their entirety by such reference.
The registration statement and the exhibits and schedules
thereto filed with the Commission may be inspected, without
charge, and copies may be obtained at prescribed rates, at the
public reference facility maintained by the Commission at its
principal office at Judiciary Plaza, 450&nbsp;Fifth Street,
N.W., Washington,&nbsp;D.C. 20549 and at the regional offices of
the Commission located at 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. The Commission also maintains a
website (http://www.sec.gov) that contains reports, proxy and
information statements and other information
</FONT>

<P align="center"><FONT size="2">100
</FONT>

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<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<DIV align="left">
<FONT size="2">regarding registrants that file electronically
with the Commission. For further information pertaining to the
common stock offered by this prospectus and DreamWorks
Animation, Inc. reference is made to the registration statement.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon completion of this offering, we will become
subject to the information and periodic reporting requirements
of the Securities and Exchange Act and will file periodic
reports and other information with the Commission. These
periodic reports and other information will be available for
inspection and copying at the Commission&#146;s public reference
facilities and the web site of the Commission referred to above.
</FONT>

<P align="center"><FONT size="2">101
</FONT>
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<P><HR size="5" noshade><P>

<DIV align="center">
<B><FONT size="2">[Concurrent Conversion&nbsp;&#151; Alternative
Page]</FONT></B>
</DIV>

<P><HR size="5" noshade><P>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

<P align="center">
<FONT size="4">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</FONT>

<P align="center">
<FONT size="4">Class&nbsp;A Common Stock
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<FONT size="4">(LOGO TO COME)
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B>PROSPECTUS</B>

<P align="center">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, common shares
only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common shares.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
action is being taken in any jurisdiction outside the United
States to permit a public offering of the common shares or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
and
including &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers&#146; obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
</FONT>

<P align="center">
<HR size="1" width="100%" align="center" noshade>

<DIV align="center">
<HR size="1" width="100%" align="center" noshade>
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION NOT REQUIRED IN
PROSPECTUS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;13.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Other Expenses of Issuance and
    Distribution.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the expenses
(other than underwriting compensation expected to be incurred)
in connection with this offering. All of such amounts (except
the SEC registration fee and the NASD filing fee) are estimated.
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SEC registration fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Listing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NASD filing fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Blue Sky fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing and engraving costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer Agent and Registrar fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;14.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Indemnification of Directors and
    Officers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our By-Laws provide that we shall, subject to the
limitations contained in the Delaware General Corporation Law,
as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the Underwriting Agreement, to be filed as Exhibit&nbsp;1,
provides that the Underwriters named therein will indemnify us
and hold us harmless and each of our directors, officers or
controlling persons from and against certain liabilities,
including liabilities under the Securities Act.
Section &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the Underwriting Agreement also provides that such Underwriters
will contribute to certain liabilities of such persons under the
Securities Act.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were incorporated under the laws of the State
of Delaware under the name DreamWorks Animation, Inc. on
July&nbsp;13, 2004. We issued 1,000&nbsp;shares of our common
stock, par value $0.01&nbsp;per share, to DreamWorks L.L.C. in
consideration of a capital contribution of $10.00 by DreamWorks
L.L.C. That issuance was exempt from registration under the
Securities Act of 1933, as amended, pursuant to
Section&nbsp;4(2) thereof because such issuance did not involve
any public offering of securities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;16.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits and Financial Statement
    Schedules.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Exhibits
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Underwriting Agreement.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Certificate of Incorporation of
    DreamWorks Animation, Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">By-laws of DreamWorks Animation, Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Cravath, Swaine&nbsp;&#38; Moore LLP.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">2004 Equity Compensation Plan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Separation Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation L.L.C., DW Funding LLC and
    DreamWorks L.L.C.*
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Escrow and Distribution Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation L.L.C. and the stockholders
    named therein.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Class&nbsp;B Stockholder Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 among DreamWorks L.L.C., Holdco, M&#38;J&nbsp;K Dream
    Limited Partnership and DG-DW, L.P.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vulcan Stockholder Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 among DreamWorks L.L.C., Holdco, M&#38;J&nbsp;K Dream
    Limited Partnership, DG-DW, L.P. and Vulcan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and the stockholders
    named therein.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Distribution Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Services Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Trademark License and Assignment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Glendale Lease Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Tax Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and Vulcan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Jeffrey Katzenberg.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Roger Enrico.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Ann Daly.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Kathrine Kendrick.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Kristina M. Leslie.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and David Geffen.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Steven Spielberg.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">List of subsidiaries of DreamWorks Animation,
    Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Ernst&nbsp;&#38; Young LLP.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Cravath, Swaine&nbsp;&#38; Moore LLP
    (contained in Exhibit&nbsp;5).*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">27</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Financial Data Schedule(b).*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Paul Allen to be named as director
    nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Lewis W. Coleman to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Roger A. Enrico to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of David Geffen to be named as director
    nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Jeffrey Katzenberg to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Nathan Myhrvold to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Howard Schultz to be named as director
    nominee.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;*&nbsp;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">(b)&nbsp;Financial Statement Schedules.
</FONT>

<P align="center"><FONT size="2">II-2
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statement schedules are omitted
because they are inapplicable or the requested information is
shown in the consolidated financial statements of DreamWorks
Animation, Inc. or related notes thereto.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;17.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Undertakings</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The undersigned registrant hereby undertakes as
follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;The undersigned will provide to the
    Underwriters at the closing specified in the Underwriting
    Agreement certificates in such denominations and registered in
    such names as required by the underwriters to permit prompt
    delivery to each purchaser.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;For purposes of determining any
    liability under the Securities Act, the information omitted from
    the form of prospectus filed as part of this registration
    statement in reliance on Rule&nbsp;430A and contained in a form
    of prospectus filed by the registrant pursuant to
    Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it is declared effective.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the provisions described in Item&nbsp;14 or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
</FONT>

<P align="center"><FONT size="2">II-3
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Los Angeles the State of
California, on the 20th day of July, 2004
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">DREAMWORKS ANIMATION, INC.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="center">
    <FONT size="2">/s/ JEFFREY KATZENBERG
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jeffrey
    Katzenberg
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Title:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;President
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signature</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JEFFREY KATZENBERG<BR>
    <HR size="1" noshade>Jeffrey Katzenberg
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">President and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July 20, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ KATHERINE KENDRICK<BR>
    <HR size="1" noshade>Katherine Kendrick
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Vice President, General Counsel and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July 20, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ KRISTINA M. LESLIE<BR>
    <HR size="1" noshade>Kristina M. Leslie
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Financial Officer, Chief Accounting Officer
    and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July 20, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-4
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">Exhibit Index</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="80%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Underwriting Agreement.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Certificate of Incorporation of
    DreamWorks Animation, Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">By-laws of DreamWorks Animation, Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Cravath, Swaine&nbsp;&#38; Moore LLP.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">2004 Equity Compensation Plan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Separation Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation L.L.C., DW Funding LLC and
    DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Escrow and Distribution Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation L.L.C. and the stockholders
    named therein.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Class&nbsp;B Stockholder Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 among DreamWorks L.L.C., Holdco, M&#38;J&nbsp;K Dream
    Limited Partnership and DG-DW, L.P.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vulcan Stockholder Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 among DreamWorks L.L.C., Holdco, M&#38;J&nbsp;K Dream
    Limited Partnership, DG-DW, L.P. and Vulcan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and the stockholders
    named therein.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Distribution Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Services Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Trademark License and Assignment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Glendale Lease Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Tax Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation Inc. and Vulcan.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Jeffrey Katzenberg.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Roger Enrico.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Ann Daly.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Kathrine Kendrick.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2004 between DreamWorks Animation, Inc. and Kristina M. Leslie.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and David Geffen.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;between
    DreamWorks Animation Inc. and Steven Spielberg.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">List of subsidiaries of DreamWorks Animation,
    Inc.*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Ernst&nbsp;&#38; Young LLP.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Cravath, Swaine&nbsp;&#38; Moore LLP
    (contained in Exhibit&nbsp;5).*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">27</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Financial Data Schedule(b).*
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Paul Allen to be named as director
    nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Lewis W. Coleman to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Roger A. Enrico to be named as
    director nominee.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of David Geffen to be named as director
    nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Jeffrey Katzenberg to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Nathan Myhrvold to be named as
    director nominee.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">99</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Howard Schultz to be named as director
    nominee.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;*&nbsp;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">(b)&nbsp;Financial Statement Schedules.
</FONT>
</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y98977sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1239462}]
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FORM S-1
Table of Contents
As filed with the Securities and Exchange
Commission on July 21, 2004
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DREAMWORKS ANIMATION, INC.
(Exact name of registrant as specified in its
charter)
Delaware
7812
68-0589190
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer Identification No.)
1000 Flower Street
Glendale, CA 91201
(818) 695-5000
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
Jeffrey Katzenberg
Chief Executive Officer
DreamWorks Animation, Inc.
1000 Flower Street
Glendale, California 91201
(818) 695-5000
(Name and address, including zip code, and
telephone number, including area code, of agent for
service)
Copies to:
Faiza J. Saeed, Esq.
John W. White, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
Fax: (212) 474-3700
Katherine Kendrick, Esq.
DreamWorks Animation, Inc.
1000 Flower Street
Glendale, California 91201
(818) 695-5000
Michael D. Nathan, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
Fax: (212) 455-2502
Approximate date of commencement of proposed sale
to the public: As soon as practicable after the effective date
of this Registration Statement.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering.
o
If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Proposed Maximum Aggregate
Amount of
Securities to be Registered
Offering Price(1)(2)
Registration Fee
Class A Common Stock, par value
    $.01 per share
$650,000,000
$82,355
(1)
Includes shares to be sold upon exercise of the
    underwriters' over-allotment option. See
    "Underwriting."
(2)
Estimated solely for the purposes of calculating
    the registration fee pursuant to Rule 457(o) of
    Regulation C under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as
the commission acting pursuant to said Section 8(a), may
determine.
Table of Contents
EXPLANATORY NOTE
This registration statement contains two forms of
prospectus: one to be used in connection with an underwritten
public offering in the United States and Canada (the "IPO
Prospectus") and one to be used in a concurrent conversion
(the "Concurrent Conversion") of the common stock held
by minority stockholders of one of our subsidiaries into shares
of our Class A common stock, which will not be
underwritten. The two prospectuses are identical except for the
front and back pages and certain additional pages for use in the
prospectus relating to the Concurrent Conversion. The form of
IPO Prospectus is included herein and is followed by the
alternative pages to be used in the prospectus related to the
Concurrent Conversion. Each of the alternative pages for the
prospectus used in the Concurrent Conversion is labeled
"Concurrent Conversion — Alternative Page."
Final forms of each prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b) under the
Securities Act of 1933.
Table of Contents
The information in this
preliminary prospectus is not complete and may be changed. We
may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
Subject to Completion. Dated July 21, 2004.
Shares
[LOGO]
DreamWorks Animation, Inc.
Class A Common Stock
This is an initial
public offering of Class A common stock of DreamWorks
Animation, Inc. We are
offering                     of
the shares to be sold in the offering. The selling stockholders
named in this prospectus are offering an
additional                      shares.
We will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholders.
Our Class A
common stock, Class B common stock and Class C common
stock vote as a single class on all matters, except as otherwise
provided in our restated certificate of incorporation or as
required by law, with each share of Class A common stock
entitling its holder to one vote, each share of Class B
common stock entitling its holder to fifteen votes and each
share of Class C common stock entitling its holder to one
vote.
Prior to this
offering, there has been no public market for our common stock.
It is currently estimated that the initial public offering price
will be between
$          and
$           per
share. We intend to apply for listing of our Class A common
stock
on                     under
the symbol
"                    ."
See "Risk
Factors" beginning on page 11 to read about factors
you should consider before buying shares of our Class A
common stock.
Neither the Securities and Exchange Commission
nor any other regulatory body has approved or disapproved of
these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
Underwriting
Proceeds to
Price to
Discounts and
Proceeds
the Selling
Public
Commissions
to Us
Stockholders
Per Share
$
$
$
$
Total
$
$
$
$
To the extent the
underwriters sell more
than                      shares
of common stock, the underwriters have an option to purchase up
to an
additional                     shares
of Class A common stock from us and the selling
stockholders at the initial public offering price less the
underwriting discount.
The underwriters
expect to deliver the shares against payment in New York, New
York
on                     ,
2004.
Goldman, Sachs & Co.
JPMorgan
Prospectus
dated                   ,
2004.
Table of Contents
[GRAPHICS TO COME]
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
11
Forward-Looking
    Statements
24
Use of Proceeds
25
Dividend Policy
26
Dilution
26
Capitalization
27
Unaudited Pro Forma
    Financial Information
28
Selected Financial Data
31
Management's Discussion
    and Analysis of Financial Condition and Results of Operations
33
Industry Overview
47
Business
54
Management
68
Related Party Agreements
77
Principal and Selling
    Stockholders
88
Description of Capital
    Stock
89
Shares Eligible for Future
    Sale
94
Material United States
    Federal Tax Consequences for Non-United States Stockholders
96
Underwriting
99
Legal Matters
102
Experts
102
Additional Information
102
Index to Financial
    Statements
F-1
CONSENT OF ERNST & YOUNG LLP
POWER OF ATTORNEY
CONSENT OF PAUL ALLEN
CONSENT OF LEWIS W. COLEMAN
CONSENT OF ROGER A. ENRICO
CONSENT OF DAVID GEFFEN
CONSENT OF JEFFREY KATZENBERG
CONSENT OF NATHAN MYHRVOLD
CONSENT OF HOWARD SCHULTZ
MARKET DATA
Market data used in this prospectus is based upon
our good faith estimates, which are based upon our review of
internal surveys, independent industry publications, and other
publicly available information, including data made publicly
available by the Motion Picture Association of America
("MPAA") and the industry trade publication Variety.
In particular, when we cite individual film box office receipts,
we have used data that has been made publicly available by
Variety. Although we believe that these sources are reliable, we
have not independently verified the information and cannot
guarantee its accuracy and completeness.
Throughout this prospectus, and in accordance
with industry practice, we use the term "domestic" to
refer to the United States, Canada, each of their respective
territories and possessions, The Bahamas and Bermuda. We use the
term "international" to refer to all territories
outside of the domestic territory, and the term
"worldwide" encompasses all territories —
both international and domestic.
Table of Contents
PROSPECTUS SUMMARY
The following is a summary of some of the
information contained in this prospectus. It may not contain all
the information that is important to you. To understand this
offering fully, you should read carefully the entire prospectus,
including the risk factors and the financial
statements.
We describe in this prospectus the business
that will be contributed to us by DreamWorks L.L.C.
("DreamWorks Studios") as part of our separation from
DreamWorks Studios as if it were our business for all purposes
for all periods described. Following the separation, we will be
a holding company with two operating subsidiaries. Please see
"Related Party Agreements — Separation
Agreement" for a description of the separation. Unless the
context otherwise requires, the terms "DreamWorks
Animation," the "Company," "we,"
"us" and "our" refer to DreamWorks
Animation, Inc., its predecessors in interest, and the
subsidiaries and assets and liabilities that will be contributed
to it by DreamWorks Studios. In addition, in connection with our
separation from DreamWorks Studios, we will enter into a
distribution agreement with DreamWorks Studios whereby
DreamWorks Studios will generally distribute all of our films.
Please see "Related Party Agreements —
Distribution Agreement" for a description of this
agreement. Our combined historical financial results as part of
DreamWorks Studios contained in this prospectus do not reflect
what our financial results will be in the future as a
stand-alone company or what our financial results would have
been had we been a stand-alone company during the periods
presented.
Business
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, we make high quality CG animated
films meant for a broad movie-going audience. We believe we
currently have more CG animated feature films in development and
production than any other animation studio. We employ a core
staff of artists, technology personnel and production staff who
have been creating, developing and applying CG techniques for
over 20 years. We have theatrically released a total of
eight animated feature films, three of which have been CG-only,
and one direct-to-video title. Our CG animated feature films
have achieved domestic box office success, with
Antz, Shrek
and
Shrek 2
grossing approximately
$90.2 million, $267.7 million and $425.0 million
(
Shrek 2's
results are through July 18,
2004), respectively, and collectively selling approximately
56 million home video units worldwide (
Shrek 2
is scheduled to be released on home video in November 2004).
Shrek 2
, which opened on May 18, 2004, was the
most widely distributed film ever in the domestic theatrical
market (playing in 4,223 theaters at its peak), achieved
the highest domestic box office gross of any animated film, had
the most successful three-day opening weekend of any animated
film and broke the single-day box office sales record for any
film by grossing $44.8 million. Our five non-CG animated
feature films have achieved total domestic box office receipts
of approximately $358.7 million and have sold approximately
44 million home video units worldwide. We believe our
experience, creative talent, scale of operations, technology and
animation proficiency enable us to release two high quality CG
animated feature films per year. We are scheduled to release our
second CG animated feature film for the year,
Shark Tale
,
into the domestic theatrical market on October 1, 2004. We
are in various stages of pre-production and production on five
additional feature films that we expect to release through 2006.
In addition, we have a substantial number of projects in
creative and story development that are expected to fill the
release schedule in 2007 and beyond.
Our feature films are the source of substantially
all of our revenue. We derive revenue from the worldwide
exploitation of our feature films in theaters and in markets
such as home video, pay and free broadcast television and
ancillary markets. We retain the exclusive copyright and other
intellectual property rights to all of our films and characters,
excluding Aardman Animation films and characters (some of which
we co-own), and we have access to an established distribution
and marketing network to fully exploit our films and characters
in theatrical, home video, television and ancillary markets
throughout the world. We have important strategic relationships
with retailers, promotional partners and licensees around the
world that significantly enhance consumer awareness of our films
and their revenue-producing potential. In addition to producing
feature films for theatrical release, we intend to develop and
produce CG animated films for initial
1
Table of Contents
distribution directly into the home entertainment
market ("direct-to-video films"). We have also
developed and are currently producing a CG animated television
series for NBC called
Father of the Pride
, which is
scheduled to air in primetime in the fall of 2004.
Prior to the consummation of this offering, we
will enter into a distribution agreement (the "Distribution
Agreement") with DreamWorks Studios. Under the terms of
that agreement, DreamWorks Studios will generally be responsible
for the distribution, marketing and servicing of all of our
completed animated films, including our previously released
films, and direct-to-video pictures. DreamWorks Studios
currently distributes, and we expect will continue to
distribute, our motion pictures in international theatrical
markets through distribution agreements with Universal Studios,
Inc. ("Universal Studios"), an industry leading
distributor and fulfillment services provider, Cheil Jedang
Corporation, and its affiliate CJ Entertainment, Inc.
(collectively "CJ Entertainment") (in Korea and the
People's Republic of China) and Kadokawa Entertainment Inc.
("Kadokawa Entertainment") (in Japan). DreamWorks
Studios has engaged Universal Studios to be our worldwide
principal fulfillment services provider for our home videos,
excluding only Korea and Japan, where CJ Entertainment and
Kadokawa Entertainment, respectively, will perform such
functions. The Distribution Agreement will cover the
distribution of our films and pictures in all media and markets
on a worldwide basis that are available for delivery through the
later of (i) delivery of 12 animated feature films,
beginning with
Shark Tale
, and
(ii) December 31, 2010. In general, the term of the
Distribution Agreement will be extended to the extent of the
term, if longer, of any of DreamWorks Studios'
sub-distribution, servicing and licensing agreements that cover
our films and that we pre-approve (such as DreamWorks
Studios' existing arrangements with Universal Studios,
Inc., CJ Entertainment and Kadokawa Entertainment). Even if we
terminate our distribution relationship with DreamWorks Studios,
our existing and future films generally will be subject to the
terms of those pre-approved agreements. We will retain the
copyrights and other intellectual property related to our films
and the right to directly exploit certain ancillary rights, such
as commercial tie-ins, and promotional, literary publishing,
music publishing, soundtrack, radio, legitimate stage and
merchandising rights. We believe our relationship with
DreamWorks Studios provides us with many advantages, including
the ability to create consumer awareness and demand for our
films through DreamWorks Studios' seasoned theatrical
marketing, distribution and home video teams. Please see
"Related Party Agreements — Distribution
Agreement" for a more detailed description of the
Distribution Agreement.
Our Strengths
We believe our competitive strengths to be as
follows:
•
Strong Management Team with a Successful Track
    Record.
Our creative and production
    management team, led by Jeffrey Katzenberg, consists of some of
    the most experienced individuals in the CG animation industry,
    with an average of over 12 years of experience in the
    animation field and 18 years in the entertainment industry.
    Mr. Katzenberg, as Chairman of The Walt Disney Studios, was
    one of the key architects responsible for building Disney's
    filmed entertainment business from approximately
    $245 million in revenue in 1984 to one that generated
    revenue exceeding $4.7 billion in 1994. Driving this
    tremendous growth was Disney's animated film division,
    which, under Mr. Katzenberg's leadership, produced
    such successful films as
The Lion King, Aladdin
and
Beauty and the Beast
. Mr. Katzenberg and his
    management team have led DreamWorks Studios' animation
    division since its formation and have overseen the successful
    release of a number of animated films, including
Antz, Shrek
and
Shrek 2
.
•
Creative and Experienced
    Talent.
Our producers, directors and
    production executives, many of whom are signed to long-term
    contracts, are among the most experienced in the CG animation
    industry, having produced, directed or otherwise overseen highly
    successful animated feature films such as
Shrek,
    Shrek 2, The Lion King, Toy Story, Beauty and the Beast
and
Aladdin.
Our dedicated artists, technology
    personnel and production staff, numbering approximately 1,000
    employees, are also among the most talented and creative in the
    industry. We emphasize the importance of quality scripts when
    considering film ideas, and generally engage proven
    screenwriters, comedians and other writers to develop and
    produce our storylines. In addition, these writers are deeply
    involved throughout the production process so that our story
    department and technical personnel can directly collaborate with
2
Table of Contents
the creative talent that develops a story.
    Finally, our commitment to investing in our people and
    technology helps ensure that our films continue to represent the
    cutting edge in CG animated filmmaking. We attract and retain
    our animators and creative and technical staff with competitive
    compensation packages and an artist friendly environment that
    emphasizes ongoing training in animation artistry and technology.
•
Strong and Adaptable Technology
    Foundation.
Our technology plays an
    important role in the production of our films. Our technology
    development staff has been responsible for many award-winning
    innovations that continue to advance the art of CG animated
    film-making. We also continue to innovate in the application of
    new technologies to the production process, which has enabled us
    to produce progressively richer and more visually sophisticated
    imagery in our films. Our focus on user interface and tool
    development enables our animators to adeptly use existing and
    emerging CG technologies, allowing us to maximize our artistic
    talent within a CG environment. In addition, we have strategic
    relationships with leading technology companies that allow us to
    leverage third-party advancements and technology innovation
    substantially before they are available to the open market,
    which gives us a valuable advantage in the rapidly changing
    landscape of technology.
•
Exclusive Ownership of Our Films and
    Characters.
We exclusively own the
    copyright and other property rights to all of our films and
    characters, including the animated films released prior to this
    offering, with the exception of certain films that we produce
    with Aardman Animations. Because of our exclusive ownership, we
    control the creative direction and the exploitation of our films
    and characters and retain the sole right to create sequels and
    other derivative products such as direct-to-video films and
    consumer products. We believe that our ability to control the
    continued exploitation of our properties is a competitive
    advantage and allows us to capitalize on an already existing
    audience base for our films.
•
Established Distribution and Promotion
    Infrastructure.
Our films have been
    distributed through DreamWorks Studios since we released our
    first film in 1998, and we and DreamWorks Studios have developed
    strong relationships with a host of prominent companies to help
    promote our films. In addition, DreamWorks Studios has worked
    with Universal Studios, the principal international theatrical
    distributor and principal home video fulfillment services
    provider of our films, since 1995. We believe our relationship
    with DreamWorks Studios and its international distributors and
    fulfillment services providers have created proven distribution
    channels and marketing networks for our films, particularly with
    respect to home video. In addition, we believe that our
    established merchandising and promotions group is among the most
    capable in the industry, with the ability to leverage our strong
    relationships with retailers and other consumer products
    companies to maximize the ways in which we promote and profit
    from our films.
Our Strategy
We intend to maintain our position as one of the
leading developers and producers of CG animated feature films.
To accomplish this goal, we are pursuing the major strategies
described below.
•
Focus on Maintaining Broad Audience Appeal for
    Our Films Through the Unique Identity of DreamWorks
    Animation.
We believe that DreamWorks
    has developed a unique identity that the public associates with
    innovative and popular movies such as the
Shrek
films. We
    intend to build on DreamWorks' brand recognition by
    continuing to make unique, high quality, CG animated films that
    have a sophisticated tone and visual style. We believe our style
    and our appeal to a broad-based audience of families, teens and
    adults set us apart from traditional animated films and film
    companies.
•
Use Our Existing Scale of Operations to
    Release Two CG Animated Feature Films Per
    Year.
We intend to release two
    CG animated feature films per year. We believe this exceeds
    the current production schedule of any other CG animation studio
    and allows us to leverage our infrastructure and spread overhead
    costs over a greater number of films than our current
    competitors. We believe that, although other studios may have
    the financial or technical capacity to match our output of two
    high-
3
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quality CG animated feature film releases per
    year, the time that it takes to develop and produce CG animated
    feature films makes it unlikely that any other studio will do so
    within the near future.
•
Use Star Talent to Increase Popular
    Appeal.
Our films feature the voice
    talent of some of the most celebrated actors in the
    entertainment industry. We believe that using the voices of
    today's top feature film and television actors in both
    domestic and international markets enhances our films as their
    unique voices and talent help bring our characters to life. We
    have strong relationships with our star talent. In addition to
    providing their voices in our films, these actors commit to
    promoting our films for both theatrical and home video release.
    We believe this commitment enhances the event status of each
    release and increases consumer awareness of the film.
•
Take Advantage of Franchise
    Opportunities.
We intend to take
    advantage of our ownership rights and the broad marketability of
    animated films to create franchise films and characters that can
    generate prequels, sequels and other derivative works and
    licensing opportunities in several different markets, including
    theme park attractions, stage plays, interactive games and the
    direct-to-video market. We believe the direct-to-video market,
    in particular, is receptive to animated films, especially in
    expanding characters that have become part of popular culture.
    We expect the production costs associated with direct-to-video
    titles will be significantly less than those associated with our
    animated feature films. We believe the relatively low costs of
    producing direct-to-video titles, and the significant unit
    volumes generated by even moderately successful titles, support
    an economic model that can generate meaningful profits for us.
•
Continue Developing Superior CG Animation
    Skills.
We believe we are at the
    forefront of technical achievement in CG animated filmmaking due
    to the collaboration and artistic skills of our artists,
    technology personnel and production staff and because we have
    built a user-friendly production environment that allows our
    artists and animators to fully exploit the complex technologies
    used in CG animated filmmaking. We have invested, and will
    continue to dedicate, significant resources in the proper
    training and support of our creative staff. Because of our
    training efforts and the flexibility of our production
    environment, we were able to re-train over 140 world-class
    animators who specialized in hand-drawn cel animation to become
    highly proficient with CG animation techniques. In addition, we
    intend to continue to invest in our technology to ensure that,
    from an artistic and technical perspective, our films remain
    state-of-the-art in CG animated filmmaking.
•
Maximize the Success of Our Films Through
    Promotional Partnerships.
We have
    developed strong relationships with a number of well-known
    retailers and consumer products companies throughout the world
    that help us promote our films in many valuable ways. We believe
    these promotional campaigns have been very successful and have
    resulted in increased movie theater attendance, greater home
    video sales and other consumer product sales. We intend to
    continue developing new relationships with prominent companies
    and to continue utilizing existing relationships to ensure
    maximum consumer awareness for our films.
The Company
Our principal executive offices are located at
1000 Flower Street, Glendale, CA 91201-3007. Our telephone
number is (818) 695-5000. Our World Wide Web site address
is
http://www.                    .com.
Information contained on our website or that can be accessed
through our website is not incorporated by reference in this
prospectus. You should not consider information contained on our
website or that can be accessed through our website to be part
of this prospectus.
In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Entities controlled by Paul Allen
(collectively, "Vulcan"), entities controlled by
Steven Spielberg, Jeffrey Katzenberg and David Geffen and all of
the other members of DreamWorks Studios who so elect will
contribute their shares of our common stock not sold in this
offering to a newly formed limited liability limited
partnership, which we refer to in this prospectus as
"Holdco." Upon the satisfaction of certain conditions,
Holdco will cause appropriate actions to be taken for the sale
of a portion
4
Table of Contents
of such shares in one or more public follow-on
offerings. Holdco will subsequently distribute all the remaining
shares of common stock it holds to the members of DreamWorks
Studios who have contributed their shares to Holdco as described
in "Related Party Agreements — Escrow and
Distribution Arrangement." Our common stock is divided into
three classes, which are identical and generally vote together
on all matters, except that the Class A common stock and
the Class C common stock each carry one vote per share,
whereas the Class B common stock carries 15 votes per
share. In addition, the Class C common stock has the right
to elect one director, voting separately as a class. During the
period that Holdco owns shares of our common stock, the shares
will be held in the form of Class B common stock and will
be voted by Jeffrey Katzenberg and David Geffen or entities
controlled by them (except in the event of a class vote of the
Class A common stock, in which case the shares will be
voted by the participating DreamWorks Studios members as if they
had not contributed their shares to Holdco and had received
shares of Class A common stock). In order to elect the
Class C director, Vulcan will hold Class C common
stock directly rather than through Holdco. When distributed or
sold, all shares of our common stock, other than those
distributed to entities controlled by Jeffrey Katzenberg and
David Geffen, which will receive Class B common stock, and
other than those distributed to Vulcan, which will receive
Class C common stock, will be distributed or sold in the
form of Class A common stock. See "Related Party
Agreements — Escrow and Distribution Arrangement."
Following completion of this offering, Jeffrey
Katzenberg and David Geffen will indirectly control us through
their ability to vote the shares of our Class B common
stock held by DreamWorks Studios and Holdco.
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The Offering
Class A common stock offered by us
shares
(1)
Class A common stock offered by the selling
    stockholders
shares
(1)
Total Class A common stock offered
shares
(1)
Common stock outstanding immediately after this
    offering:
Class A
shares
(1)(2)
Class B
shares
(3)
Class C
shares
(4)
Total
shares
Use of Proceeds
We intend to (i) retain approximately
    $175 million of the net proceeds of the Class A common
    stock offered by us for general corporate purposes, including
    working capital and (ii) use the remaining net proceeds to
    repay all or a portion of the indebtedness that we intend to
    assume from DreamWorks Studios in connection with our separation.
We will not receive any proceeds from sales of
    our Class A common stock by the selling stockholders in the
    offering.
Dividend Policy
We do not anticipate paying any dividends on our
    common stock in the foreseeable future.
Voting Rights
In general, the Class A, Class B and
    Class C common stock are substantially identical and vote
    together as a single class. In addition, each class of stock has
    the following characteristics:
Class A
One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
Class B
15
    votes per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
Class C
One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors. In addition, the right to elect one director, voting
    as a separate class.
Proposed Trading Symbol
Risk Factors
See "Risk Factors" beginning on
    page 11 of this prospectus for a discussion of factors that
    you should carefully consider before deciding to invest in
    shares of our Class A common stock.
6
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(1)
Does not
    include                shares
    of Class A common stock that may be sold by us
    and                shares
    of Class A common stock that may be sold by the selling
    stockholders upon exercise of the underwriters'
    over-allotment option.
(2)
Does not include any of the options that were
    issued and outstanding as
    of                     ,
    2004, under our 2004 Equity Compensation Plan to purchase a
    total
    of                shares
    of our Class A common stock at a weighted average exercise
    price of
    $              per
    share
    and                shares
    of Class A common stock available for future issuance of
    options and restricted stock under our 2004 Equity Compensation
    Plan.
(3)
Of this amount, DreamWorks Studios will
    hold                 shares,
    Holdco will
    own                 shares
    and entities controlled by each of Jeffrey Katzenberg and David
    Geffen will hold one share.
(4)
To be held by Vulcan.
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Summary Historical and Pro Forma Financial
Data
We present below summary historical and pro forma
financial data. The following summary historical financial data
as of March 31, 2004, for the three months ended
March 31, 2003 and 2004 and as of and for each of the years
in the three year period ended December 31, 2003 were
derived from our historical combined financial statements
included elsewhere in this prospectus.
The summary pro forma financial data for the
three months ended March 31, 2004 and the year ended
December 31, 2003 were derived from our unaudited pro forma
combined statements of operations included elsewhere in this
prospectus which were prepared (i) as if the Distribution
Agreement had become effective on January 1, 2003 and had
been in effect in all periods since and (ii) as if we had
been taxable as a corporation as of January 1, 2003 in all
periods presented. The pro forma adjustments are based upon
available information and assumptions that we believe are
reasonable and do not give effect to any transactions other than
those mentioned above, including a services agreement that we
intend to enter into with DreamWorks Studios prior to the
consummation of the offering (the "Services
Agreement"). Please see note (1) below and the notes
to our unaudited pro forma combined financial statements
included elsewhere in this prospectus for a more detailed
discussion of how the adjustments described above are presented
in our pro forma combined financial statements.
The summary unaudited pro forma combined
financial statements do not purport (i) to represent what
our financial position and results of operations actually would
have been had we been a stand-alone taxable corporation
operating under the Distribution Agreement for the periods
presented or (ii) to project our financial performance for
any future period.
You should read the following data in conjunction
with "Capitalization," "Selected Financial
Data," "Unaudited Pro Forma Financial
Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
and with our audited combined financial statements and our
unaudited interim combined financial statements and the notes
thereto, all included elsewhere in this prospectus.
8
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Pro Forma
Pro Forma
Three Months Ended
Three Months
Year Ended December 31,
Year Ended
March 31,
Ended
December 31,
March 31,
2001
2002
2003
2003(1)
2003
2004
2004(1)
(Audited)
(Unaudited)
(Unaudited)
(Unaudited)
(In thousands)
Statement of Operations Data:
Operating revenue
$
661,308
$
456,356
$
295,574
$
167,869
$
48,201
$
40,814
$
12,300
Costs of revenue
509,087
396,983
438,313
293,653
40,994
45,478
8,512
Gross profit (loss)
152,221
59,373
(142,739
)
(125,784
)
7,207
(4,664
)
3,788
Selling, general and administrative expenses
49,568
56,954
24,910
12,277
9,183
7,767
4,070
Operating income (loss)
102,653
2,419
(167,649
)
(138,061
)
(1,976
)
(12,431
)
(282
)
Interest, taxes and other income (expense)
(16,251
)
(33,550
)
(18,929
)
(19,376
)
(9,970
)
(13,490
)
(13,490
)
Income (loss) before cumulative effect of
    accounting changes
86,402
(31,131
)
(186,578
)
(157,437
)
(11,946
)
(25,921
)
(13,772
)
Cumulative effect of accounting changes
(82,743
)
—
(2,522
)
(2,522
)
—
—
—
Net income (loss)(2)
$
3,659
$
(31,131
)
$
(189,100
)
$
(159,959
)
$
(11,946
)
$
(25,921
)
$
(13,772
)
(1)
The primary result of giving pro forma effect to
    the Distribution Agreement as of January 1, 2003 is that we
    recognize revenue net of (i) DreamWorks Studios' 8.0%
    distribution fee and (ii) the distribution and marketing
    costs that DreamWorks Studios incurs for our films. In all
    periods presented, this results in a substantial reduction to
    our revenue. In addition, our costs of revenue decline because
    we no longer incur distribution and marketing costs and
    third-party distribution and fulfillment services fees. Also,
    selling, general and administrative expenses are reduced because
    we are no longer allocated overhead costs related to DreamWorks
    Studios' marketing and distribution departments.
As a result of giving pro forma effect to the
    Distribution Agreement as of January 1, 2003, our pro forma
    net loss is decreased during the periods presented, primarily
    due to timing differences. However, over a longer period of
    time, we believe our pro forma net loss would not have changed
    substantially from our historical net loss. See "Unaudited
    Pro Forma Financial Information" and the notes thereto.
(2)
Because we operated as a division of a limited
    liability company for all periods presented, we incurred only
    minimum income taxes related to foreign withholding and state
    franchise taxes. See note 14 to our audited combined
    financial statements contained herein for an explanation of pro
    forma income taxes.
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As of
March 31,
As of December 31,
2004
2001
2002
2003
Historical
Audited
Unaudited
(In thousands)
Balance Sheet Data:
Cash and cash equivalents
$
835
$
3
$
41
$
41
Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
313,966
150,915
131,329
45,190
Film inventories
444,210
471,847
422,343
475,116
Total assets
800,381
669,246
671,004
636,761
Advances and unearned revenue
11,090
65,197
89,009
143,508
Debt allocated by DreamWorks Studios
168,461
313,814
418,379
380,062
Other debt (including capital leases)
5,001
4,375
80,344
85,236
Total liabilities
320,169
498,025
686,627
698,963
Total liabilities and owner's equity
    (deficiency)
800,381
669,246
671,004
636,761
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RISK FACTORS
You should carefully consider the following risks
and other information in this prospectus before deciding to
invest in shares of our Class A common stock. The following
risks and uncertainties could materially adversely affect our
business, financial condition or operating results. In this
event, the trading price of our Class A common stock could
decline and you could lose part or all of your investment.
Risks Related to Our Business
Our success is primarily dependent on audience
acceptance of our films, which is extremely difficult to predict
and therefore inherently risky.
We cannot predict the economic success of any of
our motion pictures because the revenue derived from the
distribution of a motion picture (which does not necessarily
bear any correlation to the production or distribution costs
incurred) depends primarily upon its acceptance by the public,
which cannot be accurately predicted. The economic success of a
motion picture also depends upon the public's acceptance of
competing films, the availability of alternative forms of
entertainment and leisure time activities, general economic
conditions and other tangible and intangible factors, all of
which can change and cannot be predicted with certainty.
Furthermore, part of the appeal of CG animated films may be due
to their relatively recent introduction to the market. We cannot
assure you that the introduction of new animated filmmaking
techniques, an increase in the number of CG animated films or
the resurgence in popularity of older animated filmmaking
techniques, will not adversely impact the popularity of CG
animated films.
In general, the economic success of a motion
picture is dependent on its domestic theatrical performance,
which is a key factor in predicting revenue from other
distribution channels and is largely determined by (i) our
ability to produce content and develop stories and characters
that appeal to a broad audience and (ii) the effective
marketing of the motion picture. If we are unable to accurately
judge audience acceptance of our film content or to have the
film effectively marketed, the commercial success of the film
will be in doubt, which could result in costs not being recouped
or anticipated profits not being realized. Moreover, we cannot
assure you that any particular feature film will generate enough
revenue to offset its distribution and marketing costs, in which
case we would not receive any gross receipts for such film from
DreamWorks Studios. In the past, some of our films have not
recovered, after recoupment of marketing and distribution costs,
their production costs in an acceptable timeframe or at all. For
example, in 2003 we released our final primarily hand-drawn
animated feature film,
Sinbad: Legend of the Seven Seas
,
which we estimate will not generate sufficient revenue over its
first 10 years in distribution to fully recover, after
recoupment of marketing and distribution costs, its production
costs.
Our business is dependent upon the success of
a limited number of releases each year and the commercial
failure of any one of them could have a material adverse effect
on our business.
We expect to theatrically release a limited
number of animated feature films per year for the foreseeable
future. The commercial failure of just one of these films can
have a significant adverse impact on our results of operations
in both the year of release and in the future. For example, for
the remainder of 2004 and into 2005, we will be dependent on the
continuing success of
Shrek 2
and the success of
Shark Tale
. Historically, there has been a close
correlation between domestic box office success and
international box office, home video and television success,
such that feature films that are successful in the domestic
theatrical market are generally also successful in the
international theatrical, home video and television markets.
Because of this close correlation, we believe that
Shrek 2
, which has been very successful in the
domestic and international theatrical markets, will also
strongly perform in the home video and television markets,
although there is no way to guarantee such results. Our success
in 2004 and 2005 also significantly depends on audience
acceptance of
Shark Tale,
which is scheduled to be
released in the domestic theatrical market on October 1,
2004. If
Shark Tale
fails to achieve domestic box office
success, because of the close correlation mentioned above, its
international box office and home video success will be in
doubt, and our business, results of operations and financial
condition could be adversely affected in 2005 and beyond.
Further, we cannot assure you that the
11
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historical correlation between domestic box
office results and international box office and home video
results will continue in the future. In addition, the limited
number of films that we release in a year magnifies fluctuations
in our earnings. Therefore, our reported results at quarter and
year end may be skewed based on the release dates of our films,
which could result in volatility in the price of our
Class A common stock.
Our operating results fluctuate
significantly.
We continue to expect significant fluctuations in
our future quarterly and annual operating results because of a
variety of factors, including the following:
•
the success of our feature films;
•
the timing of the domestic and international
    theatrical releases and home video release of our feature
    films; and
•
DreamWorks Studios' costs to distribute and
    market our feature films under the Distribution Agreement.
We also expect that our operating results will be
affected by the terms of the Distribution Agreement. Under the
Distribution Agreement, film revenue will be used by DreamWorks
Studios to recover (i) the distribution and marketing
expenses it incurs for the film and (ii) to cover its
distribution fee relating to these markets before we recognize
any revenue for that film. Accordingly, we expect to recognize
significantly less revenue from a film in the period of that
film's theatrical release than we would absent the
Distribution Agreement. Furthermore, in the event that the
Distribution Agreement were terminated, depending on the
arrangement that we negotiate with a replacement distributor, we
could be required to directly incur distribution and marketing
expenses related to our films, which under the Distribution
Agreement are incurred by DreamWorks Studios. Because we would
expense those costs as incurred, further significant
fluctuations in our operating results could result.
In response to these fluctuations, the market
price of our common stock could decrease significantly in spite
of our operating performance.
We principally operate in one business, the
production of CG animated feature films, and our lack of a
diversified business could adversely affect us.
Unlike most of the major studios, which are part
of large diversified corporate groups with a variety of other
operations, we depend primarily on the success of our feature
films. For example, unlike us, many of the major studios are
part of corporate groups that include television networks and
cable channels that can provide stable sources of earnings and
cash flows that offset fluctuations in the financial performance
of their feature films. Substantially all of our revenue is
derived from a single source — our CG animated feature
films — and our lack of a diversified business model
could adversely affect us if our films fail to perform to our
expectations.
Animated films are expensive to produce and
the uncertainties inherent in their production could result in
the expenditure of significant amounts on films that are
canceled or significantly delayed.
The production, completion and distribution of
animated feature films are subject to a number of uncertainties,
including delays and increased expenditures due to creative
problems, technical difficulties, talent availability,
accidents, natural disasters or other events beyond our control.
Because of these uncertainties, the projected costs of an
animated feature film at the time it is set for production may
increase, the date of completion may be substantially delayed or
the film may be abandoned due to the exigencies of production.
Delays in production may also result in a film not being ready
for release at the intended time and postponement to a
potentially less favorable time, which could result in lower
gross receipts for that film. In extreme cases, a film in
production may be abandoned or significantly modified (including
as a result of creative changes) after substantial amounts have
been spent, causing the write-off of expenses incurred with
respect to the film. This was the case in 2003 when we wrote-off
a significant amount of expenses that we had incurred for two of
our animated films.
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Table of Contents
Animated films typically take longer to
produce than live-action films, which increases the
uncertainties inherent in their production and
distribution.
Animated feature films typically take three to
four years to produce after the initial development stage, as
opposed to an average of twelve to eighteen months for
live-action films. The additional time that it takes to produce
and release an animated feature film increases the risk that our
films in production will fall out of favor with target audiences
and that competing films will be released in advance of or
concurrently with ours, either of which risks could reduce the
demand for, or popular appeal of, our films.
The production and marketing of CG animated
feature films is capital intensive and our capacity to generate
cash from our films may be insufficient to meet our anticipated
cash requirements.
The costs to develop, produce and market a film
are substantial and some of our competitors have more capital
and greater resources than we and DreamWorks Studios have. In
2004, for example, we expect to spend approximately
$325 million to fund production costs of our feature films,
to make contingent compensation and residual payments and to
fund technology capital expenditures. In addition, historically,
we made substantial expenditures on distribution and marketing
costs, which, in the future, will be incurred by DreamWorks
Studios under the Distribution Agreement. Although we retain the
right to exploit each of the nine films that we have previously
released, the size of our film collection is insubstantial
compared to the film libraries of the major movie studios, which
typically have the ability to exploit hundreds of library
titles. Library titles can provide a stable source of earnings
and cash flows that offset fluctuations in the financial
performance of newly released films. Many of the major studios
use these cash flows, as well as cash flows from their other
businesses, to finance the production and marketing of new
feature films. We will not be able to rely on such cash flows
and will be required to fund our films in development and
production and other commitments with cash retained from
operations and the proceeds of films that are generating revenue
from theatrical, home video and ancillary markets. If our films
fail to perform, we may be forced to seek substantial sources of
outside financing. Such financing may not be available in
sufficient amounts for us to continue to make substantial
investments in the production of new CG animated feature films
or may be available only on terms that are disadvantageous to
us, either of which could have a material adverse effect on our
growth or our business.
The costs of producing and marketing feature
films have steadily increased and may increase in the future,
which may make it more difficult for a film to generate a profit
or compete against other films.
The production and marketing of theatrical
feature films requires substantial capital and the costs of
producing and marketing feature films have generally increased
in recent years. According to the MPAA, the average negative
cost of a motion picture produced by a major studio, which
includes all costs associated with creating a feature film,
including production costs, allocated studio overhead and
capitalized interest, but excludes abandoned project costs, has
grown at a compound annual growth rate of 7.9% — from
$29.9 million in 1993 to $63.8 million in
2003 — and the average domestic marketing costs (which
includes prints and advertising costs) per picture has grown at
a compound annual growth rate of 10.7% over the same
period — from $14.1 million in 1993 to
$39.1 million in 2003. Although these growth rates include
the costs of both live-action and animated films, they are
indicative of the cost trend for motion pictures generally.
These costs may continue to increase in the future, which may
make it more difficult for our films to generate a profit or
compete against other films. Historically, production costs and
marketing costs have risen at a rate faster than increases in
either domestic admissions to movie theaters or admission ticket
prices. A continuation of this trend would leave us more
dependent on other media, such as home video, television,
international markets and new media for revenue.
We compete for audiences based on a number of
factors, many of which are beyond our control.
Despite a general increase in movie theater
attendance, the number of animated and live-action feature films
released by competitors, particularly the major U.S. motion
picture studios, may create an oversupply of product in the
market, and may make it more difficult for our films to succeed.
In particular, we compete directly against other animated films
and family oriented live-action films. Oversupply of such
products may
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become most pronounced during peak release times,
such as school holidays, national holidays and the summer
release season, when theater attendance has traditionally been
highest. Although we seek to release our films during peak
release times, we cannot guarantee that we will be able to
release all of our films during those times and, therefore, may
miss potentially higher gross box-office receipts. In addition,
a substantial majority of the motion picture screens in the
U.S. typically are committed at any one time to only 10 to
15 films distributed nationally by major studio
distributors. If our competitors were to increase the number of
films available for distribution and the number of exhibition
screens remained static, it could be more difficult for us to
release our films during optimal release periods.
The market for CG animated films is relatively
new, and the entrance of additional film studios into the CG
animated film market could adversely affect our business in
several ways.
CG animation is a relatively new form of
animation that has been successfully exploited by a limited
number of movie studios since the first CG animated feature
film,
Toy Story
, was released by Pixar in 1995. Because
there are currently only a few studios capable of producing CG
animated feature films, there are a limited number of CG
animated feature films in the market each year, a fact that may
enhance their popular appeal. If additional studios were to
enter the CG animated film market and increase the number of CG
animated films released per year, the popularity of the CG
animation technique could suffer. Although we have developed
proprietary technology, experience and know-how in the CG
animation field that we believe provide us with significant
advantages over new entrants in the CG animated film market,
there are no substantial technological barriers to entry that
would prevent other film studios from entering the field, and
both Sony and Lucasfilm Ltd. have recently announced plans to do
so. Furthermore, advances in technology may substantially
decrease the time that it takes to produce a CG animated feature
film, which could result in a significant number of new CG
animated films or products. The entrance of additional animation
companies into the CG animated feature film market could
adversely impact us by eroding our market share, increasing the
competition for CG animated film audiences and increasing the
competition for, and cost of, hiring and retaining talented
employees, particularly CG animators and technical staff.
Our success depends on certain key
employees.
Our success greatly depends on our employees. In
particular, we are dependent upon the services of Jeffrey
Katzenberg. We do not maintain key person life insurance for any
of our employees. We will have employment agreements with
Mr. Katzenberg and with all of our top executive officers
and production executives. However, although it is standard in
the motion picture industry to rely on employment agreements as
a method of retaining the services of key employees, these
agreements cannot assure us of the continued services of such
employees. The loss of the services of Mr. Katzenberg or a
substantial group of key employees could have a material adverse
effect on our business, operating results or financial condition.
Our scheduled releases of CG animated feature
films will place a significant strain on our
resources.
We have established multiple creative and
production teams so that we can simultaneously produce more than
one CG animated feature film. As of July 2004, we have released
three CG animated feature films and five non-CG animated feature
films and have limited experience sustaining the ability to
produce and release more than one CG animated feature film at
the same time. Due to the strain on our personnel from the
effort required to produce a film and the time required for
creative development of future films, it is possible that we
will be unable to consistently release two CG animated feature
films per year. In the past, we have been required, and may
continue to be required, to expand our employee base, increase
capital expenditures and procure additional resources and
facilities in order to accomplish the scheduled releases of our
animated feature films. This growth and expansion has placed,
and continues to place, a significant strain on our resources.
We cannot provide any assurances that any of our animated
feature films will be released as targeted or that this strain
on resources will not have a material adverse effect on our
business, financial condition or results of operations.
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We are dependent on DreamWorks Studios and
others for the distribution and promotion of our feature films
and related products.
We expect to enter into the Distribution
Agreement with DreamWorks Studios prior to the consummation of
this offering, pursuant to which DreamWorks Studios will be
responsible, with some exceptions, for the worldwide
distribution of all of our films in all media. For a description
of the terms of the Distribution Agreement, see "Related
Party Agreements — Distribution Agreement."
Although the Distribution Agreement will obligate DreamWorks
Studios to distribute our films, DreamWorks Studios will be able
to terminate the agreement upon the occurrence of certain events
of default. If DreamWorks Studios terminates the Distribution
Agreement or fails to perform under the agreement or the
Distribution Agreement is otherwise terminated (including as a
result of DreamWorks Studios ceasing to be engaged in the motion
picture distribution business), we cannot assure you that we
will be able to find a replacement distributor on terms as
favorable as those in the Distribution Agreement.
DreamWorks Studios currently distributes, and we
expect will continue to distribute, our motion pictures in
international theatrical markets through distribution agreements
with Universal Studios, CJ Entertainment (in Korea and the
People's Republic of China) and Kadokawa Entertainment (in
Japan). In addition, DreamWorks Studios has engaged Universal
Studios to be our worldwide principal fulfillment services
provider for our home videos, excluding only Japan and Korea. We
are therefore dependent on the ability of each of these
companies to exploit our feature films in the territories in
which they distribute them and any termination of these
agreements could adversely affect DreamWorks Studios'
ability to distribute our films. In addition, if Universal
Studios, CJ Entertainment or Kadokawa Entertainment were to
experience financial difficulty or file for bankruptcy, our
revenue could be substantially reduced with respect to the films
in distribution.
DreamWorks Studios provides a number of
services to us pursuant to the Services Agreement. If the
Services Agreement were terminated, we would be required to
replace those services on terms that may be less favorable to
us.
Under the terms of a Services Agreement that we
expect to enter into with DreamWorks Studios prior to the
consummation of this offering, DreamWorks Studios will provide
to us certain accounting, insurance administration, information
systems management, tax, payroll, legal, human resources
administration, procurement and other general support services.
DreamWorks Studios will charge us so that it generally recovers
the direct costs of providing these services, plus all
out-of-pocket costs and expenses. While our historical financial
statements reflect our allocated costs of many of these
services, neither the historical financial statements nor the
pro forma financial statements necessarily reflect what the
costs of these services will be in the future. If the Services
Agreement is terminated, DreamWorks Studios will no longer be
obligated to provide these services to us, and we will be
required to either enter a new agreement with DreamWorks Studios
or another services provider or assume the responsibility for
these functions ourselves. If we were to enter a new agreement
with DreamWorks Studios, hire a new services provider or assume
these services ourselves, the economic terms of the new
arrangement may be less favorable than our current arrangement
with DreamWorks Studios, which may adversely affect our
business, financial condition or results of operations.
If DreamWorks Studios were to experience
financial difficulty or file for bankruptcy, our business,
results of operations and financial conditions could be
materially adversely affected.
Under the terms of the Distribution Agreement,
DreamWorks Studios is entitled to collect all amounts relating
to our films from the various distribution channels —
including from domestic theatrical exhibitors, international
sub-distributors, domestic and international home video services
providers and television licensees. DreamWorks Studios is
obligated to remit the amounts that it collects to us after it
has deducted its distribution fee and distribution and marketing
costs. If DreamWorks Studios were to default in its obligations
to pay us these amounts, our revenue with respect to films in
distribution at that time could be substantially reduced.
Moreover, because we rely on DreamWorks Studios'
relationships and agreements with its sub-distributors, home
video fulfillment services providers and licensees, if
DreamWorks Studios were to
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experience financial difficulty or file for
bankruptcy, we could lose the benefit of some of those
relationships and agreements. In addition, DreamWorks Studios is
responsible for the costs of marketing our films in
substantially all media and markets. If DreamWorks Studios were
to experience financial difficulty or file for bankruptcy,
DreamWorks Studios may not have sufficient resources to market
our films as effectively as the major studios market their
films, which could adversely affect our revenue. In addition,
pursuant to the terms of the Services Agreement we expect to
enter into with DreamWorks Studios, we will rely on DreamWorks
Studios for specified services and will share expenses relating
to some of these services. If DreamWorks Studios were not able
to pay its share of these expenses, or ceased to provide these
services, we may be required to absorb a greater portion of
these expenses or obtain them from other sources, which could be
more costly. Accordingly, if DreamWorks Studios were to
experience financial difficulty or file for bankruptcy, our
business, results of operations and financial conditions could
be materially adversely affected.
We face risks relating to the international
distribution of our films and related products.
Because we have historically derived
approximately one-third of our revenue from the exploitation of
our films in territories outside of the United States, our
business is subject to risks inherent in international trade,
many of which are beyond our control. These risks include:
•
laws and policies affecting trade, investment and
    taxes, including laws and policies relating to the repatriation
    of funds and withholding taxes, and changes in these laws;
•
differing cultural tastes and attitudes,
    including varied censorship laws;
•
differing degrees of protection for intellectual
    property;
•
financial instability and increased market
    concentration of buyers in foreign television markets, including
    in European pay television markets;
•
the instability of foreign economies and
    governments;
•
fluctuating foreign exchange rates; and
•
war and acts of terrorism.
Piracy of motion pictures, including digital
and Internet piracy, may decrease revenue received from the
exploitation of our films.
Motion picture piracy is extensive in many parts
of the world and is made easier by technological advances and
the conversion of motion pictures into digital formats, which
facilitates the creation, transmission and sharing of high
quality unauthorized copies of motion pictures in theatrical
release, on videotapes and DVDs, from pay-per-view through set
top boxes and other devices and through unlicensed broadcasts on
free TV and the Internet. The proliferation of unauthorized
copies and piracy of these products has an adverse affect on our
business because these products reduce the revenue we receive
from our legitimate products. Under the Distribution Agreement,
DreamWorks Studios is primarily responsible for enforcing our
intellectual property rights with respect to all of our films
subject to the Distribution Agreement and is required to
maintain security and anti-piracy measures consistent with the
highest levels it maintains for its own motion pictures. Other
than the remedies we have in the Distribution Agreement, we have
no way of requiring DreamWorks Studios to take any anti-piracy
actions, and DreamWorks Studios' failure to take such
actions may result in our having to undertake such measures
ourselves, which could result in significant expenses and losses
of indeterminate amounts of revenue. Even if applied, there can
be no assurance that the highest levels of security and
anti-piracy measures will prevent piracy.
Unauthorized copying and piracy are prevalent in
territories outside of the U.S., Canada and Western Europe and
in countries where we may have difficulty enforcing our
intellectual property rights. The MPAA, the American Motion
Picture Marketing Association and American Motion Picture Export
Association monitor the progress and efforts made by various
countries to limit or prevent piracy. In the past, some of these
trade associations have enacted voluntary embargoes on motion
picture exports to certain countries in order to pressure the
governments of those countries to become more aggressive in
preventing motion picture
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piracy. In addition, the U.S. government has
publicly considered implementing trade sanctions against
specific countries that, in the opinion of the
U.S. government, do not make appropriate efforts to prevent
copyright infringements of U.S. produced motion pictures.
There can be no assurance, however, that voluntary industry
embargoes or U.S. government trade sanctions will be
enacted or, if enacted, effective. If enacted, such actions
could impact the amount of revenue that we realize from the
international exploitation of motion pictures depending upon the
countries subject to such action and the duration and
effectiveness of such action. If not enacted or if other
measures are not taken, we may lose an indeterminate amount of
additional revenue as a result of motion picture piracy.
We cannot predict the effect that rapid
technological change or alternative forms of entertainment may
have on us or the motion picture industry.
The entertainment industry in general, and the
motion picture industry in particular, continue to undergo
significant changes, primarily due to technological
developments. Due to rapid growth of technology and shifting
consumer tastes, we cannot accurately predict the overall effect
that technological growth or the availability of alternative
forms of entertainment may have on the potential revenue from
and profitability of our animated feature films. In addition,
certain outlets for the distribution of motion pictures may not
obtain the public acceptance that is or was previously
predicted. For example, while we have benefited from the rapid
growth in the digital versatile disk, or DVD market, we cannot
assure that such growth will continue, or that other developing
distribution channels, such as video-on-demand, will be accepted
by the public or that, if they are accepted by the public, that
we will be successful in exploiting such channels. Moreover, to
the extent that other distribution channels gain popular
acceptance, it is possible that demand for existing delivery
channels, such as DVDs, will decrease. If we are unable to
exploit new delivery channels to the same extent that we have
exploited existing channels, our business, results of operations
or financial condition could be materially adversely affected.
We have not operated as an independent
company, and we do business in a relatively new industry, each
of which makes it more difficult to predict whether our business
model is sound.
Prior to the consummation of this offering, we
will have been a business division of DreamWorks Studios.
Accordingly, we have no experience operating as an independent
company implementing our own business model and an evaluation of
our prospects is difficult to make, particularly in light of the
fact that CG animation constitutes a relatively new form of
animated filmmaking and has been successfully exploited since
only 1995. Our prospects must be considered in light of the
risks, expenses and difficulties encountered by companies in the
early stages of independent business operations, particularly
companies in highly competitive markets. To address these risks,
we must, among other things, respond to changes in the
competitive environment, continue to attract, retain and
motivate qualified persons and continue to upgrade our
technologies. We cannot provide any assurances that we will be
successful in addressing such risks.
Our historical and pro forma financial
information may not be indicative of our results as a separate
company.
Our historical financial information presented in
this document does not reflect what our results of operations,
financial condition and cash flows would have been had we been a
separate, stand-alone entity pursuing independent strategies
during the periods presented. For example, our historical
combined financial statements do not reflect what our results of
operations, financial condition or cash flows would have been
had the Distribution Agreement been in place for all periods
presented. In addition, our historical financial information
does not reflect what our results of operations, financial
condition and cash flows would have been had we shifted to our
current business model of primarily producing CG animated films
at an earlier date. Furthermore, our pro forma combined
financial statements do not necessarily reflect what our results
of operations would have been had we been a stand-alone company
operating under the Distribution Agreement in all periods. As a
result, our historical and pro forma financial information is
not necessarily indicative of our future results of operations,
financial condition or cash flows.
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We could be adversely affected by strikes and
other union activity.
Along with the major U.S. film studios, we
employ members of the International Alliance of Theatrical and
Stage Employees, or IATSE, on many of our productions. We are
subject to a collective bargaining agreement with the IATSE that
expires in August 2006. We are also subject to a collective
bargaining agreement with Local 839 of IATSE. We also
employ members of the Screen Actors Guild, or SAG, and we have
signed an industry-wide collective bargaining agreement with SAG
that expires on June 30, 2005. We may also become subject
to additional collective bargaining agreements. A strike by one
or more of the unions that provide personnel essential to the
production of our feature films could delay or halt our ongoing
production activities. Such a halt or delay, depending on the
length of time involved, could cause the delay of the release
date of our feature films and thereby could adversely affect the
revenue that the film generates.
To be successful, we must continue to attract
and retain qualified personnel and our inability to do so would
adversely affect the quality of our films.
Our success continues to depend to a significant
extent on our ability to identify, attract, hire, train and
retain qualified creative, technical and managerial personnel.
Competition for the caliber of talent required to make our
films, particularly for our film directors, producers,
animators, creative and technology personnel, will continue to
intensify as other studios build their in-house CG animation or
special effects capabilities. For example, Lucasfilm Ltd. has
announced its intent to make CG animated feature films and Sony
has announced that it is producing its first CG animated feature
film. In addition, we believe Disney has begun to focus more
heavily on CG animated feature films. The entrance of additional
film studios into the CG animated film industry will increase
the demand for the limited number of talented CG animators and
programmers. There can be no assurance that we will be
successful in identifying, attracting, hiring, training and
retaining such qualified personnel in the future. If we were
unable to hire and retain qualified personnel in the future,
particularly film directors, producers, animators, creative
personnel and technical directors, there could be a material
adverse effect on our business, operating results or financial
condition.
We depend on technology and computer systems
for the timely and successful development of our animated
feature films and related products.
Because we are dependent upon a large number of
software applications and computers for the development and
production of our animated feature films, an error or defect in
the software, a failure in the hardware, a failure of our backup
facilities or a delay in delivery of products and services could
result in significantly increased production costs for a feature
film. Moreover, if a software or hardware problem is significant
enough, it could result in delays in one or more productions,
which in turn could result in potentially significant delays in
the release dates of our feature films or affect our ability to
complete the production of a feature film. Significant delays in
production and significant delays in release dates, as well as
the failure to complete a production, could have a material
adverse effect on our results of operations. In addition,
because we seek to make cutting edge CG animated films, we must
ensure that our production environment integrates the latest CG
animation tools and techniques developed in the industry. To
accomplish this, we can either develop these capabilities by
upgrading our proprietary software, which can result in
substantial research and development costs, or we can seek to
purchase third-party licenses, which can also result in
significant expenditures. In the event we seek to obtain
third-party licenses, we cannot guarantee that they will be
available or, once obtained, will continue to be available on
commercially reasonable terms, or at all.
Our revenue may be adversely affected if we
fail to protect our proprietary technology or enhance or develop
new technology.
We depend on our proprietary technology to
develop and produce our CG animated feature films. We rely on a
combination of patents, copyright and trade secret protection
and nondisclosure agreements to establish and protect our
proprietary rights. We currently have five patents in force and
11 patent applications pending in the United States. We cannot
provide any assurances that patents will issue from any of these
pending applications or that, if patents do issue, any claims
allowed will be sufficiently broad to protect our
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technology or that they will not be challenged,
invalidated or circumvented. In addition, we also rely on
third-party software to produce our films, which is readily
available to others. Failure of our patents, copyrights and
trade secret protection, non-disclosure agreements and other
measures to provide protection of our technology and the
availability of third-party software may make it easier for our
competitors to obtain technology equivalent to or superior to
our technology. If our competitors develop or license technology
that is superior to ours or that makes our technology obsolete,
our films could become uneconomical to make. In such a case, we
may be required to incur significant costs to enhance or acquire
new technology so that our feature films remain competitive. We
cannot assure you that such costs would not have a material
adverse affect on our business, financial condition or results
of operations.
In addition, we may be required to litigate in
the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others, or to defend against claims
of infringement or invalidity. Any such litigation could result
in substantial costs and diversion of resources and could have a
material adverse effect on our business, financial condition or
results of operations.
Third-party technology licenses may not
continue to be available to us in the future.
In addition to our proprietary technology, we
also rely on certain technology that we license from
third-parties, including software that we use with our
proprietary software. We cannot provide any assurances that
these third-party technology licenses will continue to be
available to us on commercially reasonable terms or at all. The
loss of, or inability to maintain any of these technology
licenses, or our inability to complete a given feature film,
could result in delays in feature film releases until equivalent
technology could be identified, licensed and integrated. Any
such delays or failures in feature film releases could
materially adversely affect our business, financial condition or
results of operations.
Others may assert intellectual property
infringement claims against us.
One of the risks of the CG animated film
production business is the possibility of claims that our
productions and production techniques misappropriate or infringe
the intellectual property rights of third-parties with respect
to their technology and software, previously developed films,
stories, characters, other entertainment or intellectual
property. We have received, and are likely to receive in the
future, claims of infringement of other parties'
proprietary rights. There can be no assurance that infringement
or misappropriation claims (or claims for indemnification
resulting from such claims) will not be asserted or prosecuted
against us, or that any assertions or prosecutions will not
materially adversely affect our business, financial condition or
results of operations. Irrespective of the validity or the
successful assertion of such claims, we would incur significant
costs and diversion of resources with respect to the defense
thereof, which could have a material adverse effect on our
business, financial condition or results of operations. If any
claims or actions are asserted against us, we may seek to obtain
a license of a third-party's intellectual property rights.
We cannot provide any assurances, however, that under such
circumstances a license would be available on reasonable terms
or at all.
Forecasting film revenue and associated gross
profits from our feature films prior to release is extremely
difficult and may result in significant write-offs.
We are required to amortize capitalized film
production costs over the expected revenue streams as we
recognize revenue from the associated films. The amount of film
production costs that will be amortized each quarter depends on
how much future revenue we expect to receive from each film.
Unamortized film production costs are evaluated for impairment
each reporting period on a film-by-film basis. If estimated
remaining revenue is not sufficient to recover the unamortized
film production costs, the unamortized film production costs
will be written down to fair value. In any given quarter, if we
lower our previous forecast with respect to total anticipated
revenue from any individual feature film, we would be required
to accelerate amortization of related film costs. Such
accelerated amortization would adversely impact our business,
operating results and financial condition. In addition, we base
our estimates of revenue on information supplied to us from
DreamWorks Studios and other sources. If the information is not
provided in a timely manner or is
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incorrect, the amount of revenue and related
expenses that we recognize from our animated feature films and
related products could be wrong, which could result in
fluctuations in our earnings.
Risks Related to Investing in Our
Stock
No market currently exists for our common
stock. We cannot assure you that an active trading market will
develop for our Class A common stock.
Prior to this offering, there has been no public
market for shares of our common stock. We cannot predict the
extent to which investor interest in our company will lead to
the development of a trading market
on                     or
otherwise or how liquid that market might become. The initial
public offering price for the shares of our Class A common
stock is or will be determined by negotiations between us, the
selling stockholders and the underwriters and may not be
indicative of prices that will prevail in the open market
following this offering.
If our stock price fluctuates after this
offering, you could lose a significant part of your
investment.
The market price of our stock may be influenced
by many factors, some of which are beyond our control, including
those described above under "— Risks Related to
Our Business" and the following:
•
the failure of securities analysts to cover our
    Class A common stock after this offering or changes in
    financial estimates by analysts;
•
announcements by us or our competitors of
    significant contracts, productions, acquisitions, or capital
    commitments;
•
variations in quarterly operating results;
•
general economic conditions;
•
terrorist acts;
•
future sales of our common stock; and
•
investor perception of us and the filmmaking
    industry.
As a result of these factors, investors in our
Class A common stock may not be able to resell their shares
at or above the initial offering price. In addition, the stock
market in general has experienced extreme price and volume
fluctuations that have often been unrelated to and
disproportionate to the operating performance of movie studios.
These broad market and industry factors may materially reduce
the market price of our Class A common stock, regardless of
our operating performance.
We have agreed to effect one or more secondary
follow-on offerings of our Class A common stock after this
offering. Sales of our Class A common stock in such
follow-on offerings may cause the market price of our
Class A common stock to drop significantly, even if our
business is doing well.
In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Vulcan, entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen and all other
members of DreamWorks Studios who so elect will contribute their
shares of our common stock (other than one share of Class C
common stock that will be held by Vulcan directly) not sold in
this offering to Holdco. In connection with the establishment of
Holdco, we have agreed that Jeffrey Katzenberg and David Geffen
(or entities controlled by them), acting together, or Vulcan may
select the timing of one follow-on secondary offering of
Class A common stock from the common stock held by Holdco,
which must occur during the period beginning six months after
this offering and ending on May 31, 2006. DreamWorks
Studios' members that elect to contribute their shares to
Holdco will be entitled to receive a minimum of
$           million
of net cash proceeds from a combination of sales of secondary
shares in this offering and sales of shares in the follow-on
secondary offering, subject in the case of entities controlled
by Steven Spielberg, Jeffrey Katzenberg and David Geffen, to the
365 day lock-up described in the following risk factor.
If the DreamWorks Studios members participating
in this offering and the follow-on offering have not received a
minimum of
$           million
of net cash proceeds from a combination of sales of secondary
shares in
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this offering and the follow-on offering prior to
May 31, 2006, Vulcan will have the ability to initiate an
additional follow-on offering during the 18-month period
beginning May 31, 2006. See "Related Party
Agreements — Escrow and Distribution Arrangement."
These follow-on offerings may cause the market
price of our Class A common stock to drop significantly,
even if our business is doing well.
Shares eligible for future sale may cause the
market price of our Class A common stock to drop
significantly, even if our business is doing well.
The market price of our Class A common stock
could decline as a result of sales of a large number of shares
of our Class A common stock in the market after this
offering or the perception that these sales could occur. These
sales, or the possibility that these sales may occur, also might
make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate.
After the consummation of this offering, there
will
be                shares
of our Class A common stock
(               shares
if the underwriters exercise their over-allotment option in
full),                shares
of our Class B common stock and one share of our
Class C common stock outstanding. The shares of
Class B common stock and Class C common stock are
convertible into Class A common stock on a one-for-one
basis.
The                shares
of Class A common stock sold in this offering
(               shares
if the underwriters exercise their over-allotment option in
full) will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended, by
persons other than our affiliates within the meaning of
Rule 144 under the Securities Act.
In addition to the follow-on secondary offering
described in the previous risk factor, following the
distribution of shares by Holdco to certain members of
DreamWorks Studios, each of Steven Spielberg, Jeffrey
Katzenberg, David Geffen and Vulcan or entities controlled by
them or their permitted transferees will, subject to the lock-up
described below, be able to sell their shares in the public
market from time to time without registering them, subject to
certain limitations on the timing, amount and method of those
sales imposed by regulations promulgated by the Securities and
Exchange Commission (the "SEC"). Each of Steven
Spielberg, Jeffrey Katzenberg, David Geffen, DreamWorks Studios,
Vulcan, certain other stockholders, entities controlled by them
and certain of their permitted transferees will also have the
right to cause us to register the sale of shares of Class A
common stock beneficially owned by them. In addition, DreamWorks
Studios and each of our stockholders that is a member of
DreamWorks Studios on the closing date will have the right to
include shares of Class A common stock beneficially owned
by them (including the Class A common stock into which our
Class B and Class C common stock is convertible) in
certain future registration statements relating to our
securities. If any of Steven Spielberg, Jeffrey Katzenberg,
David Geffen, DreamWorks Studios, Holdco, Vulcan, entities
controlled by them or their respective permitted transferees
were to sell a large number of their shares, including in the
follow-on secondary offering described above, the market price
of our Class A common stock could decline significantly. In
addition, the perception in the public markets that sales by
them might occur could also adversely affect the market price of
our Class A common stock.
Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed to a lock-up period, meaning that they and
their permitted transferees may not sell any of their shares
without the prior consent of the underwriters of this offering
for 365 days after the date of this prospectus. Each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180 day lock-up period with the
underwriters. In addition to these lock-up agreements, sales of
our Class A common stock will also be restricted by lock-up
agreements for a minimum of 180 days that we, our
directors, executive officers and certain of our employees will
enter into with the underwriters. These lock-up agreements will
restrict us and these shareholders, subject to specified
exceptions, from selling or otherwise disposing of any shares
for a minimum period of 180 days after the date of this
prospectus without the prior consent of the underwriters.
Although there is no present intention to do so, the
underwriters may, in their sole discretion and without notice,
release all or any portion of the shares from the restrictions
in any of the lock-up agreements described above. In addition to
the lock-up agreements described above, Vulcan and entities
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controlled by Steven Spielberg, Jeffrey
Katzenberg and David Geffen will agree to certain trading and
hedging limitations until the release of shares by Holdco.
In addition, we expect DreamWorks Studios to
pledge
approximately                shares
of our Class B common stock as security for its obligations
under its revolving credit agreement. Under certain
circumstances following an event of default by DreamWorks
Studios under that revolving credit agreement, the lenders will
be entitled to take possession of the pledged shares of common
stock (after converting any pledged Class B common stock
into Class A common stock) and sell them in the open
market, subject to applicable bankruptcy, securities and other
laws, as well as any applicable lock-up agreements.
Also, in the future, we may issue our securities
in connection with investments and acquisitions. The amount of
our common stock issued in connection with an investment or
acquisition could constitute a material portion of our then
outstanding common stock.
A few significant stockholders control the
direction of our business. The concentrated ownership of our
common stock and certain corporate governance arrangements will
prevent you and other stockholders from influencing significant
corporate decisions.
Following completion of this offering:
•
DreamWorks Studios will own   % of the
    outstanding shares of our Class B common stock (over which
    Jeffrey Katzenberg and David Geffen will have voting control),
    which represents   % of our common equity
    and   % of the total voting power of our common stock,
    or   % of our common equity and   % of the
    total voting power of our common stock if the underwriters
    exercise their over-allotment option in full; and
•
Holdco, which will be controlled by Jeffrey
    Katzenberg and David Geffen or entities controlled by them
    (subject to certain approval rights of Holdco's limited
    partners), will own   % of the outstanding shares of
    our Class B common stock (over which Jeffrey Katzenberg and
    David Geffen or entities controlled by them will have voting
    control, except in the case of a class vote of the Class A
    common stock), which represents   % of our common
    equity and   % of the total voting power of our common
    stock, or   % of our common equity and   %
    of the total voting power of our common stock if the
    underwriters exercise their over-allotment option in full.
Accordingly, Jeffrey Katzenberg and David Geffen
or entities controlled by them generally will have the
collective ability to control all matters requiring stockholder
approval, including the nomination and election of directors
(other than the director elected by Vulcan as the holder of
Class C common stock), the determination of our corporate
and management policies and the determination, without the
consent of our other stockholders, of the outcome of any
corporate transaction or other matter submitted to our
stockholders for approval, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions. In addition, the disproportionate voting rights of
the Class B common stock relative to the Class A
common stock and the Class C common stock may make us a
less attractive takeover target.
The interests of our controlling and
significant stockholders may conflict with the interests of our
other stockholders.
We cannot assure you that the interests of
Jeffrey Katzenberg, David Geffen, Steven Spielberg, DreamWorks
Studios and Vulcan, or entities controlled by them, will
coincide with the interests of the holders of our Class A
common stock. For example, Jeffrey Katzenberg and David Geffen,
or entities controlled by them, could cause us to make
acquisitions that increase the amount of our indebtedness or
outstanding shares of common stock or sell revenue-generating
assets. Additionally, DreamWorks Studios and Steven Spielberg
are in the business of making movies and derivative products and
may, from time to time, compete directly or indirectly with us
or prevent us from taking advantage of corporate opportunities.
Jeffrey Katzenberg, Steven Spielberg, David Geffen and
DreamWorks Studios may also pursue acquisition opportunities
that may be complementary to our business, and as a result,
those acquisition opportunities may not be available to us. Our
restated certificate of incorporation provides for the
allocation of corporate opportunities between us, on the one
hand, and DreamWorks Studios and certain of its affiliates, on
the other hand, which could prevent us
22
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from taking advantage of certain corporate
opportunities. See "Description of Capital
Stock — Corporate Opportunities." So long as
Jeffrey Katzenberg, David Geffen, or entities controlled by
them, and DreamWorks Studios continue to collectively own shares
of our Class B common stock with significant voting power,
Jeffrey Katzenberg and David Geffen, or entities controlled by
them, will continue to collectively be able to strongly
influence or effectively control our decisions.
Under certain circumstances, Jeffrey Katzenberg
and David Geffen, or entities controlled by them, could cease to
have a majority of the voting control of our common stock, in
which case other significant stockholders may be able to
strongly influence or effectively control our decisions.
Additionally, we expect to enter into a tax
agreement with Vulcan in connection with our separation from
DreamWorks Studios. We expect that as a result of certain
transactions that Vulcan may engage in, future income taxes that
we will be required to pay to various tax authorities may be
reduced as a result of a partial increase in the tax basis of
our tangible and intangible assets. We will be required to pay
to Vulcan a portion of the amounts by which our income taxes are
actually reduced, subject to repayment provisions if it is
determined that these tax savings should not have been available
to us. As a result, the interests of Vulcan and the holders of
our Class A common stock could differ.
Public investors will experience immediate and
substantial dilution as a result of this offering.
Prior investors have paid substantially less per
share for our common stock than the assumed initial public
offering price in this offering. Accordingly, if you purchase
common stock in this offering, you will experience immediate and
substantial dilution of your investment. Based upon the issuance
and sale
of                million
shares of common stock by us at an assumed initial public
offering price of $   per share (the midpoint of
the price range set forth on the cover page of this prospectus),
you will incur immediate dilution of approximately
$  in the net tangible book value per share if you
purchase shares in this offering.
We also have
approximately               outstanding
stock options to purchase common stock with exercise prices that
are below the assumed initial public offering price of the
common stock. To the extent that these options are exercised,
there will be further dilution.
Anti-takeover provisions of our charter and
by-laws, as well as Delaware law may reduce the likelihood of
any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
The anti-takeover provisions of Delaware law
impose various impediments to the ability of a third-party to
acquire control of us, even if a change in control would be
beneficial to our existing stockholders. Additionally,
provisions of our charter and by-laws could deter, delay or
prevent a third-party from acquiring us, even if doing so would
benefit our stockholders. These provisions include:
•
the division of our capital stock into
    Class A common stock and Class C common stock, each
    entitled to one vote per share, and Class B common stock,
    entitled to 15 votes per share, all of which will initially
    be owned or controlled by Jeffrey Katzenberg, David Geffen,
    Holdco and DreamWorks Studios;
•
the right of the holder of Class C common
    stock (voting as a separate class) to elect one director;
•
the authority of the board to issue preferred
    stock with terms as the board may determine;
•
the prohibition of cumulative voting in the
    election of directors;
•
following such time as the outstanding shares of
    Class B common stock cease to represent a majority of the
    combined voting power of the voting stock, prohibition on
    stockholder action by written consent;
•
limitations on who may call special meetings of
    stockholders;
•
advance notice requirements for stockholder
    proposals;
•
following such time as the outstanding shares of
    Class B common stock cease to represent a majority of the
    combined voting power of the voting stock, super-majority voting
    requirements for stockholders to amend the by-laws; and
•
stockholder super-majority voting requirements to
    amend certain provisions of the charter.
23
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking
statements that are based on current expectations, estimates,
forecasts and projections about the industry in which we
operate, management's beliefs and assumptions made by
management. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings
"Prospectus Summary," "Risk Factors,"
"Unaudited Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and
"Business." Words such as "expect,"
"anticipate," "intend," "plan,"
"believe," "seek," "estimate,"
variations of such words and similar expressions are intended to
identify such forward looking statements. These statements are
not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements. Except as required under the federal securities laws
and the rules and regulations of the Securities and Exchange
Commission, we do not have any intention or obligation to update
publicly any forward-looking statements after we distribute this
prospectus, whether as a result of new information, future
events or otherwise.
24
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USE OF PROCEEDS
We estimate that we will receive approximately
$           million
in net proceeds from this offering assuming an initial public
offering price of
$           per
share (the midpoint of the range set forth on the cover page of
this prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses and assuming no
exercise of the underwriters' over-allotment option.
We intend to retain approximately
$175 million of the net proceeds of the Class A common
stock offered by us for general corporate and working capital
purposes, including possible acquisitions, joint ventures and
investments. In addition, we will use the remaining net proceeds
to repay all or a portion of the indebtedness that we intend to
assume from DreamWorks Studios in connection with our
separation, which we expect will be approximately
$           million.
We expect that the debt that we assume will have a maturity date
of                      and
bear an interest rate
of                      basis
points above LIBOR. We have no current agreements or commitments
with respect to any potential acquisitions, joint ventures or
investments.
We will not receive any of the proceeds from the
sale of shares of our Class A common stock by the selling
stockholders.
25
Table of Contents
DIVIDEND POLICY
We currently intend to retain all our earnings to
finance the growth and development of our business. We do not
anticipate paying any dividends on our common stock in the
foreseeable future. Any future change in our dividend policy
will be made at the discretion of our board of directors and
will depend on contractual restrictions contained in our credit
facility or other agreements, our results of operations,
earnings, capital requirements and other factors considered
relevant by our board of directors.
DILUTION
If you invest in our Class A common stock,
your interest will be diluted to the extent of the difference
between the initial public offering price per share of our
Class A common stock and the net tangible book value per
share of our common stock after this offering.
Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided
by the number of shares of common stock then outstanding. Our
net tangible book value as
of                     ,
2004 was approximately
$           million,
or approximately
$           per
share based
on            shares
of common stock outstanding as of such date. After giving effect
to our sale of shares of Class A common stock in this
offering at the initial public offering price of
$           per
share (the midpoint of the price range set forth on the cover
page of this prospectus), and after deducting estimated
underwriting discounts and estimated offering expenses, our net
tangible book value as
of                     ,
2004 would have been
$          ,
or
$           per
share of common stock (assuming no exercise of the
underwriters' over-allotment option). This represents an
immediate increase in the net tangible book value of
$           per
share to existing common stockholders and an immediate and
substantial dilution of
$           per
share to new investors purchasing common stock in this offering.
Tangible assets consist of trade receivables, receivables due
from DreamWorks Studios, film inventories, property, plant and
equipment and other tangible assets of
$           million,
which include non-trade receivables of
$           million
included in other current assets and investments of
$           million
included in other assets. The following table illustrates this
dilution per share:
Assumed initial public offering price per share
$
Net tangible book value per share as
    of           ,
    2004
$
Increase in net tangible book value per share
    attributable to this offering
$
Net tangible book value per share after giving
    effect to this offering
$
Dilution per share to new investors
$
The foregoing discussion and tables assume no
exercise of outstanding stock options. As
of                     ,
2004, there were options outstanding to purchase a total
of            shares
of our Class A common stock at a weighted average exercise
price of
$           per
share. To the extent that any of these options are exercised,
there may be further dilution to new investors.
26
Table of Contents
CAPITALIZATION
The following table sets forth, as of
March 31, 2004, (a) our historical capitalization and
(b) our pro forma as adjusted capitalization, which gives
effect to our issuance and sale
of                shares
of Class A common stock offered hereby (at an assumed
initial public offering price of
$           per
share, the midpoint of the range of the initial public offering
price set forth on the cover page of this prospectus, and after
deducting the underwriting discount and estimated expenses of
the offering and assuming no exercise of the underwriters'
over-allotment option) and the application of the net proceeds
of the offering as described under the heading "Use of
Proceeds."
As of March 31, 2004
Pro forma
Historical
as Adjusted
(In thousands)
Cash
$
41
$
Obligations under capital leases
3,552
Debt allocated by DreamWorks Studios
380,062
Other debt
81,684
Stockholders' and owner's equity
    (deficiency)
Owner's equity (deficiency)
(65,143
)
Class A common stock, par value
    $.01 per
    share,        shares
    authorized;       shares
    issued and outstanding, pro forma as adjusted
(1)
—
Class B common stock, par value
    $.01 per
    share,        shares
    authorized;       shares
    issued and outstanding, pro forma as adjusted
—
Class C common stock, par value $.01 per
    share,        shares
    authorized;         shares
    issued and outstanding, pro forma as adjusted
—
Additional paid-in capital
—
Total stockholders' and owner's equity
    (deficiency)
(65,143
)
Total capitalization
$
400,196
$
(1)
Does not include (a) options issued under
    our 2004 Equity Compensation Plan
    for                shares
    of Class A common stock with a weighted average exercise
    price
    of               per
    share, and
    (b)                shares
    of Class A common stock reserved for issuance under our
    2004 Equity Compensation Plan under which options
    for                shares
    of common stock will be issued on the date hereof at the
    offering price set forth on the cover page hereof.
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UNAUDITED PRO FORMA FINANCIAL
INFORMATION
The following unaudited pro forma financial
information should be read in conjunction with our
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our combined
financial statements and the notes to our combined financial
statements included elsewhere in this prospectus. The unaudited
pro forma combined statements of operation were prepared
(i) as if the Distribution Agreement had become effective
on January 1, 2003 and had been in effect in all periods
since and (ii) as if we had been taxable as a corporation
since January 1, 2003 in all periods presented.
The pro forma adjustments are based upon
available information and assumptions that we believe are
reasonable and do not give effect to any transactions other than
those mentioned above, including those contemplated by the
Services Agreement. Please see the notes to our unaudited pro
forma combined financial statements for a more detailed
discussion of how the adjustments described above are presented
in our pro forma combined financial statements.
The primary result of giving pro forma effect to
the Distribution Agreement as of January 1, 2003 is that we
recognize revenue net of (i) DreamWorks Studios' 8.0%
distribution fee and (ii) the distribution and marketing
costs that DreamWorks Studios incurs for our films. In all
periods presented, this results in a substantial reduction to
our revenue. In addition, our costs of revenue decline because
we no longer incur distribution and marketing costs and
third-party distribution and fulfillment services fees. Also,
selling, general and administrative expenses are reduced because
we are no longer allocated overhead costs related to DreamWorks
Studios' marketing and distribution departments.
The pro forma effect of these adjustments is to
decrease our net loss in the periods presented primarily due to
timing differences. Over a longer time period, we believe our
pro forma net loss would not have changed substantially from our
historical net loss. As a result of the timing differences
arising from giving effect to the Distribution Agreement,
DreamWorks Studios generally will recoup in later periods the
distribution and marketing costs incurred by it in earlier
periods, thereby lowering our revenue and net income in later
periods. In addition, although during the periods presented the
pro forma distribution fee is approximately equal to or less
than allocated overhead costs and third-party distribution and
fulfillment services fees to be borne by DreamWorks Studios,
over a longer period of time, DreamWorks Studios'
distribution fees (which will reduce our operating revenue) are
expected to be higher than these allocated overhead costs and
third-party distribution and fulfillment services fees.
The pro forma effects of the Distribution
Agreement also shift the timing of amortization of film
inventory from period to period, although the total amount of
film inventory amortized does not change. Under the Distribution
Agreement, the revenue that we recognize from our films will be
net of the distribution fee and the distribution and marketing
costs that DreamWorks Studios incurs. Because amortization of
film inventory is based on the ratio that current period actual
revenue bears to estimated remaining unrecognized revenue, the
pro forma reductions in revenue result in pro forma changes in
film amortization for the periods presented.
The unaudited pro forma combined financial
statements also include a provision for pro forma income tax to
reflect federal income taxes that we would have been required to
pay had we been a taxable corporation since January 1,
2003. These pro forma federal income taxes are separate from and
in addition to the foreign withholding taxes and state franchise
taxes shown in our historical financial statements.
The following unaudited pro forma combined
financial statements have been derived from the combined
financial statements included elsewhere in this prospectus and
do not purport (i) to represent what our financial position
and results of operations actually would have been had we been a
stand-alone taxable corporation operating under the Distribution
Agreement for the periods presented or (ii) to project our
financial performance for any future period.
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DREAMWORKS ANIMATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS
For the Year Ended December 31,
2003
Historical
Adjustments
Pro Forma
(In thousands)
Operating revenue
$
295,574
$
(127,705
)(1)
$
167,869
(2)
Costs of revenue
438,313
(144,660
)(3)
293,653
Gross profit (loss)
(142,739
)
16,955
(125,784
)
Selling, general and administrative expenses
24,910
(12,633
)(4)
12,277
Operating income (loss)
(167,649
)
29,588
(138,061
)
Interest income (expense), net
(12,360
)
—
(12,360
)
Other income (expense), net
(4,730
)
—
(4,730
)
Total income (loss) before income taxes
(184,739
)
29,588
(155,151
)
Provision for income taxes
(1,839
)
(447
)(5)
(2,286
)
Income (loss) before cumulative effect of
    accounting change
(186,578
)
29,141
(157,437
)
Cumulative effect of accounting change
(2,522
)
—
(2,522
)
Net income (loss)
$
(189,100
)
$
29,141
$
(159,959
)
(1)
Reflects the reduction in operating revenue that
    would have occurred had the Distribution Agreement been in
    effect as of January 1, 2003. Under the terms of the
    Distribution Agreement, DreamWorks Studios would have been
    entitled to retain a distribution fee equal to 8.0% of revenue
    (without deduction for any distribution and marketing costs or
    third-party distribution and fulfillment services fees) with
    respect to our films, or approximately $22.9 million.
    DreamWorks Studios would also have been entitled to recoup
    distribution and marketing costs out of this revenue in the
    amount of approximately $104.8 million.
(2)
Distribution and marketing costs for our films
    incurred prior to the effective date of the Distribution
    Agreement are reflected in costs of revenue in our historical
    financial statements for the year ended December 31, 2002.
    Had we given pro forma effect to the Distribution Agreement in
    2002, these expenses, to the extent they would not have been
    recouped in 2002, would have reduced our pro forma operating
    revenue in 2003.
(3)
Reflects a reduction in distribution and
    marketing costs of approximately $142.0 million as these
    costs are borne by DreamWorks Studios under the terms of the
    Distribution Agreement. In addition, reflects the elimination of
    distribution and fulfillment services fees payable primarily to
    Universal Studios and CJ Entertainment, in the amount of
    approximately $9.9 million, as these costs are solely borne
    by DreamWorks Studios pursuant to the Distribution Agreement.
    These reductions are partially offset by an increase in
    production costs amortization of approximately $7.3 million
    as, under the individual-film-forecast-computation-method, the
    revenue that we would have recognized in this period would have
    represented a higher proportion of the total revenue that we
    would have estimated our released films to ultimately produce.
(4)
Reflects the elimination of allocated overhead
    costs that are primarily related to the salaries and benefits of
    employees in DreamWorks Studios' distribution and marketing
    departments, as these costs will be solely borne by DreamWorks
    Studios pursuant to the Distribution Agreement.
(5)
Reflects additional federal and state income
    taxes that we would have been required to pay had we been a
    taxable corporation since January 1, 2003.
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DREAMWORKS ANIMATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS
For the Three Months Ended March 31,
2004
Historical
Adjustments
Pro Forma
(In thousands)
Operating revenue
$
40,814
$
(28,514
)(1)
$
12,300
Costs of revenue
45,478
(36,966
)(2)
8,512
Gross profit (loss)
(4,664
)
8,452
3,788
Selling, general and administrative expenses
7,767
(3,697
)(3)
4,070
Operating income (loss)
(12,431
)
12,149
(282
)
Interest income (expense), net
(3,541
)
—
(3,541
)
Other income (expense), net
(9,646
)
—
(9,646
)
Total income (loss) before income taxes
(25,618
)
12,149
(13,469
)
Provision for income taxes
(303
)
—
(4)
(303
)
Net income (loss)
$
(25,921
)
$
12,149
$
(13,772
)
(1)
Reflects the reduction in operating revenue that
    would have occurred had the Distribution Agreement been in
    effect as of January 1, 2003. Under the terms of the
    Distribution Agreement, DreamWorks Studios would have been
    entitled to retain a distribution fee equal to 8.0% of revenue
    (without deduction for any distribution and marketing costs or
    third-party distribution and fulfillment services fees) with
    respect to our films, or approximately $3.2 million.
    DreamWorks Studios would also have been entitled to recoup
    distribution and marketing costs out of this revenue in the
    amount of approximately $25.3 million.
(2)
Reflects a reduction in distribution and
    marketing costs of approximately $30.1 million, as these
    costs are borne by DreamWorks Studios under the terms of the
    Distribution Agreement. In addition, reflects the elimination of
    distribution and fulfillment services fees payable primarily to
    Universal Studios and CJ Entertainment, in the amount of
    approximately $1.7 million, as these costs are solely borne
    by DreamWorks Studios pursuant to the Distribution Agreement. In
    addition, reflects a decrease in production costs amortization
    of approximately $5.2 million as, under the
    individual-film-forecast-computation-method, the revenue that we
    would have recognized in this period would have represented a
    lower proportion of the total revenue that we would have
    estimated our released films to ultimately produce.
(3)
Reflects the elimination of allocated overhead
    costs that are primarily related to the salaries and benefits of
    employees in DreamWorks Studios' distribution and marketing
    departments, as these costs will be solely borne by DreamWorks
    Studios pursuant to the Distribution Agreement.
(4)
Reflects federal and state income taxes that we
    would have been required to pay, if any, had we been a taxable
    corporation since January 1, 2003.
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SELECTED FINANCIAL DATA
The following table sets forth our selected
financial information derived from our unaudited combined
financial statements as of and for the years ended
December 31, 1999 and 2000, the audited combined financial
statements as of and for the years ended December 31, 2001,
2002 and 2003, and the unaudited combined financial statements
for the three months ended March 31, 2003 and as of and for
the three months ended March 31, 2004. The historical
selected financial information may not be indicative of our
future performance as a stand-alone company. The historical
selected financial information should be read in conjunction
with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the
combined financial statements and notes to our combined
financial statements and the unaudited pro forma combined
financial statements and notes to our unaudited pro forma
combined financial statements included elsewhere in this
prospectus.
Combined Statement of Operations
Data
Three Months Ended
Year Ended December 31,
March 31,
1999
2000
2001
2002
2003
2003
2004
(Unaudited)
(Audited)
(Unaudited)
(In thousands)
Operating revenue
$
397,437
$
298,729
$
661,308
$
456,356
$
295,574
$
48,201
$
40,814
Costs of revenue
340,320
372,968
509,087
396,983
438,313
40,994
45,478
Gross profit (loss)
57,117
(74,239
)
152,221
59,373
(142,739
)
7,207
(4,664
)
Selling, general and administrative expenses
52,779
33,830
49,568
56,954
24,910
9,183
7,767
Operating income (loss)
4,338
(108,069
)
102,653
2,419
(167,649
)
(1,976
)
(12,431
)
Interest income (expense), net
19
(6,212
)
(812
)
(3,940
)
(12,360
)
(3,585
)
(3,541
)
Other income (expense), net
(100
)
191
(14,005
)
(27,419
)
(4,730
)
(6,300
)
(9,646
)
Income (loss) before income taxes and cumulative
    effect of accounting changes
4,257
(114,090
)
87,836
(28,940
)
(184,739
)
(11,861
)
(25,618
)
Provision for income taxes
(176
)
(1,400
)
(1,434
)
(2,191
)
(1,839
)
(85
)
(303
)
Income (loss) before cumulative effect of
    accounting changes
4,081
(115,490
)
86,402
(31,131
)
(186,578
)
(11,946
)
(25,921
)
Cumulative effect of accounting changes
—
—
(82,743
)
—
(2,522
)
—
—
Net income (loss)
$
4,081
$
(115,490
)
$
3,659
$
(31,131
)
$
(189,100
)
$
(11,946
)
$
(25,921
)
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Combined Balance Sheet Data
December 31,
March 31,
1999
2000
2001
2002
2003
2004
(Unaudited)
(Audited)
(Unaudited)
(In thousands)
Assets
Cash and cash equivalents
$
667
$
164
$
835
$
3
$
41
$
41
Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
120,723
147,082
313,966
150,915
131,329
45,190
Receivables from employees
1,782
2,544
1,360
2,080
2,480
2,260
Film inventories
501,559
516,019
444,210
471,847
422,343
475,116
Property, plant and equipment, net of accumulated
    depreciation and amortization
13,470
11,505
13,250
15,375
85,064
83,982
Investments in joint ventures
3,614
—
—
—
—
—
Deferred costs, net of amortization
118
—
—
1,986
1,641
1,516
Goodwill
—
25,998
26,462
26,462
26,462
26,462
Other assets
25
299
298
578
1,644
2,194
Total assets
$
641,958
$
703,611
$
800,381
$
669,246
$
671,004
$
636,761
Liabilities and Owner's Equity
    (Deficiency)
Accounts payable
$
1,871
$
5,323
$
13,382
$
1,994
$
1,615
$
1,838
Accrued liabilities
45,251
76,009
122,235
112,645
97,280
88,319
Advances and unearned revenue
17,758
27,568
11,090
65,197
89,009
143,508
Obligations under capital leases
6,150
5,595
5,001
4,375
3,732
3,552
Debt allocated by DreamWorks Studios
283,975
105,999
168,461
313,814
418,379
380,062
Other debt
—
—
—
—
76,612
81,684
Total liabilities
355,005
220,494
320,169
498,025
686,627
698,963
Non-controlling minority interest
—
—
—
—
2,941
2,941
Owner's equity (deficiency)
286,953
483,117
480,212
171,221
(18,564
)
(65,143
)
Total liabilities and owner's equity
    (deficiency)
$
641,958
$
703,611
$
800,381
$
669,246
$
671,004
$
636,761
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis
of financial condition and results of operations contains
forward-looking statements that involve risks and uncertainties.
Please see "Forward-Looking Statements" for a
discussion of the uncertainties, risks and assumptions
associated with these statements. You should read the following
discussion in conjunction with our audited and unaudited
combined financial statements, the notes to our audited combined
financial statements, our unaudited pro forma combined
financial statements and the notes to our unaudited pro forma
combined financial statements included elsewhere in this
prospectus. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of
various factors, including but not limited to those listed under
"Risk Factors" and included in other portions of this
prospectus.
Overview
We have been developing and producing animated
films as a division of DreamWorks Studios since its formation in
1994 and our assets, liabilities and operating results have been
included in DreamWorks Studios' financial statements since
that time. As part of our separation from DreamWorks Studios, on
the date of the consummation of this offering, DreamWorks
Studios will contribute to us, by way of merger or otherwise,
the subsidiaries, assets and liabilities that have comprised its
animation business. Please see "Related Party
Agreements — Separation Agreement" for a
description of the separation.
Our audited combined financial statements, which
are discussed below, reflect the historical position, results of
operations and cash flows of the businesses that will be
transferred to us from DreamWorks Studios pursuant to the
separation. The financial information included in this
prospectus, however, does not reflect what our financial
position, results of operations and cash flows will be in the
future or what our financial position, results of operations and
cash flows would have been in the past had we been a separate,
stand-alone company during the periods presented.
Sources of
Revenue
Our feature films are the source of substantially
all of our revenue, which is derived through their worldwide
exploitation in sequential domestic and international
distribution channels, typically beginning with domestic
theatrical exhibition. Historically, we have released an average
of one film per year. In the future, we expect to release two
films per year. In addition, in the past, our sources of revenue
have principally been the domestic and international theatrical,
home video and television markets, although we have also derived
revenue from ancillary sources, such as through the
merchandising and licensing of our characters and films. Under
the Distribution Agreement, which is described below, we expect
that revenue (without deduction for any distribution and
marketing expenses) from the domestic and international
theatrical exhibition of a film will be used by DreamWorks
Studios to recover the distribution and marketing expenses it
incurs for the film and to cover its distribution fee relating
to these markets before we recognize any revenue for that film.
Therefore, we expect that our revenue will be principally
derived from the home video and television markets and from the
same ancillary sources as in the past. Because DreamWorks
Studios will be recouping distribution and marketing costs and
its distribution fee, our revenue from theatrical markets will
be significantly lower than it would have been had we not
entered the Distribution Agreement.
Historically, there has been a close correlation
between domestic box office success and home video and
international theatrical box office success, such that films
that achieve high domestic box office receipts also tend to sell
large numbers of home videos and achieve a high international
theatrical box office gross. In addition, license fees derived
from pay and broadcast television are often based on the box
office success of a film. Therefore, we consider domestic box
office sales to be the most important indicator of how much
revenue our films will ultimately generate. Regardless of the
number of films we make or how we report our revenue, our
revenue will always be dependent on the performance of our films.
Our films are distributed in foreign countries
and, in recent years, we have derived approximately one-third of
our revenue from foreign sources. As a result, fluctuations in
foreign currency exchange rates can
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adversely affect our business, results of
operations and cash flow. Due to the nature of the distribution
agreements that have been in place at DreamWorks Studios,
whereby DreamWorks Studios has not been responsible for
collecting foreign currency, there is a relatively short period
between revenue recognition and cash payment under those
agreements. As a result, neither we nor DreamWorks Studios
generally have hedged foreign currency exchange risks associated
with those distribution agreements (although we have used
hedging transactions in connection with foreign currency
denominated production costs), and we do not expect to do so in
the future.
Our historical financial statements do not
reflect any material allocations of revenue from DreamWorks
Studios and we do not expect any material allocations in the
future.
Costs of
Revenue and Selling, General and Administrative
Expenses
Historically, our costs of revenue have included
distribution and marketing costs; third-party distribution and
fulfillment services fees; the amortization of capitalized
production, overhead and interest costs; contingent compensation
and residual costs; and write-offs of film inventory for
unreleased films. Selling, general and administrative expenses
include salaries, employee benefits, rent and other routine
overhead expenses, net of expenses included in capitalized
overhead. Over the past decade, expenses in the motion picture
industry have increased rapidly as a result of increased
production costs and distribution and marketing costs. See
"Risk Factors — The costs of producing and
marketing feature films have steadily increased and may increase
in the future, which may make it more difficult for a film to
generate a profit or compete against other films."
Distribution and marketing costs consist
primarily of the costs of advertising, preparing release prints
and manufacturing home video units. The costs of advertising a
CG animated feature film for the theatrical market are
significant and typically involves national and target market
media campaigns, as well as public appearances of the
film's stars. In addition, there are significant
advertising costs associated with other distribution channels,
such as home video marketing.
Capitalized production costs include all of the
costs incurred to develop and produce animated films, which
primarily consist of salaries and fringe benefits for animators
and voice talent, equipment and other direct operating costs.
Capitalized production overhead generally represents the
salaries of individual employees or entire departments with
exclusive or significant responsibilities for the production of
our films.
We are responsible for certain compensation paid
to creative participants, such as writers, producers, directors,
voice talent and other persons associated with the production of
a film, which is dependent on the performance of the film and is
based on factors such as domestic box office and total revenue
recognized by the distributor related to the film. We are also
responsible for residuals, which are payments based on similar
factors and generally made to third-parties pursuant to
collective bargaining, union or guild agreements or for
providing certain services such as recording or synchronization
services.
Under the Distribution Agreement, our costs of
revenue will include the amortization of capitalized production,
overhead and interest costs, contingent compensation and
residual costs and write-offs of film inventory for unreleased
films, but generally will not include distribution and marketing
costs or third-party distribution and fulfillment services fees.
Distribution and marketing costs will be included in our costs
of revenue only to the extent that we cause DreamWorks Studios
to make additional expenditures in excess of agreed amounts. See
"Related Party Agreements — Distribution
Agreement." Our selling, general and administrative
expenses will no longer include allocated costs of DreamWorks
Studios' selling and marketing departments.
Allocations
Our audited combined financial statements
included in this prospectus include allocations of the combined
assets, liabilities and expenses of DreamWorks Studios and
DreamWorks Animation. As an operating division of DreamWorks
Studios, we have historically been allocated a portion of
DreamWorks Studios' total overhead expenses for the
marketing and distribution of all DreamWorks Studios' films
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(including our films), and for corporate
functions, such as executive management, finance, accounting,
legal, human resources, facilities management, insurance and
information technology. In general, these allocations have been
calculated based on the percentage that our films, headcount,
revenue or other criteria constitute of the total films,
headcount, revenue or other criteria of DreamWorks Studios
(which amounts include our films, headcount, revenue or other
criteria). In the future, to the extent that DreamWorks Studios
provides these or other services to us that are not covered by
the Distribution Agreement, we will reimburse DreamWorks Studios
pursuant to the Services Agreement, which is described elsewhere
in this prospectus under "Related Party
Agreements — Services Agreement". A brief
description of these services is also included below.
Worldwide Marketing and
Distribution
: Historically, certain
overhead expenses for the marketing and distribution of our
films have been allocated to us by DreamWorks Studios. These
costs include the salaries, fringe benefits and operating
expenses of the employees in DreamWorks Studios'
theatrical, home video, marketing and television
sales/distribution departments. The allocation of the overhead
associated with these functions has been based on several
factors, including: (1) marketing costs incurred for our
films as a percentage of marketing costs incurred for all
DreamWorks Studios' films; (2) the number of films we
have released as a percentage of all DreamWorks Studios'
films released in a given year and (3) estimates of time
spent on our releases as a percentage of time spent on all
DreamWorks Studios' releases. Although DreamWorks Studios
has historically allocated a portion of the overhead costs of
these departments to us, these services will be provided to us
in the future pursuant to the Distribution Agreement.
Executive
Management
: Executive management
expense is comprised of the expenses relating to DreamWorks
Studios' principals, chief operating officers, and their
respective administrative staffs, including costs associated
with transportation. These costs have historically been
allocated to us based on a combination of (1) revenue
generated by us as a percentage of DreamWorks Studios'
consolidated revenue and (2) our headcount as a percentage
of DreamWorks Studios' consolidated headcount. In the
future, we expect that executive management expense, including
costs associated with transportation, will be incurred directly
by us.
Finance and
Accounting
: DreamWorks Studios has
historically allocated accounting and finance services related
costs, including the costs of financial systems, to us based on
several factors, including: (1) revenue generated by us as
a percentage of DreamWorks Studios' consolidated revenue;
(2) our headcount as a percentage of DreamWorks
Studios' total headcount and (3) time spent on our
finance projects as a percentage of time spent on all DreamWorks
Studios' finance projects. In the future, we expect to
directly incur the costs of some accounting and finance
services, such as strategic planning, financial reporting,
treasury and investor relations. Other accounting and finance
services, such as billing and collection of receivables (except
receivables derived from rights retained by us, such as
licensing and merchandising rights) and contingent compensation
and residual reporting oversight services, will be provided
pursuant to the Distribution Agreement. As a result, DreamWorks
Studios will no longer allocate any of these costs to us. We
expect that DreamWorks Studios will provide other accounting
services to us, such as payroll, pursuant to the Services
Agreement.
Legal
: Costs related
to legal services, other than outside legal fees and film
specific trademark related expenses, which have been directly
charged to us, have historically been allocated to us based on
actual time spent by DreamWorks Studios' attorneys on
matters related primarily to us or our films. In the future, we
expect to directly incur the costs of most legal services,
either through our employees or through our direct retention of
outside legal counsel. However, some legal services, such as
work related to employment and music law, we expect will be
provided to us by attorneys employed by DreamWorks Studios under
the Services Agreement. We will pay DreamWorks Studios for these
services pursuant to the Services Agreement.
Human Resources
:
DreamWorks Studios has historically allocated some human
resources costs, including management, benefits administration
and employee relations to us based on our headcount as a
percentage of the consolidated headcount of DreamWorks Studios.
Other costs related to human resources, such as recruiting and
relocation costs have been directly incurred by us. In the
future, we expect to directly incur the costs associated with
human resources management and employee relations. We expect
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DreamWorks Studios to provide other services,
such as benefits management, for which we would reimburse
DreamWorks Studios for these services pursuant to the Services
Agreement.
Occupancy and Facilities
Management
: The costs of facilities
management and mail services have been allocated to us
historically based on the square footage that we have occupied
at our Glendale animation campus and our Redwood City production
facility as a percentage of total square footage of all
DreamWorks Studios' facilities. In the future, we expect to
incur the costs of facilities management and mail services
directly. We will charge a portion of our occupancy costs to
DreamWorks Studios pursuant to the Glendale lease arrangement.
See "Related Party Agreements — Glendale
Lease."
Insurance:
Property
insurance premiums have historically been allocated to us based
on our insurable asset values as a proportion of DreamWorks
Studios' total insurable asset values, based on the
asset's fair market or replacement value as determined at
the time of premium renewal. The insurance premiums for policies
such as errors and omissions, directors and officers, travel,
and excess liability, have historically been allocated to us
based on (1) our headcount as a percentage of the
consolidated headcount of DreamWorks Studios and (2) the
number of films we have released as a percentage of all
DreamWorks Studios' films released in a given year. In the
future, we expect to directly incur all insurance costs.
Information
Technology:
DreamWorks Studios has
historically allocated to us the costs of network infrastructure
and administrative desktop computer support. This allocation has
been based on our headcount as a percentage of total DreamWorks
Studios' headcount, in each case excluding the headcount of
our Redwood City facility, as the costs related to Redwood City
have been directly incurred by us. In the future, we expect
DreamWorks Studios will provide network infrastructure and
administrative desktop support services to us, and we will
reimburse DreamWorks Studios for these services, pursuant to the
Services Agreement. For telecommunications, we have historically
been allocated a fixed fee for every telephone user, which
includes the costs of the equipment and related maintenance and
support costs. We have also been charged for actual local and
long distance usage.
Other Allocations:
We have historically been allocated certain other costs,
including (1) costs to track, deliver and store various
film and film related content (for example, film elements,
photos and artwork); (2) costs to oversee dubbing of our
films and (3) costs to oversee the placement of musical
content in our films. In the future, we will directly incur some
of these costs, such as the placement of musical content in our
films. DreamWorks Studios will provide some of these services to
us, such as the dubbing of our films, as set forth in the
Distribution Agreement. Other of these services, such as the
costs of storing various film and film related content, will be
provided to us, and we will reimburse DreamWorks Studios
pursuant to the Services Agreement.
Debt, Interest and Other Expense
Allocations:
DreamWorks Studios has
historically allocated to us debt and interest expense
associated with its debt, and other income and expense
associated with its interest rate swap agreements. This
allocation has been based on the proportion of capital invested
in our films in production as a percentage of total capital
invested by DreamWorks Studios in all films in production. A
portion of this allocated interest expense has been capitalized
to film inventory. In connection with our separation from
DreamWorks Studios, we do not expect to assume any obligations
with respect to any of DreamWorks Studios' interest rate
swap agreements other than those associated with the Glendale
animation campus indebtedness. In the future, to the extent we
incur debt and interest expense, we will do so directly.
Distribution
and Services Agreements
We will enter into several agreements with
DreamWorks Studios in connection with our separation, including
the Distribution Agreement and the Services Agreement. For a
more detailed description of these agreements, please see
"Related Party Agreements — Distribution
Agreement" and "Related Party Agreements —
Services Agreement."
Distribution
Agreement:
Pursuant to the
Distribution Agreement, we will grant DreamWorks Studios the
exclusive right to distribute all of our completed animated
feature films, including our previously released films,
throughout the world that are available for delivery through the
later of (i) delivery of 12 animated
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feature films, beginning with
Shark Tale
,
and (ii) December 31, 2010. However, in general, the
terms of the Distribution Agreement will be subject to each of
the sub-distribution, servicing and licensing agreements that we
pre-approve (such as DreamWorks Studios' existing
arrangements with Universal Studios, CJ Entertainment and
Kadokawa Entertainment). In addition, even if we terminate our
distribution relationship with DreamWorks Studios, our existing
and future films generally will still be subject to the terms of
pre-approved agreements. DreamWorks Studios will be responsible
for (1) the domestic and international theatrical
exhibition of our films, (2) the domestic and international
home video exhibition of our films and direct-to-video pictures,
(3) the domestic and international television licensing of
our films, including pay-per-view, pay television, network,
basic cable and syndication, (4) non-theatrical exhibition
of our films, such as on airlines, in schools and in armed
forces institutions. DreamWorks Studios has also been granted
Internet, radio (for promotional purposes only) and new media
rights with respect to our films. We retain all other rights to
exploit our films, including the right to make sequels and
commercial tie-in and promotional rights with respect to each
film, as well as merchandising, interactive, literary
publishing, music publishing, soundtrack, radio, legitimate
stage and theme park rights. However, to the extent we wish to
exploit theme park rights, we will only do so through Universal
Studios for so long as Steven Spielberg has certain contractual
relationships with us or if he, his wife, his or her issue (or
trusts for the primary benefit of any of them) or a private
charitable foundation organized by him and/or his wife directly
or indirectly owns or controls our Class A common stock.
DreamWorks Studios will be directly responsible
for the initial U.S. theatrical release of all of our
animated films, but may engage one or more sub-distributors and
service providers for all other markets, subject to our prior
written approval with respect to entities not currently so
engaged by DreamWorks Studios. Pursuant to the Distribution
Agreement, we are solely responsible for all of the costs of
developing and producing our animated feature films and for
contingent compensation and residual costs. DreamWorks Studios
is responsible for all out-of-pocket costs, charges and expenses
incurred in the distribution (including prints and the
manufacture of home video units and distribution and fulfillment
services fees payable to third-parties), advertising, marketing,
publicizing and promotion of the films, and has agreed to make
expenditures consistent with historical levels with respect to
our films. If we make a good faith determination that the
expenditure of additional distribution and marketing amounts
will enhance a film's gross receipts, we may cause
DreamWorks Studios to spend additional amounts. In such a case,
we will be solely responsible for reimbursing DreamWorks Studios
for those additional expenditures and we will incur the related
distribution and marketing expenses in the period in which we
reimburse DreamWorks Studios therefor. The Distribution
Agreement also provides that DreamWorks Studios is entitled to
(i) retain a fee of 8.0% of revenue (without deduction for
any distribution and marketing costs or third-party distribution
and fulfillment services fees) and (ii) recoup all of its
distribution and marketing costs prior to our recognizing any
revenue. Once the license to distribute one of our animated
films or direct-to-video pictures is acquired by DreamWorks
Studios, it will have the right to exploit the animated film or
direct-to-video picture in the manner described above for
16 years from initial general theatrical release or
10 years from initial direct-to-video release.
Services Agreement.
We will also enter into the Services Agreement with DreamWorks
Studios prior to the consummation of this offering that will
provide for certain services to be provided to us by DreamWorks
Studios. The services to be provided include (i) specified
accounting functions; (ii) insurance administration;
(iii) information systems management; (iv) payroll
services; (v) legal advisory and consulting services;
(vi) human resources administration; (vii) certain
procurement services and (viii) other general support
services. Each of these services will have a separate fee
structure that will be reflected in the Services Agreement.
Critical Accounting Policies
Revenue
Recognition
Both historically and under the Distribution
Agreement, we have recognized and will recognize revenue from
the distribution of our animated feature films when earned, as
reasonably determinable in accordance with the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants Statement of Position 00-2,
"Accounting by Producers or Distributors of Films"
(the "SOP").
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The following are the conditions that must be met
in order to recognize revenue in accordance with the SOP:
(i) persuasive evidence of a sale or licensing arrangement
with a customer exists; (ii) the film is complete and has
been delivered or is available for immediate and unconditional
delivery; (iii) the license period of the arrangement has
begun and the customer can begin its exploitation, exhibition or
sale; (iv) the arrangement fee is fixed or determinable and
(v) collection of the arrangement fee is reasonably assured.
Revenue from the sale of home video units is
recognized at the time the product is made available for retail
sale, at which time we also establish a reserve that reduces
revenue by the estimated impact of returns, rebates and other
incentives. In determining the estimate of home video unit sales
that will be returned, we analyze point-of-sale data available
from major retailers, historical returns, current economic
trends and changes in consumer demand and acceptance of our
product.
For periods prior to the effective date of the
Distribution Agreement, we have recognized revenue from our
films net of reserves for returns, rebates and other incentives.
Under the Distribution Agreement, which will become effective as
of a date prior to the consummation of this offering, we are
entitled to recognize revenue after DreamWorks Studios
(i) retains a distribution fee of 8.0% of revenue (without
deduction for any distribution and marketing costs or
third-party distribution and fulfillment services fees) and
(ii) recovers all of its distribution and marketing costs
with respect to our films. See "Related Party
Agreements — Distribution Agreement." Upon
effectiveness of the Distribution Agreement, DreamWorks Studios
will begin retaining its 8.0% fee for all revenue recognized by
it subsequent to the effective date, regardless of whether the
revenue relates to a film released prior to the effective date
of the Distribution Agreement and regardless of whether it has
recouped the distribution and marketing expenses related to that
film that it has incurred.
Because DreamWorks Studios will be the principal
distributor of our films, in accordance with the SOP, the amount
of revenue that we will recognize from our films in any given
period following the effective date of the Distribution
Agreement will depend on the timing, accuracy and sufficiency of
the information we receive from DreamWorks Studios. Although
DreamWorks Studios has agreed to provide us with the most
current information available to it to enable us to recognize
our share of revenue, we may make adjustments to that
information based on our estimates and judgments. For example,
we may make adjustments to our revenue derived from home video
units for estimates on return reserves, rebates and other
incentives that may differ from those that DreamWorks Studios
recommends. The estimates on reserves may be adjusted
periodically based on actual rates of returns, inventory levels
in the distribution channel, as well as other business and
industry information. We will also review expense estimates and
may make adjustments to these estimates in order to ensure that
our revenue and gross margin are accurately reflected in our
financial statements. In addition, as is typical in the movie
industry, our distributor and its sub-distributors may also make
subsequent adjustments to the information that they will provide
and these adjustments could have a material impact on our
operating results in later periods.
Costs of
Revenue
Film Production
Costs.
We capitalize film production
costs to film inventories in production in accordance with the
provisions of the SOP. Direct film production costs include
costs to develop and produce CG animated films, which
primarily consists of salaries and fringe benefits for animators
and voice talent, equipment and other direct operating costs.
Production overhead, a component of film inventory, includes
allocable costs of individuals or departments with exclusive or
significant responsibility for the production of our films. In
addition to the films being produced, we are also working on
development of several new projects. Costs of these projects are
capitalized as film inventories in development in accordance
with the provisions of the SOP and are transferred to film
inventories in production when a film is set for production. We
evaluate each project in development and production on a
quarterly basis to determine whether capitalized costs are in
excess of our estimate of fair value. If they are in excess,
then we write-off the excess cost and reflect these in costs of
revenue. In addition, after three years, if the project is still
in development and has not been set for production, it is
written off and reflected in costs of revenue.
Contingent Compensation and
Residuals.
Certain compensation paid
to creative participants, such as writers, producers, directors,
voice talent and other persons associated with the production of
a film is
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dependent on the performance of the film, based
on factors such as domestic box office and total revenue
recognized by the distributor related to the film. We are also
responsible for residuals, which are payments based on similar
factors and generally made to third-parties pursuant to
collective bargaining, union or guild agreement or for providing
certain services such as recording or synchronization services.
These forms of contingent compensation and residual costs are
accrued in accordance with the SOP, using the
individual-film-forecast-computation method, which accrues and
amortizes such costs in the same ratio that current period
actual revenue (numerator) bears to estimated remaining
unrecognized revenue as of the beginning of the current fiscal
year (denominator), as described below.
Amortization.
Once a
film is released, the amount of film inventory relating to that
film, including film production costs and contingent
compensation and residual costs, is amortized and included in
costs of revenue in the proportion that the revenue during the
period for each film ("Current Revenue") bears to the
estimated total revenue to be received from all sources for each
film ("Ultimate Revenue") under the
individual-film-forecast-computation method in accordance with
the provision of the SOP. The amount of film costs that are
amortized each quarter will therefore depend on the ratio of
Current Revenue to Ultimate Revenue for each film. We make
certain estimates and judgments of Ultimate Revenue to be
received for each film based on information received from
DreamWorks Studios, and our knowledge of the industry. Estimates
of Ultimate Revenue and anticipated contingent compensation and
residual costs are reviewed periodically and are revised if
necessary. A change to the Ultimate Revenue for an individual
film will result in an increase or decrease to the percentage of
amortization of capitalized film costs relative to a previous
period. Unamortized film production costs are evaluated for
impairment each reporting period on a film-by-film basis in
accordance with the requirements of the SOP. If estimated
remaining revenue is not sufficient to recover the unamortized
film inventory for that film, the unamortized film inventory
will be written down to fair value determined using a net
present value calculation.
We expect that, in periods following the
effectiveness of the Distribution Agreement, the amount of
revenue that we recognize in the periods immediately following a
film's release will be substantially less than the amounts
that we have historically recognized in similar periods, due to
the fact that, under the Distribution Agreement, we will be
recognizing revenue net of DreamWorks Studios'
8.0% distribution fee and the distribution and marketing
costs that it incurs. Consequently, although the total amount of
production costs that are amortized for any particular film will
be the same over the life of the film, the timing of the
amortization will change, since amortization is calculated based
on the ratio of Current Revenue to Ultimate Revenue.
Marketing and Distribution
Expenses.
The costs of marketing a
film consist primarily of prints and advertising costs, as well
as third-party distribution and fulfillment services fees. Print
costs are expensed upon the theatrical release of a film, and
advertising and third-party distribution and fulfillment
services fees are expensed as incurred in accordance with the
SOP and are included in costs of revenue. Third-party
distribution and fulfillment services fees have historically
included fees earned by our distributors and fulfillment
services providers, which in the periods through the
effectiveness of the Distribution Agreement were primarily
Universal Studios and CJ Entertainment. Manufacturing costs
(including duplication and replication) related to home video
units are expensed when the related product revenue is
recognized. We periodically evaluate inventories of such
products for impairment and obsolescence and make appropriate
adjustments to their carrying value as necessary. Although our
historical financial statements include these costs, as
described above, pursuant to the Distribution Agreement,
DreamWorks Studios will generally be responsible for all costs
associated with the distribution and marketing of our films.
Accordingly, in the future, while our costs of revenue will not
include distribution and marketing costs and third-party
distribution and fulfillment services fees, our revenue will be
net of the distribution and marketing costs that DreamWorks
Studios recoups, as well as its 8.0% distribution fee.
Selling, General and Administrative
    Expenses
Selling, general and administrative expenses
generally consist of general and administrative expenses,
including allocations (historically), depreciation and non-film
amortization, net of expenses included in capitalized overhead.
General and administrative expenses consist of salaries, rent
and other allocated
39
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overhead costs as described in allocations above.
Capitalized overhead generally represents the salaries of
individual employees or entire departments with exclusive or
significant responsibilities for the production of our films,
which we capitalize and include in production costs as described
above.
Interest Expense and Other Income and
    Expense
Interest expense and other income and expense
historically include allocations of interest expense and other
income and expense associated with DreamWorks Studios' debt
and its interest rate swap agreements, and other non-operating
income and expense.
Property, Plant and Equipment
Property, plant and equipment are recorded at the
lower of cost or fair value and are depreciated on a
straight-line method over the estimated useful lives of such
assets. Property, plant and equipment consist primarily of our
Glendale animation campus, leasehold improvements associated
with our Redwood City facility, furniture and computer equipment.
Results of Operations
Three Months Ended March 31, 2004,
    compared to Three Months Ended March 31,
    2003.
For the three months ended March 31, 2004,
our results were primarily driven by worldwide home video
revenue for
Shrek
and
Sinbad: Legend of the Seven
Seas,
and from continuing revenue from our library of films.
This was partially offset by pre-release advertising and
printing costs associated with the release of
Shrek 2.
Revenue.
For the
three months ended March 31, 2004, revenue decreased by
$7.4 million, or 15%, from $48.2 million to
$40.8 million, as compared to the three months ended
March 31, 2003. Film revenue for the three months ended
March 31, 2004 was primarily driven by the ongoing success
of
Shrek
in the worldwide home video and television
markets. The international theatrical and home video release of
Sinbad: Legend of the Seven Seas
also contributed to
revenue in the first quarter of 2004. Other library titles
(
Antz, Prince of Egypt, The Road to El Dorado, Chicken Run,
Joseph: King of Dreams
and
Spirit: Stallion of the
Cimarron
) contributed revenue of approximately
$13.6 million for the three months ended March 31,
2004, primarily from worldwide home video. Film revenue for the
three months ended March 31, 2003 was derived primarily
from international theatrical and home video revenue from
Spirit: Stallion of the Cimarron,
along with its
associated ancillary revenue. Also contributing to revenue in
the first quarter of 2003 was ongoing revenue from
Shrek
in the worldwide home video and international pay television
markets. Other library titles (
Antz, Prince of Egypt, The
Road to El Dorado, Chicken Run
and
Joseph: King of
Dreams
) contributed revenue of approximately
$13.1 million in the three months ended March 31,
2003, primarily from the worldwide home video and domestic
television markets. The lower revenue in the first quarter of
2004 as compared to 2003 was primarily due to the disappointing
results for
Sinbad: Legend of the Seven Seas
in the
international theatrical and worldwide home video markets.
Costs of Revenue.
Costs of film revenue were $45.5 million in the three
months ended March 31, 2004, as compared to
$41.0 million in the three months ended March 31,
2003. This increase was primarily driven by pre-release
marketing and promotional costs associated with the release of
Shrek 2
, which were expensed in the three months
ended March 31, 2004, although no revenue can be recognized
until May 2004, the month in which the film was released. The
increase was partially offset by a decline in amortization of
film inventory for the three months ended March 31, 2004 as
compared to the three months ended March 31, 2003.
Amortization of film costs as a percentage of film revenue in
the three months ended March 31, 2004 was 31%, compared to
51% for the three months ended March 31, 2003. Amortization
of film inventory as a percentage of film revenue may vary from
period to period due to several factors, including:
(i) changes in the mix of films earning revenue,
(ii) changes in any film's Ultimate Revenue and
(iii) write offs of film inventory due to changes in the
estimated fair value of unamortized film inventory, as required
by the SOP. The decline in amortization of film inventory as a
percentage of film revenue for the first quarter of 2004 was
primarily due to the change in the mix of films earning revenue.
Shrek
, which has a low amortization due to the size of its
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Ultimate Revenue, earned more revenue than any of
our other films in the first quarter of 2004. This resulted in a
lower overall amortization when compared to the first quarter of
2003, where substantial revenue was earned from
Spirit:
Stallion of the Cimarron
, which had a higher amortization
percentage due to the size of its Ultimate Revenue.
Selling, General and Administrative
Expenses.
Total selling, general and
administrative expenses were $7.8 million for the three
months ended March 31, 2004 as compared to
$9.2 million for the three months ended March 31,
2003. This $1.4 million decrease was primarily due to bad
debt expense reported in the three months ended March 31,
2003 associated with international home video receivables. We
expect that operating expenses will be reduced in future periods
to the extent that we are no longer allocated overhead costs for
selling and marketing. However, this reduction will be offset to
the extent of increases in general and administrative and
compliance costs that result from our becoming a public company.
Interest Expense and Other Income and
Expense.
Total interest expense and
other income and expense were $13.2 million for the three
months ended March 31, 2004 as compared to
$9.9 million for the three months ended March 31,
2003. This $3.3 million increase in expense was primarily
due to an increase in interest expense and other expense
associated with interest rate swap agreements allocated to us by
DreamWorks Studios.
Operating Results.
The three months ended March 31, 2004 resulted in an
operating loss of $12.4 million and net loss of
$25.9 million, as compared to an operating loss of
$2.0 million and a net loss of $11.9 million for the
quarter ended March 31, 2003. This was primarily due to
pre-release marketing and promotion expenses incurred in the
first quarter of 2004 associated with the May release of
Shrek 2
and an increase in interest expense and other
expense associated with interest rate swap agreements allocated
to us by DreamWorks Studios. Because we operated as a division
of a limited liability company for both periods, we incurred
only minimal income taxes related to foreign withholding and
state franchise taxes.
Year Ended December 31, 2003, compared
    to the Year Ended December 31, 2002.
Revenue.
For the
year ended December 31, 2003, revenue decreased by
$160.8 million, or 35%, to $295.6 million from
$456.4 million for the year ended December 31, 2002.
Film revenue for the year ended December 31, 2003 was
derived primarily from worldwide home video and television
revenue from
Shrek
, and from the worldwide theatrical and
home video release of
Sinbad: Legend of the Seven Seas
.
Also contributing to revenue in 2003 was ongoing revenue from
Spirit: Stallion of the Cimarron
in the international
theatrical and worldwide home video markets. Other library
titles (
Antz, Prince of Egypt, The Road to El Dorado, Chicken
Run
and
Joseph: King of Dreams
) contributed revenue
of approximately $58.8 million in the year ended
December 31, 2003, primarily from the worldwide home video
and television markets. Film revenue for the year ended
December 31, 2002 was primarily driven by the ongoing
success of
Shrek
in the worldwide home video and
television markets, and by the release of
Spirit: Stallion of
the Cimarron
in the worldwide theatrical and home video
markets, along with their associated ancillary revenue. Revenue
in 2002 from domestic home video sales of
Shrek
, which
was initially released in the domestic home video market in
November 2001, also benefited from unprecedented low rates of
returns of home video units shipped in 2001. We based 2001
returns reserves on the number of units shipped, historical
experience and sales data available at the time. During 2002, as
Shrek
sales continued with low rates of returns, we
reversed $52.5 million of previously recorded reserves for
returns. Other library titles (
Antz, Prince of Egypt, The
Road to El Dorado, Chicken Run
and
Joseph: King of
Dreams
) contributed revenue of approximately
$50.2 million for the year ended December 31, 2002,
primarily from worldwide home video and television. The decline
in revenue was primarily due to two factors. First,
Shrek
, which was released in May 2001, continued to
perform extraordinarily well in 2002, generating revenue of
approximately $223.8 million. In the worldwide home video
markets alone,
Shrek
generated revenue of
$175.2 million in 2002. Second, the disappointing
performance of our 2003 release,
Sinbad: Legend of the Seven
Seas
, which generated only $26.4 million in domestic
box office receipts, contributed less revenue than
Spirit:
Stallion of the Cimarron
, our 2002 release.
Costs of Revenue.
Costs of film revenue were $438.3 million for the year
ended December 31, 2003, as compared to $397.0 million
for the year ended December 31, 2002. The primary component
of this
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$41.3 million increase in costs of revenue
during 2003 was a write-off for two unreleased animated projects
because they were creatively inconsistent with our overall
strategy shift, and an increase in amortization of film
inventories for the same period. Amortization of film costs as a
percentage of film revenue in the year ended December 31,
2003 was 64%, compared to 31% for the year ended
December 31, 2002. The increase in amortization of film
inventory as a percentage of film revenue for 2003 was primarily
due to a write down of film inventory due to changes in the
estimated fair value of unamortized film inventory for
Sinbad: Legend of the Seven Seas
, as required by the SOP.
These increases in costs of revenue were partially offset by
distribution and marketing costs associated with the 2003
initial release of
Sinbad: Legend of the Seven Seas
in
the worldwide theatrical and home video markets, which were
significantly lower than the costs incurred for the 2002 release
of
Spirit: Stallion of the Cimarron
.
Selling, General and Administrative
Expenses.
Total selling, general and
administrative expenses for the year ended December 31,
2003 were $24.9 million, as compared to $57.0 million
for the year ended December 31, 2002. The primary component
of this $32.1 million decrease in operating expenses was
due to 2002 bad debt expense associated with bankruptcies of two
domestic home video customers, one of which was K-Mart. We
settled with K-Mart in 2003, resulting in a partial reversal of
the bad debt expense recorded in 2002. Another contributor to
the decline in operating expenses was a lower allocation of
DreamWorks Studios' sales and distribution departments,
which was due in part to lower revenue. The lower revenue in
2003 as compared to 2002 therefore resulted in lower allocations
of these overhead costs.
Interest Expense and Other Income and
Expense.
Total interest expense and
other income and expense were $17.1 million for the year
ended December 31, 2003 as compared to $31.4 million
for the year ended December 31, 2002. This
$14.3 million decrease in expense is primarily due to other
income recognized in 2003 in connection with preferred vendor
arrangements, and a decline in interest expense and other
expense associated with interest rate swap agreements allocated
to us by DreamWorks Studios.
Operating Results.
The year ended December 31, 2003, resulted in an operating
loss of $167.6 million and a net loss of
$189.1 million, as compared to operating income of
$2.4 million and a net loss of $31.1 million for the
year ended December 31, 2002. There were two principal
reasons for the decline in operating income and the increase in
net loss in 2003: the disappointing performance of
Sinbad:
Legend of the Seven Seas
, and the write-off of the two
unreleased animated projects described above. As of
December 31, 2003, we began consolidating our Glendale
headquarters and animation campus, and its associated debt, in
accordance with the requirements of the Financial Accounting
Standards Board Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46").
As a result, we recorded an expense of $2.5 million, which
is reported as a cumulative effect of accounting change in the
statement of operations for the year ended December 31,
2003. Because we operated as a division of a limited liability
company for both periods, we incurred only minimal income taxes
related to foreign withholding and state franchise taxes.
Year Ended December 31, 2002, compared
    to the Year Ended December 31, 2001.
Revenue.
For the
year ended December 31, 2002, revenue decreased by
$204.9 million, or 31%, to $456.4 million from
$661.3 million for the year ended December 31, 2001.
Film revenue for the year ended December 31, 2002 was
primarily driven by the ongoing success of
Shrek
in the
worldwide home video and television markets, and by the release
of
Spirit: Stallion of the Cimarron
in the worldwide
theatrical and home video markets. Revenue in 2002 from domestic
home video sales of
Shrek
also benefited from
unprecedented low rates of returns of home video units shipped
in 2001. We based 2001 returns reserves on the number of units
shipped, historical experience and sales data available at the
time. During 2002, we reversed $52.5 million of previously
recorded reserves for returns, as
Shrek
sales continued
with low rates of returns. Other library titles (
Antz, Prince
of Egypt, The Road to El Dorado, Chicken Run
and
Joseph:
King of Dreams
) contributed revenue of approximately
$50.2 million for the year ended December 31, 2002,
primarily from worldwide home video and television. However
these revenue were insufficient to match the extraordinary
success of
Shrek
in both the worldwide theatrical and
international home video markets in 2001. Film revenue for year
ended December 31, 2001 was derived primarily from the
worldwide theatrical and home video release of
Shrek
,
which generated $503.4 million in total 2001 revenue,
including its associated ancillary revenue. Other library titles
(
Antz, Prince of Egypt, The Road to El Dorado, Chicken
Run
and
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Joseph: King of
Dreams
) contributed revenue of
approximately $152.0 million for the year ended
December 31, 2001, primarily from the worldwide home video
and television markets.
Costs of Revenue.
Costs of film revenue were $397.0 million for the year
ended December 31, 2002, as compared to $509.1 million
for the year ended December 31, 2001. This
$112.1 million, or 22%, decrease in costs of revenue was
primarily driven by a decline in distribution and marketing
costs. Due to the success of
Shrek
in 2001, we incurred
substantially higher costs in 2001 for marketing, advertising,
and manufacturing release prints and home video units. Also
contributing to the decline in costs of revenue in 2002 were
lower amortization of film inventories. Because amortization of
film inventory is based on the ratio that current period actual
revenue bears to estimated remaining unrecognized revenue, the
31% decrease in revenue described above resulted in a
corresponding decline in film amortization.
Selling, General and Administrative
Expenses.
Total selling, general and
administrative expenses for the year ended December 31,
2002 were $57.0 million, as compared to $49.6 million
for the year ended December 31, 2001. This
$7.4 million increase in operating expenses was due to 2002
bad debt expense associated with bankruptcies of two domestic
home video customers, one of which was K-Mart. This was offset
by a substantial decrease in sales and distribution department
overhead allocated to us by DreamWorks Studios, which was due in
part to lower revenue. The lower revenue in 2002 as compared to
2001 therefore resulted in lower allocations of these overhead
costs.
Interest Expense and Other Income and
Expense.
Total interest expense and
other income and expense were $31.4 million for the year
ended December 31, 2002 as compared to $14.8 million
for the year ended December 31, 2001. This
$16.6 million increase in expense is primarily due to an
increase in interest expense and other expense associated with
interest rate swap agreements allocated to us by DreamWorks
Studios.
Operating Results.
Operating income was $2.4 million and net loss was
$31.1 million for the year ended December 31, 2002, as
compared to operating income of $102.7 million and net
income of $3.7 million for the year ended December 31,
2001. The decline in operating income was primarily due to the
tremendous success of
Shrek
in 2001, which was not
repeated in 2002. The significant difference between operating
income and net income in 2001 was due to our adoption of the SOP
on January 1, 2001 and an increase in interest expense and
other expense associated with interest rate swap agreements
allocated to us by DreamWorks Studios. As a result of our
adoption of the SOP, we recognized a non-cash charge for the
cumulative effect of accounting change in the amount of
$82.7 million for the year ended December 31, 2001.
Because we operated as a division of a limited liability company
for both periods, we incurred only minimal income taxes related
to foreign withholding and state franchise taxes.
Liquidity and Capital Resources
We retained small amounts of cash and cash
equivalents for each of the three years in the period ended
December 31, 2003. During the periods covered by the
combined financial statements, DreamWorks Studios provided all
working capital required for development, production and
marketing of our films and other operations through centralized
cash management. In the future, we expect to fund our operating
activities with cash that is generated from the films that we
release, a portion of the proceeds from this offering and with
borrowings from a revolving credit facility that we expect to
enter prior to the consummation of this offering. As described
under "Related Party Agreements — Distribution
Agreement," we will be responsible for all costs of
developing and producing our animated feature films and
direct-to-video pictures, while DreamWorks Studios will
generally be responsible for all costs of distributing and
marketing those products. For the remainder of 2004 and the
first half of 2005 we intend to use the proceeds of this
offering and cash received from DreamWorks Studios from revenue
related to
Shrek 2
and our other films to fund our
operating activities. Although we expect that, beginning 2005,
cash from operations will be sufficient to satisfy our
anticipated cash needs for working capital and capital
expenditures, in the event that these cash flows are
insufficient, we expect to be able to draw funds from the
revolving credit facility or issue additional debt or equity
securities to meet these needs. However, there can be no
assurance that cash from operations in 2005 will be sufficient
to fund our operations or that we will be able to draw on our
revolving credit facility or issue additional debt or equity
securities at that time.
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Our historical balance sheets reflect a portion
of DreamWorks Studios' indebtedness that has been allocated
to us. This allocation has been based on the proportion of
capital invested in our films in production as a percentage of
total capital invested by DreamWorks Studios in all films in
production. Because DreamWorks Studios has funded all of our
operations in the past, we did not directly incur any debt to
fund production of our films and our historical balance sheets
do not reflect any of this debt other than the debt allocated by
DreamWorks Studios. However, we directly incurred debt related
to our Glendale animation campus and an animated film currently
being produced by Aardman Animations. If we had historically
operated as a stand-alone company, the amount of debt that we
would have incurred would have depended on our evaluation of
then-current economic and industry conditions and factors such
as our optimal capital structure, our funding needs, our
acquisition and capital investment activity and other
considerations relevant to a stand-alone company operating in
the animated filmmaking industry. In connection with our
separation from DreamWorks Studios, we expect to assume
approximately
$           million
of the indebtedness allocated to us from DreamWorks Studios, all
or a portion of which we expect to repay with proceeds of this
offering, and DreamWorks Studios will be released from its
obligation to repay this indebtedness.
Cash provided by operating activities for the
first three months of 2004 was $5.4 million and was
primarily attributable to collection of worldwide home video
revenue earned in 2003 for
Shrek
and
Sinbad: Legend of
the Seven Seas.
Cash used in operating activities for the
year ended December 31, 2003 was $170.0 million and
was primarily attributable to production spending. Cash provided
by operating activities for the year included cash collected
from revenue for the worldwide home video release of
Spirit:
Stallion of the Cimarron
and other library titles, but was
insufficient to fund our operating and production cash
requirements. Cash provided by operating activities for 2002 was
$44.6 million. Cash provided by operating activities for
2002 was attributable to collection of revenues from the
worldwide home video release of
Shrek
, partially offset
by film production, contingent compensation and residuals and
other operating uses. Cash used in operating activities for 2001
was $63.5 million. Cash used in operating activities for
2001 was primarily attributable to film production costs and
distribution and marketing costs associated with the release of
Shrek
. Although the 2001 release of
Shrek
generated substantial revenue, a significant portion of the
home video manufacturing costs were incurred in 2001, while cash
from worldwide home video sales was not collected until 2002.
Thus, cash from operating activities was insufficient to fund
all production and operating activities in 2001. Cash used in
investing activities for the first three months of 2004 was
$0.2 million, stemming mainly from investment in equipment.
Cash used in investing activities for 2003, 2002 and 2001 were
$3.1 million, $5.3 million and $4.7 million,
respectively, and were primarily related to investment in the
equipment and leasehold improvements for our Glendale and
Redwood City production and administration facilities. Cash
provided by (used in) financing activities for the first three
months of 2004, and the years ended 2003, 2002 and 2001 were
$(5.2) million, $173.2 million, ($40.2) million
and $68.9 million, respectively. This was primarily related
to cash funding and the difference in the amount of debt
allocated to us by DreamWorks Studios in each period.
In 2004, our principal source of liquidity has
been cash generated by operations and contributions from
DreamWorks Studios. Our commitments prior to the Distribution
Agreement becoming effective are primarily for production
funding, contingent compensation and residual payments,
distribution and marketing costs and technology capital
expenditures. Following the effectiveness of the Distribution
Agreement, our primary commitments will be to fund production
costs of our feature films, to make contingent compensation and
residual payments and to fund technology capital expenditures.
For the full year 2004, we expect that our commitments to fund
production costs, to make contingent compensation and residual
payments and to fund technology capital expenditures will total
approximately $325 million.
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Contractual
Obligations.
At January 1, 2004,
we had contractual commitments to make the following payments
(in thousands):
Payments Due by Year
Contractual Cash Obligations(1)
2004
2005
2006
2007
2008
Thereafter
Total
Operating leases
$
8,753
$
9,869
$
8,386
$
4,020
$
2,050
$
15,144
$
48,222
Wallace & Gromit: Tale of the Were
    Rabbit
obligation
(2)
—
36,902
—
—
—
—
36,902
Glendale animation campus
    note payable
(3)
—
—
—
70,059
—
—
70,059
Universal advance
(4)
87,236
87,236
Capital leases
1,080
996
996
996
332
—
4,400
Total contractual cash obligations
$
9,833
$
47,767
$
9,382
$
75,075
$
2,382
$
102,380
$
246,819
(1)
With respect to debt and interest rate swap
    obligations allocated to us from DreamWorks Studios, we have not
    included amounts related to those allocations in this table
    because we will repay any obligations that we assume in
    connection with our separation from DreamWorks Studios with
    proceeds from this offering. DreamWorks Studios has entered into
    interest rate swap agreements to serve as a hedge against
    interest rate fluctuations associated with our Glendale
    animation campus. DreamWorks Studios has attributed to us
    interest rate swaps with an aggregate notional principal amount
    of $73.0 million. These agreements do not qualify for
    special hedge accounting and, as a result, the fair value of
    such transactions has been included in other income (expense) in
    the combined statements of operations. We expect that, upon the
    consummation of this offering, we will assume DreamWorks
    Studios' obligations with respect to swaps in this
    aggregate notional amount.
(2)
In October 2003, we entered into an agreement to
    acquire certain distribution rights to
Wallace &
    Gromit: Tale of the Were Rabbit
, an animated film currently
    in production. Pursuant to the acquisition agreement, we are
    obligated to pay approximately $45.0 million to acquire
    substantially all rights to the film (of which $8.1 million
    had been paid as of March 31, 2004). In connection with the
    acquisition, DreamWorks Studios entered into loan agreements for
    the financing of the production costs of up to approximately
    $28.7 million. Of this amount, $11.0 million had been
    borrowed at March 31, 2004. Because we are obligated to
    acquire this film upon its completion in 2005, we have included
    amounts in this table related to the obligation.
(3)
We operate an animation campus in Glendale,
    California. The lease on the property, which was originally
    acquired for $76.5 million, qualified as an operating
    lease. In March 2002, we renegotiated the lease through the
    creation of a special-purpose entity that acquired the property
    for $73.0 million and leased the facility to us for a
    five-year term. In accordance with the provisions of
    FIN 46, we have included the asset, debt and non-
    controlling interest on our combined balance sheet as of
    December 31, 2003. We expect to refinance this obligation
    prior to its maturity.
(4)
Universal Studios has advanced DreamWorks Studios
    amounts based on expected future receipts from films that it
    releases. A portion of these advances relate to animated films
    and have been allocated to us by DreamWorks Studios. We expect
    to become obligated to DreamWorks Studios with respect to all or
    a portion of these advances in connection with our separation
    from it.
Deferred Income Tax Benefit
In conjunction with this offering and as part of
our separation from DreamWorks Studios, we expect a partial
increase in the tax basis of our tangible and intangible assets
as a result of certain transactions that Vulcan may engage in.
This increase in basis generally should result in additional tax
deductions available to us over a period of 15 years. To
the extent we generate taxable income sufficient actually to
realize the additional cash tax savings from such deductions, we
will be required to pay Vulcan a percentage of the amount of the
cash tax savings actually realized.
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Market & Exchange Rate
    Risk
Interest Rate Risk.
We are exposed to the impact of interest rate changes as a
result of our variable rate long-term debt and debt allocated to
us by DreamWorks Studios. DreamWorks Studios uses derivative
instruments from time to time to manage the related risk.
Because DreamWorks Studios allocates to us the income and
expense associated with these derivative instruments, this has
resulted in short term gains or losses. As part of our
separation from DreamWorks Studios, we will no longer be
allocated interest expense or other income and expense
associated with derivative instruments, although we will assume
the interest rate swap agreements associated with our Glendale
animation campus. We will continue to actively monitor
fluctuations in interest rates. A hypothetical 1% change in the
interest rates applicable to the debt associated with our
Glendale animation campus and
Wallace & Gromit: Tale
of the Were Rabbit
obligation would result in a
$0.8 million increase or decrease in interest expense.
Because we expect to repay any obligations that we assume from
DreamWorks Studios with the proceeds of this offering, we have
not performed an analysis of our interest rate risk for any debt
that has been allocated to us by DreamWorks Studios.
Foreign Currency
Risk.
We are subject to market risks
resulting from fluctuations in foreign currency exchange rates
through our non-U.S. revenue sources and we incur certain
distribution and production costs in foreign currencies.
However, there is a natural hedge against foreign currency
changes due to the fact that, while significant receipts for
international territories may be foreign currency denominated,
significant distribution expenses will be similarly denominated,
mitigating fluctuations to some extent depending on their
relative magnitude.
Wallace & Gromit: Tale of the
Were Rabbit
, currently in production in the United Kingdom,
is the only project that we expect to be produced abroad, and we
have therefore entered into a hedge agreement intended to reduce
our exposure to changes in the British pound.
Credit Risk.
We are
exposed to credit risk from DreamWorks Studios and third
parties, including customers, counter parties and distribution
partners. These parties may default on their obligations to us,
due to bankruptcy, lack of liquidity, operational failure or
other reasons.
New Accounting Pronouncements
In December 2002, the Financial Accounting
Standards Board ("FASB") issued FAS No. 148,
"Accounting for Stock-Based Compensation —
Transition and Disclosure" ("FAS 148").
FAS 148 amends FAS No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), to
provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for
stock-based employee compensation. In addition, FAS 148
amends the disclosure provisions of FAS 123 to require
prominent disclosure of the effects of an entity's
accounting policy with respect to stock-based employee
compensation on reported operating results, including per share
amounts, in annual and interim financial statements. The
disclosure provisions of FAS 148 were effective immediately
upon issuance in 2002. As of December 31, 2003, we have no
immediate plans to adopt the fair value method of accounting for
stock-based employee compensation.
In January 2003, the FASB issued FIN 46,
"Consolidation of Variable Interest Entities." In
November 2003, the FASB revised certain provisions of
FIN 46. FIN 46 requires a variable interest entity
(defined as a corporation, partnership, trust or any other legal
structure used for business purposes that either does not have
equity investors with voting rights or has equity investors that
do not provide sufficient financial resources for the entity to
support its activities) to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to
receive a majority of the entity's residual returns, or
both. The consolidation requirements of FIN 46, as revised,
apply immediately to variable interest entities created after
January 31, 2003. The consolidation requirements for older
entities were effective on December 31, 2003. Upon our
adoption of FIN 46 as of December 31, 2003, we
consolidated the special-purpose entity that acquired our
Glendale animation campus. Such consolidation has resulted in an
increase in property, plant and equipment of approximately
$70.2 million, net of accumulated depreciation, an increase
in debt and a non-controlling minority interest of
$70.1 million and $2.9 million, respectively, and a
cumulative effect of a change in accounting principle of
$2.5 million.
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INDUSTRY OVERVIEW
Motion Picture Industry
The motion picture industry involves the
production and distribution of feature films. Production
involves the development and physical production of
feature-length films. Distribution involves the domestic and
international marketing and exploitation of those films in a
variety of ways, including theatrical exhibition, home video
sales and rentals, licensing fees from pay and broadcast
television operators and revenue from ancillary markets. The
major studios have leading industry positions based on the
number of films that they release. The major studios are
generally part of large diversified corporations with production
and distribution operations and established relationships with
exhibitors, creative talent and others involved in the industry.
The MPAA defines the major studios as Metro-Goldwyn-Mayer Inc.
(including MGM Studios, MGM Pictures, Orion and UA Films),
Paramount Pictures Corporation, Sony Pictures Entertainment,
Inc. (including Columbia Pictures), The Walt Disney Company
(including Buena Vista, Miramax Films and Touchstone), Twentieth
Century Fox Film Corp., Universal Studios and Warner Bros.
(including Castle Rock Entertainment, New Line Cinema and
Turner). In the past seven years, the total number of feature
films released in the United States has remained relatively
stable, with 471 released in 1996 compared to 473 released in
2003, according to the MPAA. In addition to distributing films
developed and produced by their wholly owned studios, the major
studios also distribute films of independent production
companies and independent film studios. These smaller,
independent studios, such as Pixar, Muse Productions and Icon
Productions produce a varying number of films per year, but
generally fewer than the major studios. Although DreamWorks
Studios is not defined as a major studio by the MPAA, DreamWorks
Studios distributes its own films in the domestic theatrical
market and worldwide television markets and sub-distributes
films through several parties in the international theatrical
and worldwide home video markets. Our films will be distributed
by DreamWorks Studios. As compared to the major studios, which,
between 2001 and 2003 distributed an average of approximately
29 films per studio (inclusive of their subsidiaries) per
year in the U.S. theatrical market, DreamWorks Studios
distributed an average of approximately six films per year over
the same time period.
Animated Motion Picture
    Industry
The motion picture industry can be divided into
two categories — animated films and live-action films.
The vast majority of films theatrically released are live-action
films. Animated films are typically either hand-drawn,
stop-motion or computer generated (or "CG").
Hand-drawn films are the traditional two-dimensional films, such
as
Snow White and the Seven Dwarfs
, that have
historically comprised the majority of animated films.
Stop-motion films, such as
Chicken Run
, involve animating
three-dimensional models by making small adjustments to the
model between each frame of film to simulate motion. CG animated
films, such as
Shrek 2
, are made by creating and
animating digital models and sets that have been built in a
virtual world using complex computer programs. For a description
of how CG animated films are made, see
"Business — How We Develop and Produce Our
Films."
The animated film business differs from the
live-action film business in several key ways, including
development process and schedules, cost structure and revenue
realization. Animated films rely on the collaborative skills of
a wide variety of artists, including directors, producers,
animators, lighters, effects artists, screenplay writers,
technical personnel and voice talent, while live-action films
heavily rely on the talent of actors and the vision of a single
director. After initial development, it takes approximately
three to four years to produce a high-quality animated film,
while a live-action film is typically produced within a period
of 12 to 18 months.
Due in part to these production differences, the
cost structures of animated and live-action films are different.
The production costs of an animated film consist primarily of
the salaries paid to a larger number of employees working over a
longer time period than on a typical live-action film, corporate
overhead allocated to the film and equipment and technology
costs. On the other hand, a live-action film's production
costs vary for a variety of reasons, including the caliber of
acting talent that is hired, the degree to which the film relies
on special effects, and whether the film is shot in remote or
otherwise expensive set locations. In general, due to
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the much shorter time commitment involved,
compensation paid to voice talent in connection with an animated
film generally is significantly less than compensation paid to
an actor in a live-action film, although in some cases,
particularly with respect to sequels (such as
Shrek 2
),
these costs (including contingent compensation) can be
significant. In addition, because of their production cost
structures and the length of time it takes to produce
high-quality animated films, they are generally treated as event
movies, on par with big-budget live-action productions, and
their marketing budgets are generally comparable to such films.
In addition to having different cost structures,
revenue derived from animated films generally has significantly
different characteristics than revenue derived from live-action
films. In theaters, animated films typically have shorter
playing times (generally no longer than 100 minutes), while
live-action movies can have playing times of over 160 minutes.
Accordingly, animated films can be shown more often per screen
than longer live-action films, which can result in greater
attendance and higher box office receipts. In addition,
historically, animated films generally have been more successful
in the home video market than live-action films, as they tend to
sell more home video units per box-office dollar and tend to
have more durable sales past the first cycle. According to
industry reports, since 2000, animated titles have sold
approximately one million home video units per
$13.6 million in domestic box office as compared to one
million home video units sold per $19.8 million in domestic
box office for PG-rated and G-rated live-action films. Over this
same time period, our animated titles have sold approximately
one million home video units per $12.6 million in domestic
box office. Animated films have also been more successful in the
lucrative sell-through market as compared to the rental market,
which we believe is due to their cross-generational family
entertainment appeal and the viewing habits of these audiences,
which are generally made up of younger, repeat viewers. In
addition, animated films have proven successful in the
direct-to-video market. According to AC Nielsen, direct-to-video
titles have sold an estimated 2.3 million units per title
since August 1999. Finally, animated films and characters are
generally more amenable to merchandising and cross-promotional
opportunities than the majority of live-action films,
particularly with respect to consumer products aimed at families
and children.
Animated films make up a small portion of the
overall film market. In the past 10 years, approximately
94 animated films have been theatrically released in the
United States, of which 13 were CG animated films. By
comparison, according to the MPAA, over 450 live-action films
were theatrically released in the United States in 2003 alone.
According to Variety, approximately 180 films were originally
released in more than 100 theaters in 2003. Of these, nine
were animated films, which averaged approximately
$65.5 million in domestic box office receipts, and the rest
were live-action films, which averaged approximately
$50.3 million in domestic box office receipts.
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The number of CG animated films released each
year has remained stable at one or two per year since the first
CG animated feature film was released in 1995. The table below
lists CG-only animated films that have been theatrically
released in the United States to date:
*
Through July 18, 2004.
**
Source: Variety
(www.variety.com)
.
Motion Picture Distribution
In general, the economic life of a motion picture
consists of cycles, which is a period of time over which a film
runs through each distribution channel at least once. The first
cycle of a film's life is the most important because a film
will generate most of its revenue within it. The first cycle
typically lasts between seven and 10 years and consists of
the sequential distribution of a film in (i) the domestic
and international theatrical markets, (ii) the domestic
home video, pay-per-view and video-on-demand markets,
(iii) the international home video market, (iv) the
domestic and international pay television market, (v) the
domestic and international broadcast television and basic cable
markets and (vi) the domestic syndicated television market.
After the first cycle, a film is considered to be a library film
and continues to contribute revenue that, when combined with the
revenue of other titles in a film library, can be a significant
source of additional revenue to a film studio. On average,
revenue streams from the sequential distribution of a film after
it has been released in the domestic theatrical market account
for approximately 85-90% of the total revenue to be realized by
the film studio that released it and its distributor. According
to industry reports, out of the $38.7 billion of estimated
worldwide revenue earned by all studios from feature films in
2002, almost $33.8 billion was generated from markets other
than the domestic theatrical market. Notwithstanding that the
most significant portion of a film's revenue stream is
derived from outside of the domestic theatrical market, the
relationship between domestic theatrical revenue and total
revenue has historically been closely correlated. This
correlation is primarily driven by the translation of audience
acceptance of a film across the various revenue markets. To the
extent a film is widely accepted and viewed in the theatrical
market where it is first released, it is likely to be widely
viewed and purchased in the home video market and viewed in the
television market, as customers
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wish to recreate the original theatrical
experience. Additionally, many worldwide pay and free television
revenue are contractually determined based on the level of
domestic box office receipts or the applicable territory box
office receipts achieved on a film-by-film basis.
Motion pictures are generally made available for
distribution in markets subsequent to, or simultaneously with,
domestic theatrical release. The chart below shows the timing of
substantially all of the revenue generally received during the
first cycle from the different markets into which a film is
released.
Theatrical Distribution and
    Marketing
Theatrical distribution of a motion picture
involves the duplication and transportation of release prints,
the promotion of the picture through advertising and publicity
campaigns (e.g., trailers, television spots and newspaper ads)
and the licensing of the motion picture to theatrical exhibitors.
The successful theatrical exhibition of a film
requires the distributor to forecast optimal release dates and
to evaluate the strength of competing films expected to be in
the market around the same time its film will be ready for
release. In general, release dates are picked based on two
factors — the historical number of moviegoers for the
weekend of release and the scheduled competition on those
weekends. The ideal date to release a film is on a high-volume
weekend, such as Memorial Day weekend, that coincides with
little competition for the same audience. Exhibitors and other
film studios are notified of a film's expected release date
approximately one year in advance, although for major
productions, the announcement can be even earlier. If production
is on schedule and the film is expected to be completed by the
release date, exhibitors are invited to a screening of the film
approximately one month prior to the release date. Based on the
screening, agreements are generally entered with both the
nationwide theater chains and with independently owned theaters.
These arrangements generally provide for the exhibitor's
payment to the distributor of a percentage of the box office
receipts for the exhibition period, in some cases after
deduction of the theater's overhead or a flat negotiated
weekly amount. The distributor's percentage of box office
receipts generally ranges from an effective rate of 35% to over
50%, depending upon the financial success of the motion picture
and the number of weeks that it plays at the box office.
Distributors carefully monitor theater gross receipts to ensure
that the exhibitor promptly pays all amounts due. The size and
success of the promotional advertising campaign can materially
affect the revenue realized from the theatrical release of a
motion picture. Similarly, the ability to exhibit motion
pictures in the most popular theaters can affect theatrical
revenue.
Motion picture studios can spend well in excess
of $50 million on the domestic promotion of a major motion
picture, which includes costs related to print, television and
radio advertising campaigns, trailers, Internet advertising and
non-media costs such as production, creative and exhibitor
services and market research. The largest single marketing cost
for the major studios is the cost associated with advertising a
film on television. According to the MPAA, in 2003 the average
domestic cost for a major studio to advertise a new feature film
was approximately $35 million. Similar amounts can be spent
in total in all international markets in all media promoting a
film. Nonetheless, the costs incurred in connection with the
distribution and marketing of a motion picture can vary
significantly, depending on the number of screens on which the
motion picture is to be exhibited, the overall budget of the
film and the competition among distributors at the time of
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release. While marketing campaigns generally
raise consumer awareness and ticket sales prior to and during
the theatrical release of a feature film, the effects of a
successful campaign can also significantly contribute to a
film's success in the home video and other markets.
Films typically are released theatrically in
international territories between one and three months following
initial domestic theatrical release and in much the same manner.
In recent years, however, studios have begun to capitalize on
global media saturation and are releasing films in many of the
larger international territories within the first month
following domestic release. International release patterns are
dependent on local holidays and school schedules, as well as the
timing of competitive releases. For the major studios, as well
as for DreamWorks Studios, key international territories are
Australia, Brazil, France, Germany, Italy, Japan, Korea, Mexico,
the United Kingdom and Spain. Animated films differ from
live-action films in that they may be dubbed in as many as
30 languages, as compared to live-action films, which are
generally dubbed in five or six languages and subtitled
elsewhere.
Home Video
Home video distribution involves the marketing,
promotion and sale and/or lease of videocassettes and DVDs to
wholesalers, local, regional and national home video retailers
(e.g., home video specialty stores, mass merchants, record
stores and other outlets), which then sell or rent the
videocassettes and DVDs to consumers for private viewing.
According to the MPAA, film studio revenue growth for the major
studios has been driven by home video in recent years, with
worldwide home video revenue growing from approximately
$12.4 billion, or approximately 40% of total film studio
revenue, in 2001 to approximately $16.3 billion, or
approximately 44%, in 2002. In the same time period, revenue
generated from home video sales of our animated titles, which
primarily includes home video sales of
Shrek
and
Spirit: Stallion of the Cimarron
, has averaged
approximately 60% of the total revenue derived from those films.
Major feature films are usually scheduled for
release in the domestic home video market within four to six
months after domestic theatrical release to capitalize on the
theatrical advertising and publicity for the film.
Internationally, the release date can vary significantly, but is
generally within four to twelve months following domestic
theatrical release. Home video units may be sold or leased to
wholesalers and retailers for either a fixed price or a
percentage share of the rental revenue. Animated titles are
generally priced for sale to encourage direct purchase by
consumers, referred to as "sell-through," (as compared
to purchases by home video chains that then rent the home video
to customers) and, historically, animated films have generally
had more success than live-action films in the sell-through
market. After the initial home video release period, home video
units continue to be sold at reduced sell-through pricing.
The home video release of an animated feature
film involves the manufacture of both DVDs and VHS cassettes of
the film, the creation and production of bonus material and the
distribution to numerous retail accounts, often accompanied by
an extensive marketing campaign. These expenses can vary
substantially from film to film, based on how many units are
replicated and the distributor's judgment of an appropriate
marketing spending level. The marketing campaign will often
include television, radio and print advertising, along with
in-store promotions and publicity events. The size of the
marketing campaign can be substantially impacted by the time of
year of the home video release, the competitive titles being
released in the same period and the level of box-office success
of the underlying animated film. The success of the home video
release is largely dependent upon the theatrical success of the
film, the success of the film's marketing campaign and the
choice of an optimal date to release the home video.
Overall growth in the domestic home video market
has accelerated with the introduction of the DVD format,
although the growth in DVD demand has led to a decline in the
videocassette business. According to the MPAA, sales of DVDs to
U.S. dealers in the rental and sell-through markets have
increased over 3,000% since 1998 — from approximately
34 million units sold in 1998 to approximately
1.1 billion in 2003. Likewise, according to the MPAA, the
number of DVD capable households in the United States in 2003
was approximately 46.7 million compared to approximately
1.2 million in 1998. Although international DVD penetration
levels lag behind those in the United States, the demand for
DVDs is growing overseas.
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Television Markets
In general, films are distributed in television
markets throughout the world either through output agreements or
on a film-by-film basis. Output agreements generally involve a
film studio and a pay cable or satellite network operator
agreeing that all eligible films produced by the film studio
will be licensed to the network for exhibition a certain number
of times during the license period. In addition, television
networks, independent television networks, television stations
and basic cable system operators generally license television
series, individual films and film packages (consisting of
theatrically released feature films and made-for-television
movies) pursuant to agreements with distributors or syndicators
that allow a fixed number of telecasts over a prescribed period
of time for a specified cash license fee or for barter of
advertising time. The license fees vary based on factors
including the theatrical performance of a film, subscriber
counts of pay cable services and/or local theatrical admissions
in territories outside the United States.
Pay-Per-View.
Pay-per-view television allows cable and satellite television
subscribers to purchase individual programs, including recently
released films and live sporting, music or other events, on a
"per use" basis. Subscriber fees are typically divided
among the program distributor, the pay-per-view operator and the
cable or satellite system operator.
Video-On-Demand.
Video-on-demand allows consumers to view a film or television
program whenever they choose, or "on demand". Unlike
pay-per-view, video-on-demand offers viewers the ability to
pause, rewind and fast-forward programs that they rent for a
period of up to 24 hours. According to preliminary MPAA
figures, there are currently a limited number of video-on-demand
capable households in both domestic and international markets.
Domestic Pay
Television.
Pay television allows
subscribers to view premium channels such as HBO, Cinemax,
Showtime, The Movie Channel and Starz/ Encore that are offered
by cable and satellite network operators for a monthly
subscription fee. The pay television networks acquire a
substantial amount of their programming from the major studios.
Most film studios have negotiated output agreements with the
major subscription pay services whereby the service provider
licenses for distribution all eligible films from the studio for
a guaranteed fee typically dependent on domestic theatrical
performance.
International Pay
Television.
Pay television is offered
internationally by over 35 service providers reaching 150
countries worldwide and is generally distributed via cable
and/or satellite for a monthly subscription fee, as it is in the
United States. Although these international pay television
services acquire locally produced motion pictures, the viability
of their movie channels is dependent to varying degrees upon
access to Hollywood films. Virtually all of the major
international pay television services have licensing
arrangements (either on an output, volume or package basis) with
multiple, if not all, Hollywood studios. In the major European
Union countries' license fees are based on local theatrical
admissions. The majority of pay television license agreements
throughout the rest of the world tend to be based on
U.S. theatrical performance. In those regions of the world
comprised of smaller countries — such as Latin
America, the Middle East and Southeast Asia — pay
television services are generally offered on a pan-regional
basis by two competing services per region.
Broadcast and Basic Cable
Television.
Broadcast television
allows viewers to receive, without charge, programming broadcast
over the air by affiliates of the major networks (ABC, CBS, NBC
and Fox), other networks such as UPN and the WB Network,
independent television stations and cable and satellite networks
and stations. In certain areas, viewers may receive the same
programming via cable transmission for which they pay a basic
cable television fee. Broadcasters or cable system operators pay
fees to studios for the right to air programming a specified
number of times. Unlike pay-per-view and pay television,
broadcast and basic cable networks typically acquire motion
pictures more selectively, licensing individual films or small
packages of films rather than negotiating more expansive output
agreements.
Other Markets
Motion pictures can generate revenue outside of
traditional distribution networks, including from the
non-theatrical distribution of motion pictures to airlines,
schools, libraries, hospitals and the military.
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Soundtrack albums and licensing of rights to
perform musical works from film music can also be a source of
income. In addition, derivative works such as theme park
attractions, ice shows, musicals and plays can be created to
generate additional sources of revenue. Other revenue may be
generated from the licensing of rights to manufacture and
distribute board and video games, dolls, clothing and similar
commercial articles derived from characters or other elements of
a motion picture, and we expect that similar revenue
opportunities will likely exist in new and emerging technology
markets, such as cell-phone and other mobile and wireless
devices.
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BUSINESS
Overview
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, we make high quality CG animated
films meant for a broad movie-going audience. We believe we
currently have more CG animated feature films in development and
production than any other animation studio. We employ a core
staff of artists, technology personnel and production staff who
have been creating, developing and applying CG techniques for
over 20 years. We have theatrically released a total of
eight animated feature films, three of which have been CG-only,
and one direct-to-video title. Our CG animated feature films
have achieved domestic box office success, with
Antz, Shrek
and
Shrek 2
grossing approximately
$90.2 million, $267.7 million and $425.0 million
(
Shrek 2's
results are through July 18, 2004),
respectively, and collectively selling approximately
56 million home video units worldwide (
Shrek 2
is
scheduled to be released on home video in November 2004).
Shrek 2
, which opened on May 18, 2004, was the most
widely distributed film ever in the domestic theatrical market
(playing in 4,223 theaters at its peak), achieved the
highest domestic box office gross of any animated film, had the
most successful three-day opening weekend of any animated film
and broke the single-day box office sales record for any film by
grossing $44.8 million. Our five non-CG animated feature
films have achieved total domestic box office receipts of
approximately $358.7 million and have sold approximately
44 million home video units worldwide. We believe our
experience, creative talent, scale of operations, technology and
animation proficiency enable us to produce two high quality CG
animated feature films per year. We are scheduled to release our
second CG animated feature film for the year,
Shark Tale
,
into the domestic theatrical market on October 1, 2004. We
are in various stages of pre-production and production on five
additional feature films that we expect to release through 2006.
In addition, we have a substantial number of projects in
creative and story development that are expected to fill the
release schedule in 2007 and beyond.
Our feature films are the source of substantially
all of our revenue. We derive revenue from the worldwide
exploitation of our feature films in theaters and in markets
such as home video, pay and free broadcast television and
ancillary markets. We retain the exclusive copyright and other
intellectual property rights to all of our films and characters,
excluding Aardman Animation films and characters (some of which
we co-own), and we have access to an established distribution
and marketing network to fully exploit our films and characters
in theatrical, home video, television and ancillary markets
throughout the world. We have important strategic relationships
with retailers, promotional partners and licensees around the
world that significantly enhance consumer awareness of our films
and their revenue-producing potential. In addition to producing
feature films for theatrical release, we intend to develop and
produce CG animated films for the direct-to-video market. We
have also developed and are currently producing a CG animated
television series for NBC called
Father of the Pride
,
which is scheduled to air in primetime in the fall of 2004.
Prior to the consummation of this offering, we
will enter into the Distribution Agreement with DreamWorks
Studios. Under the terms of that agreement, DreamWorks Studios
will generally be responsible for the distribution, marketing
and servicing of all of our completed animated films, including
our previously released films, and direct-to-video pictures.
DreamWorks Studios currently distributes, and we expect will
continue to distribute, our motion pictures in international
theatrical markets through distribution agreements with
Universal Studios, an industry leading distributor and
fulfillment services provider, CJ Entertainment (in Korea and
the People's Republic of China) and Kadokawa Entertainment
(in Japan). DreamWorks Studios has engaged Universal Studios to
be our worldwide principal fulfillment services provider for our
home video units, excluding only Korea and Japan, where CJ
Entertainment and Kadokawa Entertainment, respectively, will
perform such functions. The Distribution Agreement will cover
the distribution of our films and pictures in all media and
markets on a worldwide basis that are available for delivery
through the later of (i) delivery of 12 animated feature
films, beginning with
Shark Tale
, and
(ii) December 31, 2010. In general, the term of the
Distribution Agreement will be extended to the extent of the
terms, if longer, of any of DreamWorks Studios'
sub-distribution, servicing and licensing agreements that cover
our films and that we pre-approve (such as DreamWorks
Studios' existing arrangements with Universal Studios, CJ
Entertainment and Kadokawa
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Entertainment). Even if we terminate our
distribution relationship with DreamWorks Studios, our existing
and future films generally will still be subject to the terms of
those pre-approved agreements. We will retain the copyrights and
other intellectual property related to our films and the right
to directly exploit certain ancillary rights, such as commercial
tie-ins, and promotional, literary publishing, music publishing,
soundtrack, radio, legitimate stage and merchandising rights. We
believe our relationship with DreamWorks Studios provides us
with many advantages, including the ability to create consumer
awareness and demand for our films through DreamWorks
Studios' seasoned theatrical marketing, distribution and
home video teams. Please see "Related Party
Agreements — Distribution Agreement" for a more
detailed description of the Distribution Agreement.
Company History
We have been a business division of DreamWorks
Studios, the diversified entertainment company formed by Steven
Spielberg, Jeffrey Katzenberg and David Geffen, since its
formation in October 1994. We have grown from several hundred
employees releasing a single animated film per year to our
current status as a separate company with approximately
1,200 employees and the capacity to release two CG animated
feature films annually.
We have conducted our business primarily through
DreamWorks Studios' animation division, which includes
DreamWorks Animation L.L.C. and Pacific Data Images, Inc. and
its subsidiaries ("PDI"). On the date of the
consummation of this offering, we will complete the separation
of our business from those of DreamWorks Studios. The separation
will be accomplished by the direct transfer of certain of the
assets and liabilities that comprise our business, as well as by
the transfer, by way of merger or otherwise, of certain of
DreamWorks Studios' subsidiaries to us. For a description
of our separation from DreamWorks Studios, see "Related
Party Agreement — Separation Agreement."
We conduct our business primarily in two
studios — in Glendale, where we are headquartered, and
in Redwood City, California. Our Glendale animation campus,
where the majority of our animators and production staff is
based, was custom built in 1997 for use as an animation studio.
In 1997, we formed a joint venture with PDI to produce
Antz
, and in 2000 we acquired a controlling stake in PDI.
Our animators have won numerous awards for their work in CG
animation, most recently having won a Technical Achievement
Award from the Academy of Motion Picture Arts and Sciences for
our facial animation system.
Since 1998, we have released eight animated
feature films, including
Shrek 2
in May of this
year. In addition, we have released one animated direct-to-video
film. Historically, we have produced both CG animated feature
films as well as hand-drawn two dimensional animated feature
films. While all of our films produced to date, except
Chicken Run
, contained CG images, only
Antz, Shrek
and
Shrek 2
were created solely using CG
animation. The average domestic box office performance of those
films has been significantly higher than that of our hand-drawn,
two dimensional feature films. In 2001, due to the success of CG
animated films, we decided to exit the two dimensional,
hand-drawn business after the completion and release, in 2002
and 2003, of the two remaining hand-drawn features that were in
production. Beginning with
Shrek 2
, all films in
production and projects in development, other than certain films
that we may finance, co-produce or distribute for Aardman
Animations, are expected to be produced solely using CG images
and techniques. Aardman Animations is the Academy Award®
winning animation studio founded in 1972 by David Sproxton and
Peter Lord, best known for its work in stop-motion animation.
DreamWorks Studios and Aardman Animations have collaborated in
the past on
Chicken Run
, which was produced by Aardman
Animations and distributed in certain territories, including the
United States, by DreamWorks Studios. We also have a commitment
to distribute
Wallace & Gromit: Tale of the Were
Rabbit
, another stop-motion film being produced by Aardman
Animation.
In addition to our strategic shift to CG animated
films, in 2001 we decided to focus on developing a unique
identity for our films that seeks to appeal to a broad-based
audience of families, teens and adults.
Shrek
, in
particular, represented a breakthrough for this kind of movie.
Not only did
Shrek
achieve critical
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acclaim by being nominated for two Academy
Awards® and winning the first ever Academy Award® for
Best Animated Feature, but it also was a financial success, as
it generated domestic box office receipts of approximately
$267.7 million.
Shrek's
domestic box office
receipts surpassed the box office receipts of all other animated
feature films released prior to it, excluding only
The Lion
King
. In addition,
Shrek
has been very successful in
the home video market, with approximately 28 million units
sold domestically (approximately 12 million of which were
DVDs) and approximately 15 million sold internationally.
Like
Shrek, Shrek 2
has been critically acclaimed.
It has also established several box office records, including
achieving the highest domestic box office gross of any animated
film at $425.0 million as of July 18, 2004, and the
highest single-day sales total of any film, with
$44.8 million in domestic box office receipts.
Our Strengths
We believe our competitive strengths to be as
follows:
•
Strong Management Team with a Successful Track
    Record.
Our creative and production
    management team, led by Jeffrey Katzenberg, consists of some of
    the most experienced individuals in the CG animation industry,
    with an average of over 12 years of experience in the
    animation field and 18 years in the entertainment industry.
    Mr. Katzenberg, as Chairman of The Walt Disney Studios, was
    one of the key architects responsible for building Disney's
    filmed entertainment business from approximately
    $245 million in revenue in 1984 to one that generated
    revenue exceeding $4.7 billion in 1994. Driving this
    tremendous growth was Disney's animated film division,
    which, under Mr. Katzenberg's leadership, produced
    such successful films as
The Lion King, Aladdin
and
Beauty and the Beast
. Mr. Katzenberg and his
    management team have led DreamWorks Studios' animation
    division since its formation and have overseen the successful
    release of a number of animated films, including
Antz
,
Shrek
and
Shrek 2
.
•
Creative and Experienced
    Talent.
Our producers, directors and
    production executives, many of whom are signed to long-term
    contracts, are among the most experienced in the CG animation
    industry, having produced, directed or otherwise overseen highly
    successful animated feature films such as
Shrek,
    Shrek 2, The Lion King, Toy Story, Beauty and the Beast
and
Aladdin
. Our dedicated artists, technology
    personnel and production staff, numbering approximately 1,000
    employees, are also among the most talented and creative in the
    industry. We emphasize the importance of quality scripts when
    considering film ideas, and generally engage proven
    screenwriters, comedians and other writers to develop and
    produce our storylines. In addition, these writers are deeply
    involved throughout the production process so that our story
    department and technical personnel can directly collaborate with
    the creative talent that develops a story. Finally, our
    commitment to investing in our people and technology helps
    ensure that our films continue to represent the cutting edge in
    CG animated filmmaking. We attract and retain our animators and
    creative and technical staff with competitive compensation
    packages and an artist friendly environment that emphasizes
    ongoing training in animation artistry and technology.
•
Strong and Adaptable Technology
    Foundation.
Our technology plays an
    important role in the production of our films. Our technology
    development staff has been responsible for many award-winning
    innovations that continue to advance the art of CG animated
    film-making. We also continue to innovate in the application of
    new technologies to the production process, which has enabled us
    to produce progressively richer and more visually sophisticated
    imagery in our films. Our focus on user interface and tool
    development enables our animators to adeptly use existing and
    emerging CG technologies, allowing us to maximize our artistic
    talent within a CG environment. In addition, we have
    strategic relationships with leading technology companies that
    allow us to leverage third-party advancements and technology
    innovation substantially before they are available to the open
    market, which gives us a valuable advantage in the rapidly
    changing landscape of technology.
•
Exclusive Ownership of Our Films and
    Characters.
We exclusively own the
    copyright and other property rights to all of our films,
    including the animated films released prior to this offering,
    with the exception of certain films that we produce with Aardman
    Animations. Because of our exclusive
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ownership, we control the creative direction and
    the exploitation of our films and characters and retain the sole
    right to create sequels and other derivative products such as
    direct-to-video films and consumer products. We believe that our
    ability to control the continued exploitation of our properties
    is a competitive advantage and allows us to capitalize on an
    already existing audience base for our films.
•
Established Distribution and Promotion
    Infrastructure.
Our films have been
    distributed through DreamWorks Studios since we released our
    first film in 1998, and we and DreamWorks Studios have developed
    strong relationships with a host of prominent companies to help
    promote our films. In addition, DreamWorks Studios has worked
    with Universal Studios, the principal international theatrical
    distributor and principal home video fulfillment services
    provider of our films, since 1995. We believe our relationship
    with DreamWorks Studios and its international distributors and
    fulfillment services providers have created proven distribution
    channels and marketing networks for our films, particularly with
    respect to home video. In addition, we believe that our
    established merchandising and promotions group is among the most
    capable in the industry, with the ability to leverage our strong
    relationships with retailers and other consumer products
    companies to maximize the ways in which we promote and profit
    from our films.
Our Strategy
We intend to maintain our position as one of the
leading developers and producers of CG animated feature films.
To accomplish this goal, we are pursuing the major strategies
described below.
•
Focus on Maintaining Broad Audience Appeal for
    Our Films Through the Unique Identity of DreamWorks
    Animation.
We believe that DreamWorks
    has developed a unique identity that the public associates with
    innovative and popular movies such as the
Shrek
films. We
    intend to build on DreamWorks' brand recognition by
    continuing to make unique, high quality, CG animated films that
    have a sophisticated tone and visual style. We believe our style
    and our appeal to a broad-based audience of families, teens and
    adults set us apart from traditional animated films and film
    companies.
•
Use Our Existing Scale of Operations to
    Release Two CG Animated Feature Films Per
    Year.
We intend to release two
    CG animated feature films per year. We believe this exceeds
    the current production schedule of any other CG animation studio
    and allows us to leverage our infrastructure and spread overhead
    costs over a greater number of films than our current
    competitors. We believe that, although other studios may have
    the financial or technical capacity to match our output of two
    high-quality CG animated feature film releases per year, the
    time that it takes to develop and produce CG animated feature
    films makes it unlikely that any other studio will do so within
    the near future.
•
Use Star Talent to Increase Popular
    Appeal.
Our films feature the voice
    talent of some of the most celebrated actors in the
    entertainment industry. We believe that using the voices of
    today's top feature film and television actors in both
    domestic and international markets enhances our films as their
    unique voices and talent help bring our characters to life. We
    have strong relationships with our star talent. In addition to
    providing their voices in our films, these actors commit to
    promoting our films for both theatrical and home video release.
    We believe this commitment enhances the event status of each
    release and increases consumer awareness of the film.
•
Take Advantage of Franchise
    Opportunities.
We intend to take
    advantage of our ownership rights and the broad marketability of
    animated films to create franchise films and characters that can
    generate prequels, sequels and other derivative works and
    licensing opportunities in several different markets, including
    theme park attractions, stage plays, interactive games and the
    direct-to-video market. We believe the direct-to-video market,
    in particular, is receptive to animated films, especially in
    expanding characters that have become part of popular culture.
    We expect the production costs associated with direct-to-video
    titles will be significantly less than those associated with our
    animated feature films. We believe the relatively low costs of
    producing direct-to-video titles, and the significant unit
    volumes generated by even moderately successful titles, support
    an economic model that can generate meaningful profits for us.
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•
Continue Developing Superior CG Animation
    Skills.
We believe we are at the
    forefront of technical achievement in CG animated filmmaking due
    to the collaboration and artistic skills of our artists,
    technology personnel and production staff and because we have
    built a user-friendly production environment that allows our
    artists and animators to fully exploit the complex technologies
    used in CG animated filmmaking. We have invested, and will
    continue to dedicate, significant resources in the proper
    training and support of our creative staff. Because of our
    training efforts and the flexibility of our production
    environment, we were able to re-train over 140 world-class
    animators who specialized in hand-drawn cel animation to become
    highly proficient with CG animation techniques. In addition, we
    intend to continue to invest in our technology to ensure that,
    from an artistic and technical perspective, our films remain
    state-of-the-art in CG animated filmmaking.
•
Maximize the Success of Our Films Through
    Promotional Partnerships.
We have
    developed strong relationships with a number of well-known
    retailers and consumer products companies throughout the world
    that help us promote our films in many valuable ways. We believe
    these promotional campaigns have been very successful and have
    resulted in increased movie theater attendance, greater home
    video sales and other consumer product sales. We intend to
    continue developing new relationships with prominent companies
    and to continue utilizing existing relationships to ensure
    maximum consumer awareness for our films.
Our Films
Films in Production
We are currently producing five animated feature
films (in addition to
Shark Tale
), and have committed to
acquire distribution rights to one stop-motion film being
produced by Aardman Animations. In addition, we have a
substantial number of projects in development that are expected
to fill our release schedule in 2007 and beyond. The table below
lists all of our films in various stages of pre-production and
production that are expected to be released through 2006.
Title
Expected Release Date*
Voice Talent*
Shark Tale**
October 1, 2004
Will Smith, Robert De Niro, Renée
    Zellweger, Jack Black, Angelina Jolie, Martin Scorsese, Peter
    Falk, Michael Imperioli, Vincent Pastore, Ziggy Marley,
    Doug E. Doug
Madagascar
2005
Ben Stiller, Chris Rock, Jada Pinkett-Smith,
    David Schwimmer
Wallace & Gromit: Tale of the Were
    Rabbit
(stop-motion)
2005
Ralph Fiennes, Helena Bonham Carter, Peter Sallis
Flushed Away
2006
To be announced
Over the Hedge
2006
Jim Carrey, Garry Shandling
Shrek 3
2006
Mike Myers, Cameron Diaz, Eddie Murphy, Antonio
    Banderas
*
Release dates and voice talent are tentative. Due
    to the uncertainties involved in the development and production
    of animated feature films, the date of their completion can be
    significantly delayed and planned voice talent can change.
**
In post-production.
Shark Tale.
A smooth
talking little fish named Oscar (voiced by Will Smith), tired of
scraping out a living at the bottom of the food chain, rockets
to the top of the reef by taking credit for something he did not
do — killing a great white shark. Oscar becomes a
local hero, getting everything his heart desires, including a
penthouse suite and the attention of the hottest girl on the
reef. Eventually the truth catches up with him, and Oscar
discovers that it is impossible to live a lie and that happiness
was right in front of him all along.
Shark Tale's
voice cast is an ensemble of world-class talent rarely seen in
any film: Will Smith, Robert De Niro,
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Renée Zellweger, Jack Black, Angelina Jolie,
Martin Scorsese, Peter Falk, Michael Imperioli, Vincent Pastore,
Ziggy Marley and Doug E. Doug. As of July 1, 2004,
Shark
Tale
is in its final stages of production, has completed
voice recording and has begun post-production and the final mix.
Madagascar.
A comic
adventure about four New York City Central Park Zoo animals who
find themselves unexpectedly shipwrecked on the exotic island of
Madagascar. Best of friends in the civilized world, these
die-hard native New Yorkers must try to survive in the wild and
discover the true meaning of the phrase, "it's a
jungle out there."
Madagascar
features the voices of
Ben Stiller, Chris Rock, Jada Pinkett-Smith and David Schwimmer.
As of July 1, 2004,
Madagascar
was in full
production.
Wallace & Gromit: Tale of the Were
Rabbit.
Produced with Aardman
Animations in Bristol, England (makers of
Chicken Run
),
Wallace & Gromit: Tale of the Were Rabbit
is the
first feature film about the characters of the Academy
Award-winning film shorts of the same name.
Wallace & Gromit: Tale of the Were Rabbit
is
being produced in stop-motion animation, the style for which
Aardman and its award-winning director, Nick Park, are well
recognized. As of July 1, 2004,
Wallace &
Gromit: Tale of the Were Rabbit
was halfway through its
shooting schedule with over three-quarters of the film's
final voices recorded.
Flushed Away.
Flushed Away
marks the third collaboration between us and
Aardman Animations. Sophisticated socialite rat, Roderick
St. James, lives a charmed life in a posh Kensington flat.
Accidentally flushed down his own loo, Roddy winds up in the
sewer and strikes a deal with a street-smart rat named Rita to
take him home. As they voyage through the sewer, a thriving
underground "Ratropolis" full of both great charm and
peril, sparks fly between our rats from opposite worlds. But
when Roddy realizes this secret city is facing disaster, he is
forced to choose between the life of privilege "up
top" and Rita and the citizens of Ratropolis. As of
July 1, 2004,
Flushed Away
was in pre-production,
with production scheduled to begin in the fall of 2004.
Over the Hedge.
Based on the popular comic strip seen in over 200 newspapers,
Over the Hedge
tells the story of a mischievous raccoon
named R.J. (voiced by Jim Carrey) and a timid turtle named Verne
(voiced by Garry Shandling). When R.J., Verne and their woodland
friends find a suburban housing development encroaching on their
forest home, Verne's first instinct is to head for the
hills. But the opportunistic R.J. sees a treasure trove to be
had from his unsuspecting new neighbors. Together, Verne and
R.J. form an unlikely friendship as they observe and exploit
this strange new world called suburbia. As of July 1, 2004,
Over the Hedge
was in pre-production, with production set
to commence in early 2005.
Shrek 3.
Shrek
2,
the #1 comedy film of all time, based on domestic box
office receipts, continues with
Shrek 3
. Mike Myers,
Eddie Murphy, Cameron Diaz, Antonio Banderas, and the
behind-the-scenes talent of
Shrek 2
return for this
new adventure. As of July 1, 2004,
Shrek 3
was in
pre-production, with production set to commence in early 2005.
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Released Films
To date, we have theatrically released eight
animated feature films and one direct-to-video film. Each of
these films continues to generate first-cycle revenue. The table
below lists our animated films produced and released to date:
Domestic
Domestic Box
Worldwide Home
Title
Release Date
Office Receipts
(1)
Video Units Sold
(In millions)
CG Animated
Shrek 2
May 19, 2004
$
425.0
(2)
N/A
(2)
Shrek
May 18, 2001
267.7
41.8
Antz
Oct. 2, 1998
90.6
14.3
Primarily Hand-Drawn and Other
Chicken Run
(stop-motion)
(3)
June 21, 2000
106.8
8.8
The Prince of Egypt
Dec. 18, 1998
101.3
13.5
Spirit: Stallion of the Cimarron
May 24, 2002
73.3
11.1
The Road to El Dorado
Mar. 31, 2000
50.9
6.3
Sinbad: Legend of the Seven Seas
July 06, 2003
26.4
4.2
Joseph: King of Dreams
(direct-to-video)
Nov. 7, 2000
N/A
2.7
(1)
Source: Variety
(2)
Shrek 2
receipts are
    through July 18, 2004.
Shrek 2
is scheduled to
    be released in the home video market in November 2004.
(3)
Produced by Aardman Animations and co-financed
    and distributed by us in certain territories.
How We Distribute, Promote and Market our
Films
Distribution and Marketing
In general, we have distributed and marketed our
films in all media through our parent, DreamWorks Studios and
its sub-distributors and fulfillment services providers in a
manner that we believe has been consistent with general industry
practice (see "Industry Overview — Motion Picture
Distribution"). In the future, we expect to continue
marketing and distributing all of our films through DreamWorks
Studios in a consistent manner, but our distribution
relationship will be governed by the Distribution Agreement,
which we will enter into prior to the consummation of this
offering. Pursuant to the Distribution Agreement, we will grant
DreamWorks Studios the exclusive worldwide right to distribute
all of our animated feature films and direct-to-video pictures
completed and available for release through the later of
(i) delivery of 12 animated feature films, beginning
with
Shark Tale
, and (ii) December 31, 2010. In
general, the term of the Distribution Agreement will be extended
to the extent of the term, if longer, of any of DreamWorks
Studios' sub-distribution, servicing and licensing
agreements that we pre-approve (such as DreamWorks Studios'
existing arrangements with Universal Studios, CJ Entertainment
and Kadokawa Entertainment). In addition, even if we terminate
our distribution relationship with DreamWorks Studios, our
existing and future films generally will still be subject to the
terms of those pre-approved agreements. The Distribution
Agreement will also grant DreamWorks Studios identical rights
with respect to all animated feature films and direct-to-video
pictures that we have previously released.
The Distribution Agreement will provide that
DreamWorks Studios will be responsible for advertising,
publicizing, promoting, distributing and exploiting our animated
feature films and direct-to-video pictures in a manner
consistent with the customary and reasonable business practices
of the motion picture industry and DreamWorks Studios'
prevailing and commercially reasonable practices. Specifically,
the distribution, promotional and marketing services that
DreamWorks Studios will provide with respect to our theatrically
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released animated feature films will be required
to be substantially comparable to the distribution, promotional
and marketing services provided by DreamWorks Studios in
connection with the initial theatrical and home video release of
our films that DreamWorks released prior to the effectiveness of
the Distribution Agreement. For a more detailed description of
the Distribution Agreement, see "Related Party
Agreements — Distribution Agreement."
Theatrical Distribution
DreamWorks Studios directly distributes and
markets our films in the domestic theatrical market. Outside of
this market, DreamWorks Studios distributes and markets our
films through its distribution and fulfillment services
agreements with Universal Studios and CJ Entertainment and
its distribution and licensing agreements with Kadokawa
Entertainment. Outside of Japan, Korea, the People's
Republic of China, and the domestic market, Universal Studios
theatrically distributes and markets our films through United
International Pictures, a joint venture with Paramount Pictures.
United International Pictures is one of the leading
international film distributors in the world and operates in
approximately fifty countries. In Korea and the People's
Republic of China, CJ Entertainment provides theatrical
distribution services, and in Japan, Kadokawa Entertainment
provides such services.
DreamWorks Studios has a domestic distribution
group that distributes our films through theaters and theater
circuits and through non-theatrical venues, such as hotels,
airlines, cruise ships and other common carriers and military
installations. All of our films are intended to be distributed
as wide releases on more than 1,500 screens. DreamWorks
Studios' distribution group selects exhibitors for our
films based on the quality of the facility, the box office
success of animated films in that theater and geographic area,
the terms of the exhibition agreement, the length of the run to
which the exhibitor is willing to commit and all other relevant
information available to them.
DreamWorks Studios uses sophisticated technology
that provides the informational background for the
decision-making process involved in the distribution of our film
products. In the United States and Canada, the information
system links DreamWorks Studios' distribution offices with
each other and with exhibitors, print laboratories, film
shippers, advertising agencies and publicists. This seamless
book-to-billing system allows DreamWorks Studios to set shipment
dates for print ads and trailers to theaters, send billing
statements to exhibitors and track performance, all
electronically.
The system currently maintains four years of
historical industry film performance data, which is used in an
on-line environment that tracks theater-by-theater performance
histories for DreamWorks Studios' distributed films. This
system assists DreamWorks Studios and us in determining the most
profitable venues for our films and helps determine optimal
release dates. In addition, the system provides weekly receipts
information so that DreamWorks Studios can accurately track
gross receipts at theaters and the proceeds it is due.
DreamWorks Studios is directly responsible for
all billing and collection of gross rentals from theater
operators for the domestic markets. Each week, DreamWorks
Studios receives a billing statement from each theater
indicating the level of box office receipts. The billing is
followed by a written confirmation of receipts, at which time
DreamWorks Studios prepares a bill to the theater owner.
DreamWorks Studios estimates that at least 80% of the box office
data required to generate theater billings is received through a
centralized collection information agency that is linked
directly to DreamWorks Studios' book-to-billing system. The
remainder is generated through direct inquiry on a
circuit-by-circuit or theater-by-theater basis.
Home Video Distribution
DreamWorks Studios has entered into an agreement
with Universal Studios to service the worldwide distribution of
our DVDs and videocassettes for home video, other than in Japan
and Korea. The services of Universal Studios are comprehensive
and include all manufacturing and packaging, marketing,
distribution, billing and collection. In Japan and Korea,
DreamWorks Studios has entered into agreements with Kadokawa
Entertainment and CJ Entertainment, respectively, to
provide similar services. DreamWorks Studios' home video
division maintains a small core of executives to oversee
distribution, marketing and operations. These
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agreements pertain to both home video rental and
the sell-through markets, both domestically and internationally.
In addition, we and DreamWorks Studios enjoy a
strong relationship with some of the world's largest
retailers. We work with these key retailers to develop custom
marketing programs to support the launch of our home video
titles. Our relationship with these stores have resulted in
broad promotion of our home videos and ancillary consumer
products in stores throughout the world.
Since 1996, DreamWorks Studios has released over
53 films into the worldwide home video market and has had a
successful track record in "event" marketing of such
films as
Shrek
, which ranks as one of the top-selling
home videos of all time, with approximately 42 million home
video units sold worldwide. DreamWorks Studios has achieved this
success through the creative marketing efforts of its seasoned
executive team, which pioneered the sell-through business prior
to joining DreamWorks Studios, and by cultivating close
relationships with retailers around the world. DreamWorks
Studios' home video division has received numerous awards
for creativity and marketing from consumer and industry
organizations including the Cannes DVD Festival,
Parent's Choice, DVD Entertainment Awards and the
VSDA Home Entertainment Awards.
Television Distribution
DreamWorks Studios distributes our films in
worldwide television markets, including pay television, by
licensing our films pursuant to output agreements and individual
and package film agreements, which generally provide that the
exhibitor pays a fee for each film exhibited during the
specified license period for that film, which may vary according
to the theatrical success of the film. DreamWorks Studios has
entered into license agreements for domestic pay television,
domestic free television and domestic basic cable with respect
to our films. Worldwide, DreamWorks Studios has output
agreements in place with many of the largest pay and free
television distributors around the world. In the past, as a
division of DreamWorks Studios, our films have generally been
covered by these license and output agreements. We expect that
under the Distribution Agreement we will continue to benefit
from DreamWorks Studios' existing agreements and
relationships.
Consumer Products
We have directly entered into strategic licensing
arrangements with a number of well-known consumer products
companies that generate royalty-based licensing fees. In
general, pursuant to these agreements we provide a license to
use our characters and film elements in connection with
merchandise in exchange for a percentage of net sales of those
products. We have entered into agreements with companies such as
Activision, Hasbro and Scholastic. Activision is our interactive
partner for a number of our movies, including
Shrek 2
,
Shark Tale, Madagascar
and
Over
the Hedge
, and is creating several video games for a variety
of interactive platforms. Hasbro, our master toy licensee for
Shrek 2
,
Shark Tale
and
Madagascar
is
manufacturing and selling toys, puzzles and games such as Shrek
Monopoly Jr. and Shrek Operation, each of which are based
on classic board games. Scholastic is our worldwide English
language (and to a limited extent, Spanish language) publishing
partner for several films, beginning with
Shrek 2
.
Scholastic, one of the only brand names in children's
publishing, is our primary publishing partner for storybooks and
color/activity books and will produce 19 books based on
Shrek 2
.
Promotional Partnerships
The success of our films greatly depends not only
on their quality, but also on the degree of consumer awareness
that we are able to generate for their theatrical and home video
releases. In order to maximize consumer awareness, together with
DreamWorks Studios, we have developed promotional partnerships
with a host of well known companies. For example, for
Shrek 2
, we have promotional partnerships with
Burger King, Baskin Robbins, General Mills, M&M Mars,
Pepsi, Frito-Lay, Hewlett Packard, Dial and The United States
Post Office. Likewise, to promote
Shark Tale
, to date, we
have partnered with Burger King, General Mills, Coca-Cola,
Hewlett Packard and Krispy Kreme Doughnuts. We have similar
relationships with brand leaders in the international
marketplace, such as Proctor & Gamble, Nestlé,
Kellogg's, Ferrero (Europe), Barilla
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(Italy), Quik (France) and Red Rooster
(Australia). Our promotional partnerships are either
multi-picture or picture-by-picture arrangements. In general,
these arrangements provide that we license our characters and
storylines for use in conjunction with our promotional
partners' products or services. In exchange, we generally
receive promotional fees in addition to substantial marketing
benefits from cross-promotional opportunities, such as inclusion
of our characters and movie images in television commercials,
print media and on promotional packaging. We believe these
relationships are mutually valuable. We benefit because of the
substantial consumer awareness generated for our films, and our
partners benefit because these arrangements provide them the
opportunity to build their brand awareness and associate with
popular culture in ways they otherwise might not be able.
How We Develop and Produce our Films
The CG Animated Filmmaking
    Process
The filmmaking process starts with an idea.
Inspiration for a film comes from many sources — from
our in-house staff, from freelance writers and from existing
literary works. Successful ideas are generally written up as a
treatment (or story description) and then proceed to a
screenplay, followed by the storyboarding process and then
finally into the production process. After the majority of the
development phase is complete, the entire production process,
from storyboarding to filming out the final image, can take
approximately three to four years.
We employ small collaborative teams that are
responsible for preparing storylines and ideas for the initial
stages of development. These teams, through a system of creative
development controls, are responsible for ensuring that ideas
follow the best creative path within a desired budget and
schedule parameter. The table below depicts, in a very general
manner, a timeline for the filmmaking process, and describes the
four general and overlapping phases that constitute the process
and their components:
An animated film, in its most basic state, is a
collection of shots that are assembled and combined with
dialogue, sound effects and music to create a cohesive story. A
group of shots — for example a close up of Shrek
speaking followed by a close-up of Puss-in-Boots responding
would constitute two shots — that logically flow
together and form a cohesive group is known as a sequence. The
collection of sequences that make up the entire film is called
the story reel. The story reel is the most important tool for
providing continuity and comprehension during the filmmaking
process and is the most basic form of the film that will
ultimately reach theaters some three-plus years later. All of
the component shots and sequences in the story reel (characters,
voices, sets, music, and the like) are manipulated using a
digital editing console that keeps track of the high-resolution
shots and sequences stored in our database and allows for quick,
non-linear editing and manipulation of low-resolution duplicates
on the story reel. Throughout the filmmaking process, new and
modified shots and sequences are integrated into the story reel
and replace older shots, sequences and placeholders. As each
shot and sequence follows its path to completion, a copy of it
is edited into the story reel, which allows the filmmakers to
access the most complete version of the film at all times.
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Development.
The development phase generally consists of story and visual
development and its duration can vary project by
project — from a matter of months to a number of
years. The primary components of the development stage are:
Treatment:
Typically
    a three to five page outline of the story.
Screenplay:
An
    approximately 80-page script of the story that combines dialogue
    and stage directions to elaborate the outline of the story.
Storyboarding:
A
    visual script, or storyboard, developed from the screenplay that
    breaks down the story into thousands of hand-drawn still
    pictures, similar to a comic book. The storyboard describes and
    further weaves the plot and characters into a continuous
    narrative fabric. This is the first stage of the process that
    adds motion and personality to our characters.
Visual Development:
Artists begin to draw character designs, backgrounds and other
    images that help develop the characters and the setting of the
    film. Decisions on stylistic approaches, color, use of space and
    light and other elements, in other words, how the film will
    eventually look, are all decided in this phase of development.
Pre-Production.
This phase is preparatory to the actual CG animation phase
and involves the following:
Modeling:
The
    CG modeler translates two-dimensional imagery of props,
    environments and characters into three-dimensional geometric
    representations that can be viewed and manipulated in a computer.
Character Rigging:
During character rigging, the three-dimensional model is affixed
    within the computer with all the points of potential movement or
    anatomical control, which can number anywhere from a few hundred
    to several thousand for a primary character. These specialized
    controls are custom programmed to allow the entire range of a
    character's movement and emotion.
Voice Recording:
Directors instruct and coach the actors by walking through the
    scenes and describing the emotions that need to be conveyed.
    Because the actors are performing their roles, sessions are
    usually videotaped to help provide reference for the next phases
    of production and ensure that key expressions, reactions and
    other nuances are captured.
Production.
The production phase is the longest phase and involves the
largest number of staff. It can last up to two years and it
primarily consists of:
Layout:
Using rough
    character shapes, we block out the movement of the character in
    the scene. We determine camera movement, character placement,
    spacing, basic lighting, geography and scene timing before
    beginning animation.
Animation:
Animators
    articulate the thousands of skeletal-like controls that were
    created during the character rigging phase to bring each
    character to life and to synchronize the characters to the voice
    recordings. Animation ranges from a subtle change of a
    sub-surface muscle that changes the expression on a
    character's face to a rapid series of intense jerks and
    twists of digital spine controls that allow characters to run,
    jump and fly.
Lighting:
By
    applying textures to surfaces, a lighter brings the scene to
    life. Setting quantity, color, intensity and positioning of
    light creates the depth and shadow of the desired dramatic
    effect. In the end, a three-dimensional animated scene is simply
    hundreds of millions of digital polygons (or surfaces) that have
    been manipulated to create three dimensional illusion.
Post
Production.
In the post production
phase, the core visual and dialogue are in place and we add the
following important aspects to the film:
Sound Effects:
All
    non-dialogue sounds effects are added.
Music/Score:
The
    final musical components are delivered and cut into the film in
    addition to the final score.
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Sound Mixing:
All of
    the elements of the film are mixed together for proper volume
    levels and mixing.
Color Correction:
The entire film is viewed by the filmmakers to ensure that the
    colors have properly translated during the final stages of the
    process.
Final Print:
A final
    version of the completed film is sent to the lab to be printed,
    checked and ultimately duplicated and shipped to exhibitors
    around the world.
Our Technology
Our technology plays an important role in the
production of our films. Our technology development staff has
been responsible for many award-winning innovations that
continue to advance the art of CG animated film-making and many
of our employees are active leaders of industry trade
organizations, which help set standards within the CG animation
community. We also continue to innovate in the application of
new technologies to the production process, which has enabled us
to produce progressively richer and more visually sophisticated
imagery in our films. Our focus on user interface and tool
development enables our animators to adeptly use existing and
emerging CG technologies, allowing us to leverage our
extraordinary artistic talent. In addition, we have strategic
relationships with leading technology companies that allow us to
leverage third-party advancements and technology innovation
substantially before they are available to the open market,
which in the rapidly changing landscape of technology gives us a
valuable advantage.
We have several core proprietary technologies and
production processes: (1) Our
Adaptable Production
Environment
is a robust data and workflow management
architecture for connecting various tools together into an
organized and efficient pipeline; (2)
Emo
is our
character animation system; (3)
Light
and
D
Render
are an interactive lighting tool and
a photo realistic rendering software system, respectively;
(4)
Comp
is a high-quality digital compositor;
(5)
Nile
is a sophisticated production tracking and
management tool and (6)
Virtual Studio Collaboration
encompasses a suite of high-end collaboration tools that enable
efficient production workflow and collaboration across multiple
geographically diverse sites.
Adaptable Production
Environment:
The adaptable and
flexible production environment at DreamWorks Animation exists
because of our core pipeline software, which permits the use of
specialized proprietary custom tools, as well as commercially
available applications. The proprietary pipeline software
includes hundreds of scripts and applications that manage and
version the millions of digital elements that make up each of
our CG productions. The basis for our production pipeline
is a linked collection of proprietary tools that are
customizable and allow for the creation of unique,
groundbreaking images and visual effects in our films.
EMOtion:
Emo
is our Academy Award® winning animation system. It is
one of the primary tools used by our animators to put our CG
characters in motion. Unlike commercially available software
solutions that focus primarily on film visual effects or
computer game animation,
Emo
is designed to deliver
animators the control and flexibility to achieve convincing
facial expression and full body motion worthy of the world-class
acting talent in our films.
Light
and
D
Render:
Together these two software systems
provide an interactive lighting interface and a powerful
photo-realistic image rendering software.
Light
provides
an interactive shading interface that enables artists to make
creative adjustments to the shot's lighting environment.
D
Render
provides the engine that synthesizes
the environment according to the settings established in
Light
.
Light
and
D
Render
are
essential for establishing the complex visual imagery that is a
hallmark of DreamWorks Animation films.
Comp:
Comp
is
our integrated and interactive compositing package specifically
targeted for the needs of high-end CG animation. Architected for
parallel work,
Comp
allows many artists to work
concurrently on the same shot.
Comp
has a sophisticated
user interface that maximizes artist productivity and also
provides programmatic access for customization and integration
into the production workflow.
Nile:
Nile
is
our production management system used to schedule, coordinate
and track the flow of work through the production pipeline. Due
to the complex interdependent nature of three dimensional
animation,
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accurate production information is essential for
producing high quality animation on a specific schedule and
budget.
Nile
acts as the central repository for all
notes, changes and key decisions that take place throughout the
production of a film. Furthermore,
Nile
shares
information across productions, allowing the production
management team to optimize studio resources and regulate the
inventory of work for individual departments.
Virtual Studio
Collaboration:
Our
Virtual Studio
Collaboration
technology enables creative collaboration
across multiple geographic sites. This technology has been
applied to the several areas of the creative, production and
technical collaboration processes at DreamWorks Animation, which
has enabled us to build virtual studios across physical
boundaries and leverage our talent pool without regard to
location. The technology has been deployed internally to enable
remote digital dailies, remote editing collaboration, remote
storyboard pitching and many other forms of remote collaboration
involving the real-time sharing of high-resolution images
combined with interactive communication among staff. This
technology, which is now at the core of our operation, has
enabled us to leverage the latest in research and development
with our strategic technology partners.
Competition
Because of the importance of the domestic
theatrical market in determining revenue from other sources, our
primary competition comes from both animated and live-action
films that are targeted at similar audiences and released into
the domestic theatrical market at the same time as our films. At
this level, in addition to competing for box office receipts, we
compete with other film studios over optimal release dates and
the number of motion picture screens on which our movies are
exhibited. In addition, we compete with other films released
into the international theatrical market and the worldwide home
video and television markets. We also face intense competition
from other animation studios for the services of talented
writers, directors, producers, animators and other employees.
Competition for Film
Audiences.
Our feature films compete
with both live-action and animated films for motion picture
screens, particularly during national and school holidays when
demand is at its peak. Due to the competitive environment, the
opening weekend for a film is extremely important in
establishing momentum for its domestic box office performance.
Because we expect to release only two films per year, the
scheduling of optimal release dates is critical to our success.
One of the most important factors we consider when determining
the release date for any particular film is the expected release
date of competing films. In this regard, we pay particular
attention to the expected release dates of films produced by
other animation studios, and in particular Pixar, Disney and Fox
Entertainment's Blue Sky Studios, although we expect that
in the future, we may also need to consider the release dates of
animated films produced by others.
Disney, Pixar, and Blue Sky Studios are the other
CG animation studios that we believe target similar audiences
and currently have comparable CG animated filmmaking
capabilities, and each of them has released animated films
produced solely with CG technology. Pixar has announced that it
intends to release
The Incredibles
on November 5 of
this year and
Cars
in late 2005. Blue Sky Studios is a
smaller animation studio and production company that has
released only one CG animated feature film,
Ice Age
in
March 2002, and is currently producing
Robots
, which has
an announced release date of March 2005. In addition to
producing
Dinosaur
in 2000, Disney has announced that it
plans to release the CG animated feature film,
Chicken
Little
, in 2005. In addition to these animated film studios,
other smaller animated film studios and production companies
currently exist, such as DNA Productions, which in 2001 released
the CG animated feature film
Jimmy Neutron: Boy Genius
in
conjunction with Nickelodeon and Paramount Pictures. In addition
to CG animated films, a number of hand-drawn animated films are
released each year.
Competition for
Talent.
Currently, we compete with
other animated film and visual effect studios for artists,
animators, directors and producers. In addition, we compete for
the services of computer programmers and other technical
production staff with other CG animation studios and production
companies and, increasingly, with video game producers. In order
to recruit and retain the most talented creative and technical
personnel possible, we have established relationships with the
top animation schools and industry trade groups. We have also
established well organized and thorough in-house digital
training and artistic development
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training programs. Through these programs, we
were able to re-train approximately 140 talented two-dimensional
animators to become highly proficient three-dimensional CG
animators.
Potential
Competition.
In addition to existing
CG animation studios, a number of film and visual effect
studios, including Sony Entertainment and Lucasfilm Ltd. have
announced their intention to enter the market or produce
additional CG animated films. While we and most of the other
existing CG animation studios and production companies have
developed proprietary software to create CG animated films,
other film studios would not be required to do so, as
technological advances have made it possible to purchase
third-party software that is capable of producing high-quality
CG images. However, we believe that our experience in the CG
animation field, along with the technology and talent that we
have developed, provide us with significant competitive
advantages over new entrants.
Employees
We employ approximately 1,200 full and part-time
employees, most of which are currently covered by employment
contracts, which generally include non-disclosure agreements. Of
that total, approximately three quarters are directly employed
in the production of our films as animators, modelers, story
artists, visual development artists, layout artists, editors,
technical directors, lighters and visual effects artists and
production staff, approximately 180 are primarily engaged in
supporting and developing our animation technology, and
approximately 80 work on general corporate and administrative
matters, including training. We also hire additional employees
on a picture-by-picture basis. The salaries of these additional
employees, as well as portions of the salaries of certain
full-time employees who provide direct production services, are
typically allocated to the capitalized costs of the related
feature film. In addition, approximately 450 of our current
employees (and some of the employees or independent contractors
that we hire on a project-by-project basis) are represented
under three industry-wide collective bargaining agreements to
which we are a party, namely the Local 839 of the
International Alliance of Theatrical Stage Employees Agreement
and the International Alliance of Theatrical Stage Employee
Basic Agreement, which generally cover certain members of our
production staff, and an agreement with the Screen Actors Guild,
which generally covers artists such as actors and singers. The
collective bargaining agreements with Local 839 and the
IATSE expire in August 2006 and the SAG agreement expires in
June 2005. We believe that our employee and labor relations are
good.
Legal Proceedings
From time to time we are involved in legal
proceedings arising in the ordinary course of our business,
typically intellectual property litigation and infringement
claims related to our feature films, which could cause us to
incur significant expenses or prevent us from releasing a film.
We also have been the subject of patent and copyright claims
relating to technology and ideas that we may use or feature in
connection with the production, marketing or exploitation of our
feature films, which may affect our ability to continue to do so.
We believe that there is no litigation pending
against us, including the matters described above, that should
have, individually or in the aggregate, a material adverse
effect on our financial position or results of operations.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information as to
persons who are expected to serve as our directors and executive
officers upon consummation of this offering, together with their
positions and ages.
Name
Age
Position
Jeffrey Katzenberg
53
Chief Executive Officer and Director Nominee
Roger A. Enrico
59
Chairman of the Board of Directors Nominee
Paul G. Allen
51
Director Nominee
Lewis W. Coleman
62
Director Nominee
David Geffen
61
Director Nominee
Nathan Myhrvold
44
Director Nominee
Howard Schultz
50
Director Nominee
Ann Daly
48
Chief Operating Officer
Katherine Kendrick
44
General Counsel
Kristina M. Leslie
39
Chief Financial Officer
Set forth below is a brief description of the
business experience of the persons who are expected to serve as
our directors and executive officers upon consummation of this
offering:
Jeffrey Katzenberg — Chief Executive
Officer and Director Nominee.
Mr.
Katzenberg co-founded and has been a principal member of
DreamWorks Studios since its founding in October 1994. Prior to
founding DreamWorks Studios, Mr. Katzenberg served as
chairman of the board of The Walt Disney Studios from 1984 to
1994. As chairman, he was responsible for the worldwide
production, marketing and distribution of all Disney filmed
entertainment, including motion pictures, television, cable,
syndication, home video and interactive entertainment. During
his tenure, the studio produced a number of live-action and
animated box office hits, including
Who Framed Roger Rabbit,
The Little Mermaid, Beauty and the Beast, Aladdin
and
The
Lion King
. Prior to joining Disney, Mr. Katzenberg was
president of Paramount Studios. Mr. Katzenberg serves on
the boards of The Motion Picture and Television Fund, The Museum
of Moving Image, Cedars-Sinai Medical Center, California
Institute of the Arts and The Simon Wiesenthal Center. He is
co-chairman of each of the Creative Rights Committee of the
Directors Guild of America, and the Committee on the
Professional Status of Writers of the Writers Guild of America.
In addition, his fundraising efforts on behalf of AIDS Project
Los Angeles have helped to provide its clients with medical and
social services. Following our separation from DreamWorks
Studios, Mr. Katzenberg will be a consultant to DreamWorks
Studios, where he will be permitted to spend up to 10% of his
time, and will remain one of its principal members.
Roger A. Enrico — Chairman of the
Board Nominee.
We expect that
Mr. Enrico will become chairman of our board of directors
upon completion of this offering and will also assume additional
duties and responsibilities as described below under
"— Board of Directors — Chairman of the
Board." Mr. Enrico is the former chairman and chief
executive officer of PepsiCo, Inc. Mr. Enrico was chief
executive officer of PepsiCo, Inc. from April 1996 to April
2001, chairman of PepsiCo, Inc.'s board from November 1996
to April 2001, and vice chairman from April 2001 to April 2002.
He joined PepsiCo, Inc. in 1971, became president and chief
executive officer of Pepsi-Cola USA in 1983, president and chief
executive officer of PepsiCo Worldwide Beverages in 1986,
chairman and chief executive officer of Frito-Lay, Inc. in 1991,
and chairman and chief executive officer of PepsiCo Worldwide
Foods in 1992. Mr. Enrico was chairman and chief executive
officer, PepsiCo Worldwide Restaurants, from 1994 to 1997. He is
also on the boards of directors of Target Corporation,
Electronic Data Systems Corporation, Belo Corp. and The National
Geographic Society.
Paul G. Allen — Director
Nominee.
Mr. Allen co-founded and
has been the primary financial investor in DreamWorks Studios
since its founding in October 1994. Mr. Allen is the
chairman of Vulcan Inc., which he founded in 1986. He co-founded
Microsoft Corporation with Bill Gates in 1976 and remained the
company's chief technologist until he left in 1983.
Mr. Allen's diverse multibillion dollar investment
portfolio
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spans holdings in telecommunications, technology,
media, biotech, entertainment and real estate, including
DreamWorks Studios, Digeo, Oxygen Media, The Sporting News and
the Seattle Seahawks NFL and Portland Trail Blazers NBA
franchises. He is a director of numerous privately held
companies and has served as chairman of the board of directors
of Charter Communications, Inc. since July 1999. He is also the
founder of Vulcan Productions, Inc., Experience Music Project
and the Science Fiction Museum and Hall of Fame. Named one of
the top 10 philanthropists in America, Mr. Allen gives back
to the community through the Paul G. Allen Foundations.
Lewis W. Coleman — Director
Nominee.
Mr. Coleman is the
president of the Gordon and Betty Moore Foundation, a
multi-billion dollar philanthropic foundation, which he joined
in January 2001, although he intends to resign his position with
the foundation in September 2004. A San Francisco native,
and a Stanford University economics graduate, Mr. Coleman
worked in the banking industry for 37 years. In December
2000, he resigned as chairman of the board of Banc of America
Securities, LLC, a subsidiary of Bank of America Corporation
after having served in that position since joining Banc of
America Securities, LLC in December 1995. Prior to that, he
spent ten years at BankAmerica Corporation where he held various
positions including chief financial officer, head of World
Banking Group and head of Capital Markets. Previous to that he
spent thirteen years with Wells Fargo & Co. in a
variety of wholesale and retail banking positions. He is also on
the boards of directors of Chiron Corporation, Northrop Grumman
Corporation and Regal Entertainment Group.
David Geffen — Director
Nominee.
Mr. Geffen co-founded
and has been a principal of DreamWorks Studios since its
founding in October 1994. Prior to founding DreamWorks Studios,
he founded, built and sold both Asylum Records (founded in 1970)
and Geffen Records (founded in 1980) by signing contracts with
and producing albums for such notable artists as The Eagles,
Jackson Browne, Joni Mitchell and Linda Rondstadt (at Asylum
Records) and John Lennon and Yoko Ono, Elton John, Donna Summer,
Don Henley, Peter Gabriel, Guns n' Roses, Aerosmith and
Nirvana (at Geffen Records). Mr. Geffen has also produced
successful live action films, including
Interview with a
Vampire
(1994),
Beetlejuice
(1988) and
Risky
Business
(1983). Following our separation from DreamWorks
Studios, Mr. Geffen will oversee DreamWorks Studios and
will remain one of its principal members.
Nathan Myhrvold — Director
Nominee.
Dr. Myhrvold is the
chief executive officer of Intellectual Ventures, a private
entrepreneurial firm he founded with his former Microsoft
colleague, Dr. Edward Jung. Before Intellectual Ventures,
Dr. Myhrvold spent 14 years at Microsoft Corporation.
At Microsoft, he was a top technical and business strategist for
the company and was involved with founding the company's
scalable operating systems efforts which lead to the
Windows NT and Windows CE product lines. During his tenure,
Dr. Myhrvold held several executive positions, eventually
retiring as chief technology officer in May 2000. Before
assuming his role as chief technology officer at Microsoft,
Dr. Myhrvold was group vice president of applications and
content, which comprised a number of company divisions,
including desktop applications, consumer software and
Microsoft's online systems. Prior to that, he was senior
vice president of Microsoft's advanced technology division,
responsible for advanced product development in areas such as
interactive television, advanced graphics and identifying new
forms of consumer computing. Before joining Microsoft in 1986,
Dr. Myhrvold was founder and president of Dynamical
Systems. Prior to that he was a postdoctoral fellow in the
department of applied mathematics and theoretical physics at
Cambridge University and worked with Professor Stephen Hawking
on research in cosmology, quantum field theory in curved space
time and quantum theories of gravitation. Dr. Myhrvold
holds a doctorate in theoretical and mathematical physics and a
master's degree in mathematical economics from Princeton
University. He also has a master's degree in geophysics and
space physics and a bachelor's degree in mathematics, all
from the University of California, Los Angeles.
Howard Schultz — Director
Nominee.
Mr. Schultz is the
founder and chairman of the board of Starbucks Corporation and
has served as its chief global strategist since June 2000. From
Starbucks' inception in 1985 to June 2000, he served as
chairman of the board and chief executive officer. From 1985 to
June 1994, Mr. Schultz was also Starbucks' president.
From January 1986 to July 1987, Mr. Schultz was the
chairman of the board, chief executive officer and president of
Il Giornale Coffee Company, a predecessor to Starbucks. From
September 1982 to December 1985, Mr. Schultz was the
director of retail operations and marketing for Starbucks Coffee
Company, another predecessor to Starbucks. In 1997,
Mr. Schultz created The Starbucks
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Foundation to raise awareness for literacy causes
and to give grants to organizations that promote literacy.
Mr. Schultz has received many prestigious awards in
recognition of his numerous business and community
contributions, including the Business Enterprise Trust Award for
courage, integrity and social vision in business; the
International Humanitarian Award for CARE, a world-wide relief
organization; the Jerusalem Fund of Aish HaTorah for individuals
making significant contributions to improving the lives of
people around the world; the National Leadership Award for
philanthropic and educational efforts to battle AIDS from AIDS
Action; the Business Leader of the Year Award from Georgetown
University and the Botwinick Prize for Business Ethics from
Columbia University. In January 2002, Mr. Schultz was named
one of the top 25 Managers of the Year by Business Week
magazine.
Ann Daly — Chief Operating
Officer.
Ms. Daly has served as
head of feature animation at DreamWorks Studios since July 1997,
where she guided the strategic, operational, administrative and
production-oriented concerns of the animation division, as well
as overseeing the worldwide video operations of DreamWorks
Studios. Prior to joining DreamWorks Studios, Ms. Daly
served as president of Buena Vista Home Video
("BVHV"), North America, a division of The Walt Disney
Company, where she presided over what was then the single
largest home video company in the world. Ms. Daly was
responsible for marketing, sales, distribution, operations,
production and all other facets of the home video division.
During her 14-year tenure at Disney, she was a home video
industry pioneer, orchestrating many innovations such as the
direct-to-video business, where high quality, family-oriented
films were produced exclusively for the home video market. Under
Ms. Daly's direction, BVHV won several vendor awards
for marketing and advertising, as well as for its
state-of-the-art distribution, shipping and inventory
replenishment systems. Ms. Daly received her B.A. in
economics from The University of California, Los Angeles.
Katherine Kendrick — General
Counsel.
Ms. Kendrick joined
DreamWorks Studios in April 1996 as general counsel. Prior to
joining DreamWorks Studios, Ms. Kendrick was employed by
The Walt Disney Company in various legal roles, most recently as
vice president — European legal affairs. Prior to
joining Disney, Ms. Kendrick was an associate at the law
firm of Latham & Watkins in Los Angeles.
Ms. Kendrick has received several civic honors for her
legal work and serves on the boards of numerous civic and
charitable institutions, including The Next Generation Council
of The Motion Picture and Television Fund, the Advisory Board of
the Los Angeles Sports and Entertainment Commission, the
Kernochan Center for Law, Media and the Arts for Columbia
University School of Law, and Big Brothers/ Big Sisters of
Greater Los Angeles. Ms. Kendrick received her J.D. degree
from Columbia University and a B.A. in Economics from The
University of California, Berkeley. Ms. Kendrick is
currently serving on our board of directors. Upon consummation
of this offering, she will resign from our board.
Kristina M. Leslie — Chief Financial
Officer.
Ms. Leslie assumed the
role of chief financial officer of DreamWorks Studios in the
fall of 2003. Prior to becoming chief financial officer, she was
head of corporate finance and strategic planning since joining
DreamWorks Studios in June 1996, where she oversaw its long
range planning, banking and investor relations and participated
in all financing activities. Prior to joining DreamWorks
Studios, Ms. Leslie was director of financial planning at
Viacom following its acquisition of Paramount Communications,
where she had served in various finance positions including
treasury, investor relations and strategic planning since 1990.
Ms. Leslie received an M.B.A. from Columbia University and
a B.A. in economics from Bucknell University. Ms. Leslie is
currently serving on our board of directors. Upon consummation
of this offering, she will resign from our board.
Board of Directors
Our business and affairs will be managed under
the direction of our board of directors. Certain of our largest
stockholders, specifically Jeffrey Katzenberg, David Geffen and
Paul Allen, will have the right to sit on the board or, in
certain cases, to designate for nomination members of our board
pursuant to the terms of our restated certificate of
incorporation and a stockholder agreement that will become
effective upon consummation of this offering. See "Related
Party Agreements — Class B Stockholder
Agreement" and "Description of Capital Stock."
Upon consummation of this offering, the board will be composed
of seven directors, including Jeffrey Katzenberg, our chief
executive officer. Our by-laws will require that a majority of
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our directors be independent under the applicable
rules
of                     within
twelve months of the listing of our Class A common stock.
Steven Spielberg will not sit on, or designate a member of, our
board.
Chairman of the Board
Our expected chairman of the board, Roger Enrico,
will perform certain additional functions not typically
associated with the role of chairman of the board. We expect
that Mr. Enrico, as an employee, will be actively involved
in investor relations, corporate strategic planning, marketing
and promotional strategy, succession planning and employee
development and will oversee matters related to corporate
governance and Sarbanes-Oxley compliance. We will compensate
Mr. Enrico for these additional services with an equity
grant of stock 'appreciation rights ("SARs") and
restricted stock units ("RSUs") at the time of the
offering. The shares underlying these performance-based grants
will have a value of approximately $4.0 million on the date
of the grant, and they will vest over a period of time and will
have exercise prices and performance criteria to be determined.
Committees of the Board of
Directors
Audit Committee
Upon the consummation of this offering, we will
have an audit committee that will have responsibility for, among
other things:
•
overseeing management's maintenance of the
    reliability and integrity of our accounting policies and
    financial reporting and our disclosure practices;
•
overseeing management's establishment and
    maintenance of processes to assure that an adequate system of
    internal control is functioning;
•
overseeing management's establishment and
    maintenance of processes to assure our compliance with all
    applicable laws, regulations and corporate policy;
•
reviewing our annual and quarterly financial
    statements prior to their filing and prior to the release of
    earnings; and
•
reviewing the performance and qualifications of
    our independent accountants and making recommendations to the
    board of directors regarding the appointment or termination of
    the independent accountants and considering and approving any
    non-audit services proposed to be performed by the independent
    accountants.
We plan to nominate a new independent member to
our audit committee prior to consummation of this offering, a
second new independent member to our audit committee within
three months following the consummation of this offering and a
third new independent member within 12 months following the
consummation of this offering so that all of our audit committee
members will be independent, as such term is defined in
Rule 10A-3(b)(i) under the Securities Exchange Act of 1934,
as amended.
The audit committee will have the power to
investigate any matter brought to its attention within the scope
of its duties and to retain counsel for this purpose where
appropriate.
Compensation Committee
Upon the consummation of this offering, we will
establish a compensation committee. The compensation committee
will have responsibility for, among other things:
•
reviewing key employee compensation policies,
    plans and programs;
•
monitoring performance and compensation of our
    employee-director, officers and other key employees;
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•
preparing recommendations and periodic reports to
    the board of directors concerning these matters; and
•
functioning as the committee that administers the
    incentive programs referred to in "— Executive
    Compensation, Employment Agreements" below.
Nominating and Corporate Governance
Committee
Upon the consummation of this offering, we will
establish a nominating and corporate governance committee. The
nominating and corporate governance committee will have
responsibility for, among other things:
•
recommending persons to be selected by the board
    as nominees for election as directors;
•
recommending persons to be elected to fill any
    vacancies on the board;
•
considering and recommending to the board
    qualifications for the office of director and policies
    concerning the term of office of directors and the composition
    of the board; and
•
considering and recommending to the board other
    actions relating to corporate governance.
Under the terms of a stockholder agreement that
will be effective upon the consummation of this offering, the
nominating and corporate governance committee will initially be
composed of Paul Allen (or his successor designated in
accordance with our restated certificate of incorporation),
Jeffrey Katzenberg (or, if he is not our chief executive
officer, then his designee) and David Geffen (or his designee).
See "Related Party Agreements — Vulcan
Stockholder Agreement" and "Description of Capital
Stock." We will take advantage of the controlled company
exception to the  rule that requires that director nominees
be selected, or recommended for the board's selection, by
the independent directors.
Compensation Committee Interlocks and Insider
Participation
After the consummation of this offering, our
board of directors will form a compensation committee as
described above. None of our executive officers will serve as a
member of our compensation committee, and none of them have
served, or will be permitted to serve, on the compensation
committee, or other committee serving a similar function, of any
entity of which an executive officer is expected to serve as a
member of our compensation committee.
Director Compensation
We have not yet established the compensation of
our board of directors, which will be subject to the approval of
our compensation committee. Directors who are employees of
DreamWorks Animation, including our expected chairman of the
board, Roger Enrico, will receive no compensation for service as
members of either the board of directors or board committees.
However, Roger Enrico will be compensated as described above
under "— Chairman of the Board." In
addition, the Class C director will not receive any cash or
equity-based compensation as a director or committee member. It
is anticipated that, for the immediate future, other directors
who are not employees of DreamWorks Animation will not be paid
an annual cash retainer, but will receive, pursuant to our 2004
Equity Compensation
Plan,           SARs
and           RSUs
annually. Although it is expected that such directors will
receive three years' worth of grants (in the form of
SARs and RSUs) upon the completion of this offering, the normal
annual awards schedule will resume in 2007. In the future, in
addition to the normally scheduled grants, we expect that newly
elected non-employee directors (other than the Class C
director) will also receive grants
of           SARs
and           RSUs.
Executive Compensation, Employment
Agreements
We have not yet established the compensation of
our executive officers. We expect, however, that the
compensation of our executive officers will consist principally
of base salary, annual cash bonus and equity-based incentive
compensation, all subject to the approval of our compensation
committee.
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Salaries of our executive officers will be based,
among other factors, on the executive's responsibilities,
experience and performance, compensation data of other companies
and the competitive environment for attracting and retaining
executives. Following the consummation of this offering, these
assessments will be made by our compensation committee.
The following table sets forth certain summary
compensation information for certain executive officers of
DreamWorks Studios. In particular, it sets forth summary
compensation that was earned from DreamWorks Studios by our
chief executive officer and the three most highly compensated
executive officers of DreamWorks Studios who will become
executive officers of DreamWorks Animation for the fiscal year
ended December 31, 2003. We expect that these same officers
will become the three most highly compensated executive officers
of DreamWorks Animation following the consummation of this
offering. During fiscal 2003, there were four executive officers
of DreamWorks Studios who will become executive officers of
DreamWorks Animation. We expect that Roger Enrico, our chairman
of the board nominee, who was not employed by us in 2003, will
be one of our four most highly compensated executive officers,
other than our chief executive officer. See
"— Board of Directors — Chairman of the
Board" for details regarding Roger Enrico's proposed
compensation.
Summary Compensation Table
Long-term Compensation
Awards of
Annual
Common
Compensation
Stock
Underlying
All Other
Name and Principal Position
Year
Salary
Options/SARS
Compensation
(1)
Jeffrey Katzenberg, Chief Executive
    Officer
(2)
2003
$
0
0
$
143,945
Ann Daly, Chief Operating Officer
2003
1,500,000
30,000
12,000
Katherine Kendrick, General Counsel
2003
550,000
25,000
12,000
Kristina M. Leslie, Chief Financial
    Officer
(3)
2003
300,000
10,000
8,400
(1)
Other compensation for Jeffrey Katzenberg
    includes $107,445 for the use of DreamWorks Studios'
    aircraft for personal travel (based on the Department of
    Transportation's Standard Industry Fair Level mileage rates
    to determine the value of non-commercial aircraft flights for
    employer provided aircraft) and $36,500 for automobile use.
    Other compensation for each of the other executive officers
    reflect payments made to them for automobile use.
(2)
Mr. Katzenberg did not receive any salary
    for services performed at DreamWorks Studios in 2003.
(3)
Ms. Leslie became the chief financial
    officer of DreamWorks Studios in September of 2003. Effective
    March 15, 2004, Ms. Leslie's employment agreement
    was renegotiated and her annual salary was increased to $500,000.
The following table sets forth summary
compensation information that we expect certain of our executive
officers will receive upon the consummation of this offering. We
expect that Roger Enrico, our chairman of the board nominee, who
was not employed by us in 2003, will be one of our four most
highly compensated executive officers, other than our chief
executive officer and have therefore included him in this table.
Summary Future Compensation Table
Annual
Grant Date Value of
Compensation
Awards of Common
Stock Underlying
Name and Principal Position
Year
Salary
Options/SARS/RSUs
(1)
Roger Enrico, Chairman of the Board
2004
$
1
$
4,000,000
Jeffrey Katzenberg, Chief Executive Officer
2004
1
20,500,000
Ann Daly, Chief Operating Officer
2004
1,000,000
8,000,000
(2)
Katherine Kendrick, General Counsel
2004
550,000
3,000,000
Kristina M. Leslie, Chief Financial
    Officer
(3)
2004
500,000
3,000,000
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(1)
Each of the persons listed in this table will
    receive a grant of equity awards in DreamWorks Animation upon
    the consummation of this offering. These awards will be in the
    form of SARs, RSUs or stock options, or a combination of such
    awards, and will have exercise prices, vesting schedules and, in
    the case of Messrs. Enrico and Katzenberg, performance
    criteria to be determined. Dollar amounts in this column
    represent the estimated fair value of these equity awards on the
    grant date.
(2)
As noted in the table below, prior to this
    offering, Ms. Daly will be awarded 175,385 phantom units in
    DreamWorks Studios which will be converted into comparable
    equity based awards of DreamWorks Animation. The value of the
    stock that will underlie these awards on the date of conversion
    will be $6,000,000.
(3)
Ms. Leslie became the chief financial
    officer of DreamWorks Studios in September of 2003. Effective
    March 15, 2004, Ms. Leslie's employment agreement
    was renegotiated and her annual salary was increased to $500,000.
Employment Agreements
We expect to enter into employment agreements
with our executive officers prior to the effectiveness of the
registration statement of which this prospectus forms a part,
and those employment agreements will be included as exhibits to
the registration statement. In addition, we expect to enter into
an employment agreement with Roger Enrico, who we expect to
become chairman of our board of directors. See
"— Board of Directors — Chairman of the
Board" for details regarding the services Mr. Enrico
will perform for us and a description of Mr. Enrico's
proposed compensation. Mr. Enrico's employment
agreement will also be filed as an exhibit to the registration
statement of which this prospectus forms a part.
Management Consulting Agreements
We expect to enter into consulting agreements
with Steven Spielberg and David Geffen prior to the consummation
of this offering, and those consulting agreements will be
included as exhibits to the registration statement of which this
prospectus forms a part.
Option Plans
The following table provides certain information
regarding options granted to the executive officers named in the
Summary Compensation Table above during 2003 by DreamWorks
Studios.
Option Grants in Last Fiscal Year and Current
Fiscal Year to Date
(1)
Potential Realizable
Value at Assumed
Annual Rates of Stock
Number of
% of Total
Price Appreciation for
Securities
Options
Option Term
(3)
Underlying
Granted to
Exercise or
Options
Date of
Employees in
Base Price
Expiration
Name
Granted
Grant
Fiscal Year
($/SH)
Date
(2)
5%($)
10%($)
Jeffrey Katzenberg
—
—
—
—
—
—
—
Ann Daly
(4)
30,000
1/1/03
13.6
%
$
37.50
—
463,172
1,403,899
Katherine Kendrick
25,000
1/1/03
11.4
%
$
37.50
—
385,977
1,169,916
Kristina M. Leslie
(5)
10,000
9/8/03
4.5
%
$
37.50
—
154,391
467,966
20,000
3/15/04
13.4
%
$
32.50
—
408,782
1,035,933
(1)
Prior to this offering, there were no options or
    other equity-based awards outstanding with respect to our common
    stock. We expect to convert existing equity-based awards in
    DreamWorks Studios and its subsidiaries into equity-based awards
    for our common stock. Amounts in this table represent
    equity-based awards of DreamWorks Studios granted to the named
    executive officers in the last fiscal year and current fiscal
    year to date that will be converted into equity-based awards for
    our common stock.
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(2)
Options and other equity-based awards made by
    DreamWorks Studios were made without a termination date. Upon
    conversion into DreamWorks Animation options and equity-based
    awards, these options and equity-based awards will have a
    termination date that is 10 years from the date of
    conversion.
(3)
Amounts represent hypothetical values that could
    be achieved for the respective options and equity-based awards
    if exercised at the end of the assumed option term which we have
    assumed is 10 years. These values are based on assumed
    rates of stock price appreciation of 5% and 10% compounded
    annually for a ten-year period based on the exercise price of
    the underlying securities on the date of the grant. These
    assumptions are not intended to forecast future appreciation of
    our stock price. The potential realizable value computation does
    not take into account federal or state income tax consequences
    of option exercises or sales of appreciated stock.
(4)
Prior to this offering, Ms. Daly will be
    awarded 175,385 phantom units in DreamWorks Studios which
    will be converted into comparable equity based awards of
    DreamWorks Animation upon consummation of this offering.
(5)
Ms. Leslie was granted options on both
    September 8, 2003 and March 15, 2004.
Conversion of Outstanding Equity-Based
Incentives
Upon the consummation of this offering, equity
and equity-based awards in DreamWorks Studios or its
subsidiaries held by our executive officers and employees prior
to the offering will be converted into one of four types of
equity or equity-based awards: (1) DreamWorks Animation
Class A common stock, which will be full-value shares
having no restriction on sale and no vesting restrictions,
(2) DreamWorks Animation RSUs, (3) DreamWorks
Animation SARs, and (4) DreamWorks Animation Class A
stock options. Upon conversion, the number of shares of
DreamWorks Animation Class A common stock that will
underlie these awards will
represent           %
of the total outstanding common stock of DreamWorks Animation.
Exercise of Stock Options
The following table shows aggregate exercises of
options to purchase equity interests in DreamWorks Studios in
the fiscal year ended December 31, 2003, by the executive
officers named in the Summary Compensation Table in the
"— Executive Compensation" section above.
Aggregated Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option/SAR
Values
(1)(2)
Number of Securities
Underlying Unexercised
Value of Unexercised In-the-
Options/SARs at
money Options/SARs at Fiscal
Fiscal Year-End(#)
Year-End($) Exercisable/
Exercisable/ Unexercisable
Unexercisable
(3)
Name
Exercisable
Unexercisable
Exercisable
Unexercisable
Jeffrey Katzenberg
0
0
$
0
$
0
Ann Daly
61,250
38,750
1,990,625
284,375
Katherine Kendrick
52,238
39,750
585,908
222,505
Kristina M. Leslie
18,876
17,917
222,220
4,845
(1)
There were no exercises of any DreamWorks Studios
    equity-based awards by the executives named in this table in the
    fiscal year ended December 31, 2003 or year-to-date 2004.
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(2)
Upon the consummation of this offering, all of
    the equity and equity-based awards held by the executive
    officers named in this table will be converted into equity and
    equity-based awards of DreamWorks Animation in the following
    amounts:
(3)
Amounts in this column reflect the difference
    between the fair market value of the securities underlying these
    equity-based awards and the exercise price of such awards.
Number and Percent of Total of DreamWorks
Animation Class A Common Stock
Underlying Equity Based Awards
SARs
RSUs
Options
#
%
#
%
#
%
Jeffrey Katzenberg
(A)
Ann Daly
(B)
Katherine Kendrick
(B)
Kristina M. Leslie
(B)
(A)
Jeffrey Katzenberg has not been granted any
    equity-based awards related to DreamWorks Studios. See
    "— Summary Future Compensation Table" for a
    description of performance-based equity awards that will be
    granted upon the consummation of this offering.
(B)
Represents existing DreamWorks Studios
    equity-based awards that will be converted to DreamWorks
    Animation equity-based awards. See "— Summary
    Future Compensation Table" for a description of
    performance-based equity awards that will be granted upon the
    consummation of this offering.
Planned Future Equity-Based
Compensation
We intend to establish the 2004 Equity
Compensation Plan for equity-based compensation prior to the
consummation of this offering. The plan will provide for the
granting to employees (including officers), directors and
consultants of RSUs, SARs and stock options, as well as other
equity-based awards. The plan will provide for the issuance both
of awards made with respect to the conversions that occur at the
time of this offering (as described above in "Conversion of
Outstanding Equity-Based Incentives") and awards made after
the offering, from time to time, in the discretion of the
compensation committee of the board of directors. The
compensation committee of the board of directors will administer
the plan.
RSUs are awards that will reflect the value of
one share of DreamWorks Animation Class A common stock and
may contain vesting restrictions. SARs are awards that will
permit the holder to receive the growth in stock price from
grant until exercise and may contain vesting restrictions.
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RELATED PARTY AGREEMENTS
Agreements Between DreamWorks Studios and Our
Company
Prior to the consummation of this offering, we
will enter into the Separation Agreement and a number of other
agreements with DreamWorks Studios for the purpose of
accomplishing the contribution to us of the businesses described
in this prospectus and of establishing the terms of our other
relationships with DreamWorks Studios. These agreements will
govern the relationship between DreamWorks Studios and us
subsequent to our legal separation from DreamWorks Studios.
Separation Agreement
The Separation Agreement sets forth the
agreements among us, DreamWorks Studios and its current
subsidiaries, DreamWorks Animation L.L.C. and DW Funding L.L.C.
regarding the principal transactions required to effect our
separation from DreamWorks Studios and other agreements
governing the relationship between DreamWorks Studios and us.
The Separation.
To
effect the separation, it is expected that DW Funding will
transfer to DreamWorks Studios its animation film library free
from any encumbrances in connection with the DW Funding film
securitization facility. Following such transfer, DreamWorks
Studios will transfer to DreamWorks Animation L.L.C.:
•
its animated films (including the films
    transferred to it by DW Funding);
•
all copyrights and other intellectual property
    relating to the animation films;
•
all intellectual property, contracts, leases and
    other documents specifically identified on a schedule to the
    Separation Agreement; and
•
all accounting and other books, records and files
    relating to the business and operations of the animation group
    of DreamWorks Studios.
In return for such transfer, DreamWorks Animation
L.L.C. will assume all liabilities resulting from any
contributed asset, whether arising before, on or after the
separation date. In addition, we expect we will assume
approximately
$           million
of indebtedness from DreamWorks Studios.
Immediately after the contribution of the
contributed assets and the assumption of the assumed liabilities:
•
DreamWorks Studios will distribute its 99%
    interest in DreamWorks Animation L.L.C. to its members;
•
DreamWorks Inc., a wholly owned subsidiary of
    DreamWorks Studios that owns 1% of DreamWorks Animation L.L.C.
    as its sole asset, will merge with and into us and its shares
    will be converted into shares of Class B common stock;
•
all of the members of DreamWorks Studios will
    contribute their interests in DreamWorks Animation L.L.C. to us
    in exchange for shares of our common stock;
•
each member of DreamWorks Studios will contribute
    a portion of the common stock it receives from us to DreamWorks
    Studios to be used as collateral for its revolving credit
    facility;
•
each member of DreamWorks Studios who so elects
    will contribute all of its common stock in us (that is not
    otherwise being sold in this offering or contributed to
    DreamWorks Studios for use as collateral for its revolving
    credit facility and other than one share of Class C common
    stock that will be held by Vulcan directly) to Holdco, a newly
    formed limited liability limited partnership that will be
    directly or indirectly controlled by Jeffrey Katzenberg and
    David Geffen, in exchange for partnership interests in Holdco;
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•
DreamWorks Studios will transfer to us its 40%
    interest in Pacific Data Images LLC in exchange for shares of
    our Class A common stock; and
•
our wholly owned merger subsidiary will merge
    with and into Pacific Data Images, Inc., and shares of Pacific
    Data Images, Inc. common stock will be converted into shares of
    our Class A common stock.
Following the separation transactions described
above, we will be a holding company with two operating
subsidiaries, DreamWorks Animation L.L.C. and Pacific Data
Images, Inc.
Except as expressly set forth in the Separation
Agreement or in any other ancillary agreement, neither we nor
DreamWorks Studios will make any representation or warranty as
to:
•
the assets, businesses or liabilities transferred
    or assumed as part of the separation;
•
any consents or approvals required in connection
    with the transfers;
•
the value or freedom from any security interests
    of any assets transferred;
•
the absence of any defenses or freedom from
    counterclaim with respect to any claim of either us or
    DreamWorks Studios; or
•
the legal sufficiency of any assignment, document
    or instrument delivered to convey title to any asset transferred.
Except as expressly set forth in any ancillary
agreement, all assets will be transferred on an "as
is," "where is" basis, and the respective
transferees will agree to bear the economic and legal risks that
any conveyance was insufficient to vest in the transferee good
and marketable title, free and clear of any security interest
and that any necessary consents or approvals were not obtained
or that requirements of laws or judgments were not complied with.
Releases and
Indemnification.
The Separation
Agreement will provide for a full and complete release and
discharge of all liabilities between DreamWorks Studios and us,
and our respective subsidiaries and affiliates, except as
expressly set forth in the Separation Agreement. The liabilities
released or discharged will include liabilities arising under
any contractual agreements or arrangements existing or alleged
to exist between or among any such entities on or before the
consummation of this offering.
We will also agree to indemnify, hold harmless
and defend DreamWorks Studios, its members, each of their
respective affiliates and each of their respective directors,
officers and employees, from and against all liabilities
relating to, arising out of or resulting from:
•
our failure or the failure of any of our
    affiliates (other than DreamWorks Studios or any of its members)
    or any other person or entity to pay, perform or otherwise
    promptly discharge any liabilities associated with the
    contributed businesses, or any contracts associated with the
    contributed businesses, in accordance with their respective
    terms;
•
any material breach by us or any of our
    affiliates of the Separation Agreement or any of the ancillary
    agreements; and
•
any untrue statement or alleged untrue statement
    of a material fact or omission or alleged omission to state a
    material fact required to be stated in the registration
    statement or this prospectus or necessary to make the statements
    in the registration statement or this prospectus not misleading.
DreamWorks Studios will agree to indemnify, hold
harmless and defend us, each of our affiliates and each of our
respective directors, officers and employees from and against
all liabilities relating to, arising out of or resulting from:
•
the failure of DreamWorks Studios or any
    affiliate of DreamWorks Studios or any other person or entity to
    pay, perform or otherwise promptly discharge any liabilities of
    DreamWorks Studios or its affiliates (other than liabilities
    contributed to us);
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•
the DreamWorks Studios businesses or any
    liability of DreamWorks Studios or its affiliates other than
    liabilities associated with the separation of the
    businesses; and
•
any material breach by DreamWorks Studios or any
    of its affiliates of the Separation Agreement or any of the
    ancillary agreements.
The Separation Agreement will also specify
procedures with respect to claims subject to indemnification and
related matters.
Non-competition
. The
Separation Agreement will contain non-competition agreements
between us and DreamWorks Studios.
Theme Park
Activities
. The Separation Agreement
will provide that, to the extent we wish to exploit theme park
rights, we will only do so through Universal Studios for so long
as Steven Spielberg has certain contractual relationships with
us or if he, his wife, his or her issue (or trusts for the
primary benefit of any of them) or a private charitable
foundation organized by him and/or his wife directly or
indirectly owns or controls our Class A common stock.
Distribution Agreement
Term of Agreement and
Exclusivity
. We will enter into a
Distribution Agreement with DreamWorks Studios prior to the
consummation of this offering whereby we will grant to
DreamWorks Studios the exclusive worldwide right to distribute
all of our animated feature films, including our previously
released films, and direct-to-video pictures completed and
available for release through the later of (i) delivery of
12 animated feature films, beginning with
Shark
Tale
, and (ii) December 31, 2010, unless, in
either case, terminated earlier as described below. In general,
the term of the Distribution Agreement will be extended to the
extent of the term, if longer, of any of DreamWorks
Studios' sub-distribution, servicing and licensing
agreements that we pre-approve (such as DreamWorks Studios'
existing arrangements with Universal Studios, CJ Entertainment
and Kadokawa Entertainment). In addition, even if we terminate
our distribution relationship with DreamWorks Studios, our
existing and future films generally will still be subject to the
terms of those pre-approved agreements. The Distribution
Agreement also grants DreamWorks Studios identical rights with
respect to all animated feature films and direct-to-video
pictures we have previously released. Our
Father of the Pride
television show will not be covered by the Distribution
Agreement.
Distribution of our films generally includes
(1) domestic and international theatrical exhibition,
(2) domestic and international home video exhibition,
(3) domestic and international television licensing,
including pay-per-view, pay television, network, basic cable and
syndication, (4) non-theatrical exhibition, such as on
airlines, in schools and in armed forces institutions and
(5) Internet, radio (for promotional purposes only) and new
media rights. We retain all other rights to exploit our films,
including commercial tie-in and promotional rights with respect
to each film, as well as merchandising, interactive, literary
publishing, music publishing and soundtrack rights. Once the
license to distribute one of our animated films or
direct-to-video pictures is acquired by DreamWorks Studios, it
will have the right to exploit the animated film or
direct-to-video picture in the manner described above for
16 years from its initial general theatrical release, or
10 years from initial release, with respect to
direct-to-video pictures.
Distribution
Services
. DreamWorks Studios will be
directly responsible for the initial U.S. theatrical
release of all of our animated films, but may engage one or more
sub-distributors and service providers for all other markets,
subject to our prior written approval with respect to entities
not currently so engaged by DreamWorks Studios. DreamWorks
Studios is currently party to a distribution agreement with
Universal Studios that provides that Universal Studio's
affiliate will distribute and market DreamWorks Studios'
films (including ours) in international theatrical markets
excluding Japan, Korea and the People's Republic of China.
In Japan, DreamWorks Studios has contracted with Kadokawa
Entertainment to provide such services and in Korea and the
People's Republic of China, DreamWorks Studios has
contracted with CJ Entertainment. For worldwide home video
fulfillment services (excluding Japan and Korea), DreamWorks
Studios has an agreement with Universal Studios to provide
marketing, distribution and other fulfillment services. Such
services are provided in Japan by Kadokawa Entertainment and in
Korea by CJ Entertainment.
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DreamWorks Studios has also entered into output
agreements with many of the major pay and broadcast television
providers throughout the world. In the past, as a division of
DreamWorks Studios, our films have generally been covered by
these license and output agreements. We expect that under the
Distribution Agreement we will continue to benefit from
DreamWorks Studios' existing agreements and relationships.
The agreement will provide that DreamWorks
Studios will advertise, publicize, promote, distribute and
exploit our animated feature films and direct-to-video pictures
in a manner consistent with the customary and reasonable
business practices of the motion picture industry and DreamWorks
Studios' prevailing and commercially reasonable practices.
Specifically, the distribution, promotional and marketing
services DreamWorks Studios provides with respect to our
theatrically released animated feature films must be
substantially comparable to the distribution, promotional and
marketing services provided by DreamWorks Studios in connection
with the initial theatrical and home video release of our films
released prior to the effectiveness of the Distribution
Agreement.
Distribution Approvals and
Controls
. Under the agreement,
DreamWorks Studios will be required to consult and submit to us
a detailed plan and budget regarding the theatrical and home
video marketing, release and distribution of each of our films.
We will have certain approval rights over these plans and are
entitled, subject to certain limitations, to determine the
initial domestic theatrical release dates for two films per year
and to approve the release date in the top 15 major
international territories. Generally, DreamWorks Studios will
not be permitted to theatrically release any film with an MPAA
rating of PG or less within the period beginning six weeks prior
to, and ending four weeks following, the initial domestic
theatrical release date of one of our films, and in the four
weeks surrounding the initial theatrical release date in the top
15 major international territories. Similar restrictions will
apply with respect to the home video distribution of DreamWorks
Studios' and our films.
Expenses and Fees
.
The Distribution Agreement will provide that we are solely
responsible for all of the costs of developing and producing our
animated feature films and direct-to-video pictures, including
contingent compensation and residual costs. DreamWorks Studios
will be responsible for all of the out-of-pocket costs, charges
and expenses incurred in the distribution, advertising,
marketing, publicizing and promotion of each film (collectively,
"Distribution Expenses"), including:
•
marketing materials such as theatrical and home
    video trailers and television spots;
•
advertising space in any print or electronic
    media;
•
film festivals, premieres, advance screenings and
    other special events promoting the films, and all associated
    expenses such as talent travel and accommodations;
•
home video cassettes, DVDs, CD-ROMs and other
    such home video devices and prints, including for creation,
    manufacture, editing, dubbing, subtitling, rescoring, delivery
    and use of the foregoing or any other existing or future means
    of exploitation;
•
checking and collecting gross receipts;
•
trade dues and assessments by trade organizations;
•
taxes and government fees;
•
remittance and conversion of gross receipts;
•
license fees, duties, other fees or any other
    amounts paid to permit use of our feature films;
•
home video distribution expenses;
•
costs, charges and expenses charged to an
    accepted by DreamWorks Studios pursuant to its sub-distribution
    and services agreements.
We and DreamWorks Studios will mutually agree on
the amount of Distribution Expenses to be incurred with respect
to the initial theatrical and home video release of each film in
the domestic territory and in the top 15 major international
territories, including all print and advertising costs and media
buys. Unless we and
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DreamWorks Studios otherwise agree, the aggregate
amount of Distribution Expenses to be incurred will be equal to
or greater than 80% of the average amount of Distribution
Expenses incurred by DreamWorks Studios to release our four most
recent films. However, if we determine in good faith that a
film's gross receipts will be materially enhanced by the
expenditure of additional Distribution Expenses, we may cause
DreamWorks Studios to increase such expenditures, provided that
we will be solely responsible for reimbursing DreamWorks Studios
for those additional expenditures within 10 business days of
receiving an invoice from DreamWorks Studios.
DreamWorks Studios will be entitled to
(i) retain a fee of 8.0% of revenue (without deduction for
early distribution and marketing costs of third-party
distribution and fulfillment services fees) and (ii) recoup
all of its distribution and marketing costs prior to our
recognizing any revenue. If a feature film or a direct-to-video
picture does not generate revenue, net of the 8.0% distribution
fee, sufficient for DreamWorks Studios to recoup its
Distribution Expenses, DreamWorks Studios is not entitled to
recoup those costs from proceeds of our other feature films or
direct-to-video pictures.
Retained Rights
.
Other than the rights to distribute our animated feature films
described above, we will retain all rights to exploit our films,
including during the term of the license, the right to make
sequels, exploit the soundtracks, music, lyrics or other sound
recordings related to our films and the right to license our
films and characters to merchandisers and retailers. These
rights include the right to make documentaries concerning any of
our films, such as "the making of" and "behind
the scenes" productions. Upon expiration of the applicable
license term, we will have the exclusive right to further
exploit our films.
Creative Control
. We
will retain the exclusive right to make all decisions and
initiate any action with respect to the development and
production of each of our films, including the right to abandon
the development or production of a film, the right to exercise
final cut and the right to delegate final cut to the director of
any of our films. Creatively, we will be limited by few
restrictions, including that each film we deliver to DreamWorks
Studios must (i) be filmed in color and in the English
language, (ii) be at least 75 minutes long, (iii) be
an animated film or hybrid animated/live-action film and
(iv) obtain a rating by the MPAA no more restrictive than
PG-13.
Assignment
.
DreamWorks Studios (i) may assign its rights and
obligations under the Distribution Agreement to any entity in
which it has any direct or indirect ownership interest,
(ii) if DreamWorks Studios ceases to operate its domestic
theatrical distribution business, DreamWorks Studios may assign
or sub-license its domestic theatrical rights with respect to
our films to Universal Studios under the same terms and
conditions as set forth in the Distribution Agreement (in which
case Universal Studios would continue to enjoy its rights and
obligations, with respect to our films, that it currently enjoys
under its sub-distribution and fulfillment servicing agreement
with DreamWorks Studios) and (iii) DreamWorks Studios may
assign to any entity that acquires substantially all of
DreamWorks Studios motion picture business — whether
by acquisition, merger or otherwise.
Termination
. Upon
the occurrence of certain events of default, which include the
failure of either party to make a payment and the continuance
thereof for five business days, material uncured breach of the
agreement and certain bankruptcy-related events, the
non-breaching party may terminate the agreement. If DreamWorks
Studios ceases business operations or DreamWorks Studios'
agreement with Universal Studios is terminated by either party
thereto, then we may terminate the agreement. If we terminate
the agreement, we generally can require DreamWorks Studios to
stop distributing our films in the various territories and
markets in which DreamWorks Studios directly distributes our
films, subject, in each case, to the terms of any output or
other agreements to which the films are then subject (in which
case they will no longer be entitled to the distribution fee) or
permit them to continue distribution in territories and markets
that we choose. Unless otherwise agreed, termination of the
Distribution Agreement will not affect the rights that any
sub-distributor or service provider has with respect to our
films pursuant to sub-distribution, servicing and licensing
agreements that we have approved.
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Services Agreement
We and DreamWorks Studios will enter into a
Services Agreement whereby DreamWorks Studios will agree to
provide us with various corporate support services, which we
expect to include:
•
certain accounting functions;
•
insurance administration;
•
information systems management;
•
payroll services;
•
legal advisory and consulting services;
•
human resources administration;
•
certain procurement services; and
•
other general support services.
DreamWorks Studios also may provide us additional
services that we and DreamWorks Studios may identify from time
to time in the future.
We expect that the charges for these services
will generally allow DreamWorks Studios to fully recover the
allocated direct costs of providing these services, plus all
out-of-pocket costs and expenses.
In general, the services to be provided under the
Services Agreement will be provided by DreamWorks Studios for so
long as the Distribution Agreement is in effect, unless another
termination date has been agreed upon by both parties with
respect to a particular service.
Escrow and Distribution
    Arrangement
In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our common stock. Vulcan, entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen and all other
members of DreamWorks Studios who so elect will contribute their
shares of our common stock not sold in this offering to Holdco.
DreamWorks Studios' members that elect to contribute their
shares of our common stock to Holdco will be entitled to receive
a minimum of
$           million
of net cash proceeds from a combination of sales of secondary
shares in this offering and a subsequent follow-on offering of
secondary shares from the common stock held by Holdco. The
follow-on offering must be completed before May 31, 2006,
and is subject, in the case of entities controlled by Steven
Spielberg, Jeffrey Katzenberg and David Geffen, to a
365 day lock-up period. In addition, any shares of our
common stock held by DreamWorks Studios as collateral for its
revolving credit facility that are released as collateral prior
to receipt by the participating DreamWorks Studios members of a
minimum of
$           million
of net cash proceeds from this offering and the follow-on
offering will automatically be contributed by DreamWorks Studios
to Holdco. Without the consent of its limited partners, Holdco
will not conduct any activities other than those related to the
activities described in this section.
Prior to the receipt by the participating
DreamWorks Studios members of
$           million
of net cash proceeds from this offering and the follow-on
offering, shares of our common stock contributed to Holdco will
be held in the form of Class B common stock that will be
voted by Jeffrey Katzenberg and David Geffen or entities
controlled by them (except in the event of a class vote of the
Class A common stock, in which case the shares will be
voted by the members of DreamWorks Studios who have contributed
their shares to Holdco as if they had not contributed their
shares to Holdco and had received shares of Class A common
stock). In order to elect the Class C director, Vulcan will
hold one share of its Class C common stock directly rather
than through Holdco. Once the participating DreamWorks Studios
members have received total net proceeds of
$           million
from this offering and the follow-on offering and the remaining
shares are distributed by
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Holdco to the participating Dreamworks Studios
members as described below, only those shares held by Jeffrey
Katzenberg, David Geffen (or entities controlled by them) and
DreamWorks Studios will remain Class B common stock. All
other shares will be converted by Holdco to Class A common
stock prior to their distribution, other than the shares of
Class C common stock to be distributed to Vulcan.
After the date that is 180 days following
consummation of this offering, either of Jeffrey Katzenberg and
David Geffen (or entities controlled by them), acting together,
or Vulcan may select the timing of one follow-on secondary
offering (which must occur prior to May 31, 2006). Upon the
triggering of the follow-on offering, Holdco will cause
appropriate actions to be taken for the sale of a portion of its
shares and receipt by the participating DreamWorks Studios
members of the proceeds from such offering. If Jeffrey
Katzenberg and David Geffen, or entities controlled by them,
initiate the follow-on offering, the distribution of remaining
shares by Holdco to the participating DreamWorks Studios members
will occur promptly after the closing of the follow-on offering
and receipt of at least an aggregate of
$           million
in net proceeds from this offering and the follow-on offering by
the participating DreamWorks Studios members. Remaining shares
held by Holdco after the follow-on offering will be distributed
by Holdco to its partners based on the gross price per share in
such follow-on offering (calculated before the discount to be
paid to the underwriters).
If Vulcan initiates the follow-on offering, the
pricing and distribution of shares held by Holdco (and not sold
in the offering) will occur after receipt by the participating
DreamWorks Studios members of total net proceeds from this
offering and the follow-on offering of at least
$           million
at the conclusion of a 20 consecutive trading day pricing
period initiated by Jeffrey Katzenberg and David Geffen or
entities controlled by them. The pricing period may be initiated
at any time after the closing of such follow-on offering and
prior to May 31, 2006, and valuation of the shares to be
distributed by Holdco will be based on the volume-weighted
average trading price of our shares over the pricing period.
Vulcan and entities controlled by Steven Spielberg, Jeffrey
Katzenberg and David Geffen will agree to certain trading and
hedging limitations until the release of shares by Holdco. If
the valuation determined during the pricing period is higher
than the price realized in the follow-on offering, the amount of
net cash proceeds received by the participating DreamWorks
Studios members from the follow-on offering will be deemed,
solely for purposes of determining the allocation of shares to
be distributed by Holdco after the follow-on offering, to be the
amount of net cash proceeds that would have been received if the
shares sold in the follow-on offering had been sold at the
valuation determined during the pricing period.
If the participating DreamWorks Studios members
have not received a minimum of
$           million
of net proceeds from this offering and the follow-on offering
prior to May 31, 2006, Vulcan will have the ability to
initiate an additional follow-on offering during the 18-month
period beginning on May 31, 2006. In this event, the
distribution of remaining shares held by Holdco and not sold in
the follow-on offerings will not occur until closing of the
subsequent follow-on offering triggered by Vulcan. The shares
remaining after the subsequent follow-on offering will be
distributed to the participating DreamWorks Studios investors
based on the gross price per share in the subsequent follow-on
offering (calculated before the discount to be paid to the
underwriters).
The distribution of secondary sale proceeds and
shares held by Holdco after the follow-on offering or offerings
will be as follows:
•
first, pro rata (based on the valuation
    methodology described above) necessary to satisfy each
    participating DreamWorks Studios member's unreturned
    DreamWorks Studios' capital as of the date of this offering
    (reduced by such member's receipt of net cash proceeds in
    this offering and the follow-on offering or offerings); and
•
second, pro rata according to the applicable
    DreamWorks Studios member's participation percentage in
    DreamWorks Studios as of the date of this offering.
Vulcan Stockholder Agreement
We will enter into a stockholder agreement with
DreamWorks Studios, Holdco, M&J K Dream Limited Partnership
(a limited partnership controlled by Jeffrey Katzenberg),
certain of Jeffrey Katzenberg's estate
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planning vehicles, DG-DW, L.P. (a limited
partnership controlled by David Geffen) and Vulcan upon
consummation of this offering. The Vulcan stockholder agreement
will cover matters of corporate governance, restrictions on
transfer of common stock and conversion of Class B common
stock.
Corporate Governance
Executive Committee.
The Vulcan stockholder agreement will provide that in the event
that the board forms an Executive Committee, the Class C
director will have the right to be a member of the Executive
Committee.
Nominating and Corporate Governance
Committee.
The Vulcan stockholder
agreement will further provide that the we will use our best
efforts to cause the Nominating and Corporate Governance
Committee to be composed of the Class C director, Jeffrey
Katzenberg (or if he is not our chief executive officer, then
his designee) and David Geffen (or his designee).
Restrictions on Transfer
Without our prior written consent and the prior
written consent of Vulcan, each Class B common stockholder
will agree not to transfer any shares of Class B common
stock held by such Class B common stockholder without first
converting such shares of Class B common stock to shares of
Class A common stock in accordance with our restated
certificate of incorporation, except:
•
to any other Class B common stockholder;
•
transfers among Jeffrey Katzenberg, M&J K and
    the Katzenberg estate planning vehicles party to the Vulcan
    stockholder agreement; or
•
in a third-party tender offer or exchange offer
    (i) that is recommended by the board or that has been
    publicly endorsed by both of Jeffrey Katzenberg and David Geffen
    (for so long as they continue to beneficially own Class B
    common stock), (ii) that is made to all holders of common
    stock and (iii) in which Equivalent Consideration (as
    defined in our restated certificate of incorporation) is offered
    in respect of each share of common stock. See "Description
    of Capital Stock — Common Stock — Equivalent
    Consideration in Certain Transactions."
Agreement to Convert
The Vulcan stockholder agreement will provide
that from and after the first date on which the total number of
outstanding shares of Class B common stock is less than 50%
of the number of shares of Class B common stock outstanding
immediately after the distribution of shares by Holdco, if any
Class B common stockholder (other than DreamWorks Studios
and Holdco) and certain of its affiliates ceases to hold at
least 50% of the number of shares of Class B common stock
it held immediately after the distribution of shares by Holdco,
such Class B common stockholder will be permitted to
transfer its remaining shares of Class B common stock to
any other Class B common stockholder that continues to hold
at least 50% of the number of shares of Class B common
stock it held immediately after the distribution of shares by
Holdco, in accordance with the right of first offer procedures
described below under "— Class B Stockholder
Agreement." Following compliance with the right of first
offer procedures, such Class B common stockholder will
immediately convert all of its remaining shares of Class B
common stock into Class A common stock.
In the event that a Class B common
stockholder (other than DreamWorks Studios) ceases to be
controlled by either Jeffrey Katzenberg or David Geffen, then
such Class B common stockholder will be permitted to
transfer any of its Class B common stock to any other
Class B common stockholder controlled by either Jeffrey
Katzenberg or David Geffen, in accordance with the right of
first offer procedures, and, following compliance with the right
of first offer procedures, such Class B common stockholder
will immediately convert all of its remaining shares of
Class B common stock into Class A common stock.
In the event that each Class B common
stockholder other than DreamWorks Studios has converted its
shares of Class B common stock as described above, or if
DreamWorks Studios ceases to be controlled by at
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least one of Jeffrey Katzenberg or David Geffen,
then DreamWorks Studios will immediately convert all remaining
shares of Class B common stock held of record by it into
Class A common stock.
Term
The Vulcan stockholder agreement will terminate
when all outstanding shares of Class B common stock have
been converted to Class A common stock. In addition, the
Vulcan stockholder agreement will provide that Vulcan will cease
to have any rights or obligations under the agreement if Vulcan
ceases to beneficially own a minimum percentage to be agreed
upon of our common stock.
Class B Stockholder
    Agreement
DreamWorks Studios, Holdco, M&J K Dream
Limited Partnership, certain of Jeffrey Katzenberg's estate
planning vehicles and DG-DW, L.P. will enter into a stockholder
agreement upon consummation of this offering. The Class B
stockholder agreement will cover matters of corporate governance
and restrictions on transfer of Class B common stock, both
as described below.
Corporate Governance
The Class B stockholder agreement will
provide that each of M&J K and DG-DW will have the right to
designate one individual for election to the board. For so long
as Jeffrey Katzenberg is our chief executive officer, he will be
the M&J K designee.
Restrictions on Transfer
Generally, without the consent of M&J K and
DG-DW, each party to the Class B stockholder agreement will
agree not to:
•
transfer, other than pursuant to the right of
    first offer procedures described below, any shares of
    Class B common stock (or shares of Class A common
    stock into which such shares of Class B common stock have
    been converted) beneficially owned by such party, other than, in
    the case of Holdco, to any member of DreamWorks Studios in
    connection with the distribution described above under
    "— Escrow and Distribution Arrangement," and
    other than any transfers among Jeffrey Katzenberg, M&J K
    Dream Limited Partnership and the Katzenberg estate planning
    vehicles party to the Class B stockholder agreement, and
    other than transfers of Class A common stock by DG-DW to
    charities and not-for-profit organizations;
•
grant any proxy with respect to Class B
    common stock (or shares of Class A common stock into which
    such shares of Class B common stock have been converted)
    beneficially owned by such party (other than to Jeffrey
    Katzenberg or David Geffen), deposit shares of such common stock
    in a voting trust or subject any such common stock to any
    arrangement or agreement with respect to the voting of such
    common stock or other agreement having similar effect; or
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•
convert any shares of Class B common stock
    beneficially owned by such party into shares of Class A
    common stock (other than in connection with a permitted transfer
    as described above).
In addition, DG-DW will agree for so long as
Jeffrey Katzenberg is the chief executive officer not to
transfer any common stock if such transfer would result in the
total voting power of Jeffrey Katzenberg, David Geffen and
entities controlled by them falling below 51%.
De Minimis
Transfers.
Following the date that is
one year after consummation of this offering (and after the
distribution of shares held by Holdco), each party to the
Class B stockholder agreement will be entitled to make one
or more transfers of less
than                shares
of Class A common stock; provided that with respect to any
party, the aggregate number of shares of Class A common
stock transferred pursuant to such "de minimis
transfers" during any three month period may not
exceed           .
Right of First
Offer.
Generally, any transfer of
common stock by any party to the Class B stockholder
agreement (including a conversion of Class B common stock
into Class A common stock), other than de minimis
transfers, the distribution of shares by Holdco, transfers of
Class A common stock to charitable and not-for-profit
organizations by entities controlled by David Geffen and
transfers permitted under the Vulcan stockholder agreement, is
subject to a right of first offer to each Class B
stockholder controlled by Jeffrey Katzenberg or David Geffen.
Upon any such transfer, the transferring party must make an
irrevocable offer to each Class B stockholder controlled by
Jeffrey Katzenberg or David Geffen (if not the transferring
party) to sell all (but not less than all) of the common stock
to be transferred at the price set by the transferring
stockholder in the case of a proposed private placement, or the
current market value, in all other cases. If the Class B
stockholders controlled by Jeffrey Katzenberg or David Geffen do
not respond to the offer notice within the required response
time period or elect not to purchase the offered Class B
common stock, the transferring stockholder is free to transfer
the offered Class B common stock in the form of
Class A common stock or to convert the Class B common
stock, as applicable.
Term
The Class B stockholder agreement will
terminate when all outstanding shares of Class B common
stock have been converted to Class A common stock, and the
rights and obligations of each party to the Class B
stockholder agreement will terminate upon the date on which such
party ceases to hold of record any shares of Class B common
stock in accordance with the terms of the Class B
stockholder agreement.
Registration Rights Agreement
The registration rights agreement will provide
that Steven Spielberg, Jeffrey Katzenberg, David Geffen, Vulcan,
entities controlled by them and other investors in DreamWorks
Studios will have registration rights with respect to our stock.
Steven Spielberg, Jeffrey Katzenberg, David Geffen, Vulcan,
certain other stockholders and entities controlled by them will
have the right to require us to effect additional registration
statements, or "demand registrations," subject to
customary blackout provisions and minimum registrable amounts
and subject to the terms of the escrow and distribution
arrangements and subject to the lock-up agreements with the
underwriters. In addition to our obligations with respect to
demand registrations, each member of DreamWorks Studios will
have "piggyback" registration rights, subject to
minimum registrable amounts. If we propose to register any of
our securities, other than a registration on Form S-8 or
S-4, we will be required to give each party to the registration
rights agreement the opportunity to participate in such
registration.
Trademark License Agreement/ Trademark
    Assignment Agreement
In connection with our separation from DreamWorks
Studios, we will enter into a trademark license agreement
pursuant to which DreamWorks Studios will grant us a fully paid,
irrevocable license to use certain trademarks owned by
DreamWorks Studios. In addition, DreamWorks Studios will assign
to us certain of its trademarks pursuant to a trademark license
agreement.
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Glendale Animation Campus
In May 1996, we entered into an agreement with a
financial institution for the construction of an animation
campus in Glendale, California, and the subsequent lease of the
facility upon its completion in early 1998. The lease on the
Glendale animation campus, which was acquired and financed by
the financial institution for $76.5 million, qualified as
an operating lease for us. In March 2002, we renegotiated the
lease through the creation of a special purpose entity that
acquired the property from the financial institution for
$73.0 million and the special purpose entity leased the
facility back to us for a five-year term. We intend to sub-lease
a portion of the property to DreamWorks Studios and we expect
enter into a lease with it prior to the consummation of this
offering.
Other Related Party Agreements
Tax Agreement
Prior to the completion of this offering, we
anticipate that Vulcan will enter into a series of transactions
which will result in a partial increase in the tax basis of our
tangible and intangible assets. Consequently, we expect that
such partial increase in tax basis will reduce the amount of tax
that we may pay in the future. We expect to enter into a tax
agreement with Vulcan that will provide for, among other things,
the payment by us to Vulcan of a portion of the cash tax savings
that we actually realize as a result of this partial increase in
the tax basis of our tangible and intangible assets.
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PRINCIPAL AND SELLING STOCKHOLDERS
Prior to the consummation of this offering,
DreamWorks Animation, Inc. will have no class of equity
securities either issued or outstanding other than the
1,000 shares of common stock that were issued to DreamWorks
Studios upon our formation. The subsidiaries, assets and
liabilities of DreamWorks Studios that will constitute our
business upon the completion of this offering are currently
owned by DreamWorks Studios. DreamWorks Studios is controlled by
its managing members, Jeffery Katzenberg, David Geffen and
Steven Spielberg, who generally have the exclusive right to
conduct the business and affairs of DreamWorks Studios.
In connection with our separation from DreamWorks
Studios, DreamWorks Studios and its members will receive shares
of our Class A, Class B and Class C common stock.
The following table sets forth certain information regarding the
beneficial ownership of our common stock (1) immediately
prior to the consummation of the offering, but after giving
effect to the separation transactions; and (2) as adjusted
to reflect the sale of the shares of common stock in this
offering. The table sets forth stockholder information with
respect to:
•
each of our director nominees;
•
each of the executive officers listed in the
    Summary Compensation Table above;
•
our directors and named executive officers as a
    group;
•
persons owning more than 5% of a class of our
    common stock; and
•
each of the selling stockholders.
Shares of Common Stock
Number of Shares of Our Common Stock
Received in Our Separation
(1)
Number of
Owned After the Offering
Class A
Shares
Class A
Class B
Class C
Offered
Class A
Class B
Class C
Total
Name and Address of Beneficial Owner
Number
%
Number
%
Number
%
Number
%
Number
%
Number
%
Number
%
Number
%
Current directors and director
    nominees
Jeffrey Katzenberg
David Geffen
Roger A. Enrico
Lewis W. Coleman
Nathan Myhrvold
Howard Schultz
Paul Allen
Named officers who are not directors
Ann Daly
Katherine Kendrick
Kristina M. Leslie
Directors and executive officers of DreamWorks
    Animation, Inc. as a group (9 persons)
Persons owning more than 5% of a class of our
    equity securities
DreamWorks Studios L.L.C.
Holdco
Selling stockholders
(2)
*
Less than 1%.
(1)
Unless otherwise indicated, each beneficial owner
    listed above has represented that he, she or it possesses sole
    voting and sole investment power with respect to the shares
    beneficially owned by such person, entity or group and includes
    all options currently exercisable or exercisable within
    60 days
    of                     ,
    2004. The percentages of beneficial ownership as to each person,
    entity or group assume the exercise or conversion of all options
    held by such person, entity or group.
(2)
DreamWorks Studios' members that elect to
    sell in this offering will be added at a later date.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists
of                      shares
of Class A common stock, par value $0.01 per
share,                      shares
of Class B common stock, par value $0.01 per
share,                      shares
of Class C common stock, par value $0.01 per share,
and                      shares
of preferred stock, par value $0.01 per share. Immediately
following this offering:
•
of
    the                     authorized
    shares of Class A common
    stock,                      shares
    will be issued and outstanding;
•
of
    the                     authorized
    shares of Class B common
    stock,                      shares
    will be issued and outstanding, all of which will be held by
    Jeffrey Katzenberg, David Geffen, Holdco and DreamWorks Studios
    after completion of this offering;
•
of
    the                     authorized
    shares of Class C common
    stock,                      shares
    will be issued and outstanding, all of which will be held by
    Vulcan after distribution of shares by Holdco; and
•
no shares of our preferred stock will be
    outstanding.
The following summary description relating to our
capital stock does not purport to be complete. The rights of the
holders of our capital stock will be set forth in our restated
certificate of incorporation, as well as the Vulcan stockholder
agreement and the Class B stockholder agreement, the forms
of each of which are filed as exhibits to the registration
statement of which this prospectus forms a part. The summary set
forth below is qualified by reference to such exhibits and to
the applicable provisions of the Delaware General Corporation
Law.
Common Stock
The relative rights of the Class A common
stock, the Class B common stock and the Class C common
stock are substantially identical in all respects, except for
voting rights and conversion rights.
Voting Rights
Each share of Class A common stock entitles
the holder to one vote, each share of Class B common stock
entitles the holder to fifteen votes and each share of
Class C common stock entitles the holder to one vote with
respect to each matter presented to our stockholders on which
the holders of common stock are entitled to vote. In addition,
the Class C common stock, voting as a single class, is
entitled to elect one director. The Class C designated
director will be Paul Allen for so long as, in his reasonable
determination, he is reasonably able to serve as a director and
such service would not cause him any economic detriment. In the
event that Paul Allen is not able to serve as a director, the
Class C common stockholder will consult with our chairman
of the board before appointing Paul Allen's replacement.
The holders of Class A common stock, Class B common
stock and Class C common stock are not entitled to cumulate
their votes in the election of directors. Except as otherwise
provided in our restated certificate of incorporation or
required by law, all matters to be voted on by our stockholders
must be approved by a majority, or, in the case of election of
directors (other than the director elected by the Class C
common stockholder), by a plurality, of the votes entitled to be
cast by all shares of Class A common stock, Class B
common stock and Class C common stock present in person or
represented by proxy, voting together as a single class.
Dividends
Holders of Class A common stock,
Class B common stock and Class C common stock will
share equally in any dividend declared by our board of
directors, subject to any preferential rights of any outstanding
preferred stock. Dividends consisting of shares of Class A
common stock, Class B common stock, Class C common
stock or any of our other securities or the securities of any
other legal entity may be paid only as follows:
•
a share distribution consisting of Class A
    common stock (or convertible securities that are convertible
    into, exchangeable for or evidence the right to purchase shares
    of Class A common stock) with respect
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to shares of Class A common stock,
    Class B common stock and Class C common stock, on an
    equal per share basis; or consisting of shares of Class A
    common stock (or convertible securities that are convertible
    into, exchangeable for or evidence the right to purchase shares
    of Class A common stock) with respect to shares of
    Class A common stock and, on an equal per share basis,
    shares of Class B common stock (or convertible securities
    that are convertible into, exchangeable for or evidence the
    right to purchase shares of Class B common stock) with
    respect to shares of Class B common stock and, on an equal
    and per share basis, shares of Class C common stock (or
    convertible securities that are convertible into, exchangeable
    for or evidence the right to purchase shares of Class C
    common stock) with respect to shares of Class C common
    stock; and
•
a share distribution consisting of shares of any
    class or series of our securities or any other person other than
    Class A common stock, Class B common stock or
    Class C common stock (and other than convertible securities
    that are convertible into, exchangeable for or evidence the
    right to purchase shares of Class A common stock,
    Class B common stock or Class C common stock), either
    on the basis of a distribution of identical securities, on an
    equal per share basis, with respect to shares of Class A
    common stock, Class B common stock and Class C common
    stock or on the basis of a distribution of one class or series
    of securities with respect to shares of Class A common
    stock and Class C common stock and another class or series
    of securities with respect to shares of Class B common
    stock, provided that the securities so distributed (and, if
    applicable, the securities into which the distributed securities
    are convertible, or for which they are exchangeable, or which
    the distributed securities evidence the right to purchase) do
    not differ in any respect other than their relative voting
    rights and related differences in conversion and share
    distribution provisions, with shares of Class B common
    stock receiving the class or series having the higher relative
    voting rights (without regard to whether such rights differ to a
    greater or lesser extent than the corresponding differences in
    voting rights and related differences in conversion and share
    distribution provisions between the Class A common stock
    and the Class C common stock, on the one hand, and the
    Class B common stock, on the other hand), but if the
    securities so distributed constitute capital stock of one of our
    subsidiaries, such rights cannot differ to a greater extent than
    the corresponding differences in voting rights, conversion and
    share distribution provisions between the Class A common
    stock and the Class C common stock, on the one hand, and
    the Class B common stock, on the other hand, and such
    distribution must otherwise be made on an equal per share basis.
Subdivision or Combination
If we in any manner subdivide or combine the
outstanding shares of Class A common stock, Class B
common stock or Class C common stock, the outstanding
shares of other classes of common stock will be proportionately
subdivided or combined in the same manner and on the same basis
as the outstanding shares of Class A common stock,
Class B common stock or Class C common stock, as the
case may be, that have been subdivided or combined.
Conversion
Each share of Class B common stock and each
share of Class C common stock is convertible at any time
and from time to time at the option of the holder thereof into
one share of Class A common stock. Solely for the limited
purpose of effecting the distribution of shares of Class C
common stock by Holdco to Vulcan in accordance with the
procedures described under "Related Party
Agreements — Escrow and Distribution Agreement,"
the Class B common stock is convertible into Class C
common stock. The Class A common stock has no conversion
rights.
In the event that Vulcan transfers any shares of
Class C common stock other than to an entity controlled by
Vulcan, such shares will automatically convert into Class A
common stock. In addition, if, at any time, the total number of
shares of Class C common stock is less than two-thirds of
the total number of shares of Class C common stock
distributed by Holdco to Vulcan, all shares of Class C
common stock outstanding at such time will automatically convert
into Class A common stock.
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Equivalent Consideration in Certain
    Transactions
In the event of any merger, consolidation, share
exchange, reclassification of the outstanding shares of
Class A common stock, Class B common stock or
Class C common stock or other reorganization to which we
are a party, in which the shares of Class A common stock,
Class B common stock and Class C common stock will be
exchanged for or converted into cash or other property or our
securities or the securities of any other person, each share of
common stock will be entitled to receive Equivalent
Consideration (as defined in our restated certificate of
incorporation) on a per share basis. Consideration to be paid or
received by a holder of Class A common stock, Class B
common stock or Class C common stock in connection with
such a transaction pursuant to any employment, consulting,
severance or other arrangement is not deemed to be
"consideration" that is included in the determination
of "Equivalent Consideration".
Other Rights
Our stockholders have no preemptive or other
rights to subscribe for additional shares. All holders of common
stock, regardless of class, are entitled to share equally on a
share-for-share basis in any assets available for distribution
to common stockholders upon our liquidation, dissolution or
winding up. All outstanding shares are, and all shares offered
by this prospectus will be, when sold, validly issued, fully
paid and nonassessable.
Registration Rights
Certain of our stockholders as of the completion
of this offering have certain registration rights with respect
to our common stock. See "Related Party
Agreements — Registration Rights Agreement."
Preferred Stock
Our board of directors is authorized to provide
for the issuance of preferred stock in one or more series and to
fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications,
limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and
liquidation preference and to fix the number of shares to be
included in any such series. Any preferred stock so issued may
rank senior to our common stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding
up, or both. In addition, any such shares of preferred stock may
have class or series voting rights.
Corporate Opportunities
Our restated certificate of incorporation will
provide for the allocation of certain corporate opportunities
between us and DreamWorks Studios and certain of its affiliates.
Certain Anti-Takeover and Other Provisions of
the Charter and By-laws and Delaware Law
Provisions of our restated certificate of
incorporation and by-laws could deter, delay or prevent a
third-party from acquiring us, even if doing so would benefit
our stockholders.
Stockholder Meetings
Our restated certificate of incorporation and
by-laws provide that until such time as the outstanding shares
of Class B common stock cease to represent a majority of
the combined voting power of the voting stock, special meetings
of the stockholders may be called only upon written request of
holders of not less than a majority of the combined voting power
of the voting stock, upon request of a majority of the board or
upon request of the chief executive officer. Effective on and
after such time as the outstanding shares of Class B common
stock cease to represent a majority of the combined voting power
of the voting stock, special meetings of the stockholders may be
called only upon the request of a majority of the board or by
any holder of Class B common stock.
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Requirements for Advance Notice of
    Stockholder Nominations and Proposals
Our by-laws establish advance notice procedures
with respect to stockholder proposals and the nomination of
candidates for election as directors. In order for any matter to
be "properly brought" before a meeting, a stockholder
must comply with requirements regarding advance notice and
provide certain information to us.
Stockholder Action by Written
    Consent
Our restated certificate of incorporation and
by-laws provide that until such time as the outstanding shares
of Class B common cease to represent a majority of the
combined voting power of the voting stock, any action required
or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing,
setting forth the action so taken, must be signed by the holders
of our outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such
action at a meeting at which all shares of our stock entitled to
vote thereon were present and voted. Effective on and after such
time as the outstanding shares of Class B common stock
cease to represent a majority of the combined voting power of
the voting stock, subject to the rights of the holders of any
series of preferred stock, any action required or permitted to
be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be
effected by any consent in writing by such stockholders.
Amendment of Certificate of Incorporation
    and By-laws
Our restated certificate of incorporation
provides that, until such time as the outstanding shares of
Class B common stock cease to represent a majority of the
combined voting power of the voting stock, the affirmative vote
of the holders of a majority of the combined voting power of the
voting stock, voting together as a single class, will be
required for stockholders to adopt, amend, alter or repeal any
provision of the by-laws and on and after such time as the
outstanding shares of Class B common stock cease to
represent a majority of the combined voting power of the voting
stock, the affirmative vote of the holders of 80% of the
combined voting power of the voting stock, voting together as a
single class, will be required for stockholders to adopt, amend,
alter or repeal any provision of the by-laws.
In addition, the provisions in our restated
certificate of incorporation relating to amendment of the
certificate of incorporation and by-laws, inapplicability to the
Company of Delaware General Corporation Law Section 203,
advance notice of director nominations, corporate opportunities,
stockholder meetings and action by written consent may not be
amended, altered, changed or repealed in any respect unless such
amendment, alteration, change or repeal is approved by the
affirmative vote of not less than 80% of the combined voting
power of the voting stock.
Business Combinations under Delaware
    Law
Our restated certificate of incorporation
expressly states that we have elected not to be governed by
Section 203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from engaging in
a "business combination", as defined in
clause (c)(3) of that section, with an "interested
stockholder", as defined in clause (c)(5) of that
section, for a period of three years after the date of the
transaction in which the stockholder became an interested
stockholder.
Limitation of Liability of Officers and
Directors — Indemnification
Our restated certificate of incorporation limits
the liability of directors to the fullest extent permitted by
the Delaware General Corporation Law. In addition, our
certificate of incorporation provides that we will indemnify our
directors and officers to the fullest extent permitted by that
law.
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Trading
We intend to apply to have our Class A
common stock approved for quotation on
the                     under
the symbol
"          ".
Transfer Agent and Registrar
The transfer agent and registrar of our common
stock
is                         .
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SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our Class A common
stock sold in this offering will be freely tradable without
restriction under the Securities Act of 1933, except for any
shares that may be acquired by an affiliate of DreamWorks
Animation, Inc., as that term is defined in Rule 144 under
the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are
controlled by, or are under common control with, DreamWorks
Animation, Inc. and may include directors and officers of
DreamWorks Animation, Inc. as well as significant stockholders
of DreamWorks Animation, Inc.
The shares of our Class A and Class B
common stock held by DreamWorks Studios and its members and
Holdco are "restricted securities" as defined in
Rule 144, and may not be sold other than through
registration under the Securities Act or under an exemption from
registration, such as the one provided by Rule 144.
Generally, Rule 144 provides that a person
who has beneficially owned "restricted" shares for at
least one year will be entitled to sell on the open market in
brokers' transactions, within any three-month period, a
number of shares that does not exceed the greater of:
•
1% of the then outstanding shares of common
    stock; and
•
the average weekly trading volume of the common
    stock on the open market during the four calendar weeks
    preceding such sale.
Sales under Rule 144 are also subject to
post-sale notice requirements and the availability of current
public information about the issuer.
In the event that any person who is deemed to be
our affiliate purchases shares of our common stock in this
offering or acquires shares of our common stock pursuant to one
of our employee benefit plans, the shares held by that person
are required under Rule 144 to be sold in brokers'
transactions, subject to the volume limitations described above.
Shares properly sold in reliance upon Rule 144 to persons
who are not affiliates are thereafter freely tradable without
restriction.
We have agreed to effect one or more secondary
follow-on offerings of our Class A common stock after this
offering. Jeffrey Katzenberg and David Geffen (or entities
controlled by them), acting together, or Vulcan may select the
timing of one follow-on secondary offering, which must occur
during the period beginning six months after this offering and
ending on May 31, 2006. We have also agreed that the
DreamWorks Studios members that elect to participate in the
follow-on offering will be entitled to receive a minimum of
$                     million
of net cash proceeds from a combination of sales of secondary
shares in this offering and sales of shares in the follow-on
secondary offering.
If the participating DreamWorks Studios'
members have not received a minimum of
$                     million
of net cash proceeds from a combination of sales of secondary
shares in this offering and the follow-on offering prior to
May 31, 2006, Vulcan will have the ability to initiate an
additional follow-on offering during the subsequent 18-month
period beginning May 31, 2006. See "Related Party
Agreements — Escrow and Distribution Arrangement."
Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed not to offer or sell any of our shares
without the prior consent of the underwriters of this offering,
for 365 days after the date of this prospectus and each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180 day lockup. In addition, sales
of our Class A common stock will also be restricted by
lock-up agreements that we, our directors and executive officers
and certain of our employees will enter into with the
underwriters. These lock-up agreements will restrict them,
subject to specified exceptions, from selling or otherwise
disposing of any shares for a minimum period of 180 days
after the date of this prospectus without the prior consent of
the underwriters. In addition, Vulcan and entities controlled by
Steven Spielberg, Jeffrey Katzenberg and David Geffen will agree
to certain trading and hedging limitations until the release of
shares by Holdco.
In addition, we expect DreamWorks Studios to
pledge
approximately            shares
of our Class B common stock as security for its obligations
under its revolving credit agreement. Under certain circumstances
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following an event of default by DreamWorks
Studios under that revolving credit agreement, the lenders will
be entitled to take possession of the pledged shares of common
stock (after converting any pledged Class B common stock
into Class A common stock) and sell them in the open
market, subject to applicable bankruptcy, securities and other
laws.
We have been advised by the underwriters that
they may at their discretion waive the lock-up agreements;
however, they have no current intention of releasing any shares
subject to a lock-up agreement. The release of any lock-up would
be considered on a case-by-case basis. In considering any
request to release shares covered by a lock-up agreement, the
representatives would consider, among other factors, the
particular circumstances surrounding the request, including but
not limited to the number of shares requested to be released,
market conditions, the possible impact on the market for our
Class A common stock, the trading price of our Class A
common stock, historical trading volumes of our Class A
common stock, the reasons for the request and whether the person
seeking the release is one of our or DreamWorks Studios'
officers or directors, or is DreamWorks Animation, Inc. or
DreamWorks Studios. No agreement has been made between the
representatives and us or any of our stockholders pursuant to
which the representatives will waive the lock-up restrictions.
Sales of substantial amounts of our common stock
in the open market, or the availability of such shares for sale,
could adversely affect the price of our common stock.
All shares issued in this offering or to
employees as described in the previous section, other than
shares issued to affiliates, generally will be freely tradable.
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MATERIAL UNITED STATES FEDERAL TAX
CONSEQUENCES
FOR NON-UNITED STATES STOCKHOLDERS
This is a general summary of material United
States Federal income and estate tax considerations with respect
to your acquisition, ownership and disposition of Class A
common stock if you are a beneficial owner of shares other than:
•
a citizen or resident of the United States;
•
a corporation, or other entity taxable as a
    corporation created or organized in, or under the laws of, the
    United States or any political subdivision of the United States;
•
an estate, the income of which is subject to
    United States Federal income taxation regardless of its source;
•
a trust, if a court within the United States is
    able to exercise primary supervision over the administration of
    the trust and one or more United States persons have the
    authority to control all substantial decisions of the trust; or
•
a trust that existed on August 20, 1996, was
    treated as a United States person on August 19, 1996, and
    elected to be treated as a United States person.
This summary does not address all of the United
States Federal income and estate tax considerations that may be
relevant to you in light of your particular circumstances or if
you are a beneficial owner subject to special treatment under
United States income tax laws (such as a "controlled
foreign corporation," "passive foreign investment
company," "foreign personal holding company,"
company that accumulates earnings to avoid United States Federal
income tax, foreign tax-exempt organization, financial
institution, broker or dealer in securities or former United
States citizen or resident). This summary does not discuss any
aspect of state, local or non-United States taxation. This
summary is based on current provisions of the Internal Revenue
Code of 1986, as amended ("Code"), Treasury
regulations, judicial opinions, published positions of the
United States Internal Revenue Service ("IRS") and all
other applicable authorities, all of which are subject to
change, possibly with retroactive effect. This summary is not
intended as tax advice.
If a partnership holds our common stock, the tax
treatment of a partner will generally depend on the status of
the partner and the activities of the partnership. If you are a
partner of a partnership holding our common stock, you should
consult your tax advisor.
WE URGE PROSPECTIVE NON-UNITED STATES
STOCKHOLDERS TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME,
ESTATE AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND
DISPOSING OF SHARES OF CLASS A COMMON STOCK.
Dividends
In general, any distributions we make to you with
respect to your shares of Class A common stock that
constitute dividends for United States Federal income tax
purposes will be subject to United States withholding tax at a
rate of 30% of the gross amount, unless you are eligible for a
reduced rate of withholding tax under an applicable income tax
treaty and you provide proper certification of your eligibility
for such reduced rate (usually on an IRS Form W-8BEN). A
distribution will constitute a dividend for United States
Federal income tax purposes to the extent of our current or
accumulated earnings and profits as determined under the Code.
Any distribution not constituting a dividend will be treated
first as reducing your basis in your shares of Class A
common stock and, to the extent it exceeds your basis, as gain
from the disposition of your shares of Class A common stock.
Dividends we pay to you that are effectively
connected with your conduct of a trade or business within the
United States (and, if certain income tax treaties apply, are
attributable to a United States permanent establishment
maintained by you) generally will not be subject to United
States withholding tax if you comply with applicable
certification and disclosure requirements. Instead, such
dividends generally will be subject to
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United States Federal income tax, net of certain
deductions, at the same graduated individual or corporate rates
applicable to United States persons. If you are a corporation,
effectively connected income may also be subject to a
"branch profits tax" at a rate of 30% (or such lower
rate as may be specified by an applicable income tax treaty).
Dividends that are effectively connected with your conduct of a
trade or business but that under an applicable income tax treaty
are not attributable to a United States permanent establishment
maintained by you may be eligible for a reduced rate of United
States withholding tax under such treaty, provided you comply
with certification and disclosure requirements necessary to
obtain treaty benefits.
Sale or Other Disposition of Class A
Common Stock
You generally will not be subject to United
States Federal income tax on any gain realized upon the sale or
other disposition of your shares of Class A common stock
unless:
•
the gain is effectively connected with your
    conduct of a trade or business within the United States (and,
    under certain income tax treaties, is attributable to a United
    States permanent establishment you maintain);
•
you are an individual, you hold your shares of
    Class A common stock as capital assets, you are present in
    the United States for 183 days or more in the taxable year
    of disposition and you meet other conditions, and you are not
    eligible for relief under an applicable income tax
    treaty; or
•
we are or have been a "United States real
    property holding corporation" for United States Federal
    income tax purposes (which we believe we are not and have never
    been, and do not anticipate we will become) and you hold or have
    held, directly or indirectly, at any time within the shorter of
    the five-year period preceding disposition or your holding
    period for your shares of Class A common stock, more than
    5% of our Class A common stock.
Gain that is effectively connected with your
conduct of a trade or business within the United States
generally will be subject to United States Federal income tax,
net of certain deductions, at the same rates applicable to
United States persons. If you are a corporation, the branch
profits tax also may apply to such effectively connected gain.
If the gain from the sale or disposition of your shares is
effectively connected with your conduct of a trade or business
in the United States but under an applicable income tax treaty
is not attributable to a permanent establishment you maintain in
the United States, your gain may be exempt from United States
tax under the treaty. If you are described in the second bullet
point above, you generally will be subject to United States
Federal income tax at a rate of 30% on the gain realized,
although the gain may be offset by some United States source
capital losses realized during the same taxable year.
Information Reporting and Backup
Withholding
We must report annually to the IRS the amount of
dividends or other distributions we pay to you on your shares of
Class A common stock and the amount of tax we withhold on
these distributions regardless of whether withholding is
required. The IRS may make copies of the information returns
reporting those dividends and amounts withheld available to the
tax authorities in the country in which you reside pursuant to
the provisions of an applicable income tax treaty or exchange of
information treaty.
The United States imposes a backup withholding
tax on dividends and certain other types of payments to United
States persons. You will not be subject to backup withholding
tax on dividends you receive on your shares of Class A
common stock if you provide proper certification (usually on an
IRS Form W-8BEN) of your status as a non-United States
person or you are a corporation or one of several types of
entities and organizations that qualify for exemption (an
"exempt recipient").
Information reporting and backup withholding
generally are not required with respect to the amount of any
proceeds from the sale of your shares of Class A common
stock outside the United States through a foreign office of a
foreign broker that does not have certain specified connections
to the United States. However, if you sell your shares of
Class A common stock through a United States broker or the
United States office of a foreign broker, the broker will be
required to report the amount of proceeds paid to you to the IRS
and also backup withhold on that amount unless you provide
appropriate certification (usually on an IRS
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Form W-8BEN) to the broker of your status as
a non-United States person or you are an exempt recipient.
Information reporting (and backup withholding if the appropriate
certification is not provided) also apply if you sell your
shares of Class A common stock through a foreign broker
deriving more than a specified percentage of its income from
United States sources or having certain other connections to the
United States.
Any amounts withheld with respect to your shares
of Class A common stock under the backup withholding rules
will be refunded to you or credited against your United States
Federal income tax liability, if any, by the IRS if the required
information is furnished in a timely manner.
Estate Tax
Class A common stock owned or treated as
owned by an individual who is not a citizen or resident (as
defined for United States Federal estate tax purposes) of the
United States at the time of his or her death will be included
in the individual's gross estate for United States Federal
estate tax purposes and therefore may be subject to United
States Federal estate tax unless an applicable estate tax treaty
provides otherwise. Recently enacted legislation reduces the
maximum Federal estate tax rate over an 8-year period beginning
in 2002 and eliminates the tax for estates of decedents dying
after December 31, 2009. In the absence of renewal
legislation, these amendments will expire and the Federal estate
tax provisions in effect immediately prior to 2002 will be
restored for estates of decedents dying after December 31,
2010.
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UNDERWRITING
We, the selling stockholders and the underwriters
named below will enter into an underwriting agreement with
respect to the shares being offered. Subject to certain
conditions, each underwriter will severally agree to purchase
the number of shares indicated in the following table. Goldman,
Sachs & Co. and J.P. Morgan Securities Inc. are
the joint book-running managers for this offering and the
representatives of the underwriters.
Underwriters
Number of Shares
Goldman, Sachs & Co.
J.P. Morgan Securities Inc.
Total
The underwriters are committed to take and pay
for all of the shares being offered, if any are taken, other
than the shares covered by the option described below unless and
until this option is exercised.
If the underwriters sell more shares than the
total number set forth in the table above, the underwriters have
an option to buy up to an
additional                      shares
from us and the selling stockholders to cover such sales. They
may exercise that option for 30 days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total
underwriting discounts and commissions to be paid to the
underwriters by us and the selling stockholders. Such amounts
are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.
Paid by Us
No Exercise
Full Exercise
Per Share
$
$
Total
$
$
Paid by the Selling Stockholders
No Exercise
Full Exercise
Per Share
$
$
Total
$
$
Shares sold by the underwriters to the public
will initially be offered at the initial public offering price
set forth on the cover of this prospectus. Any shares sold by
the underwriters to securities dealers may be sold at a discount
of up to
$           per
share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to
$          per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms.
Entities controlled by (or estate planning
vehicles of) Steven Spielberg, Jeffrey Katzenberg and David
Geffen have agreed to a lock-up period of 365 days after
the date of this prospectus with the underwriters. Each of
DreamWorks Studios, certain of its members, Holdco and Vulcan
have agreed to a minimum 180 day lock-up period with the
underwriters. In addition to these lock-up agreements, sales of
our Class A common stock will also be restricted by lock-up
agreements for a minimum of 180 days that we, our directors
and executive officers and certain of our employees will enter
into with the underwriters. These lock-up agreements restrict
us, our stockholders and our directors and executive officers,
subject to specified exceptions, from offering, selling,
contracting to sell, pledging, hedging or otherwise disposing
of, directly or indirectly, or filing with the SEC a
registration statement under the Securities Act relating to, any
shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock,
or publicly disclosing the intention to make any offer, sale,
pledge, disposition or filing, for the
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applicable number of days after the date of this
prospectus without the prior written consent of Goldman,
Sachs & Co. and J.P. Morgan Securities Inc.
The underwriters have reserved for sale at the
initial public offering price up
to                      shares
of the common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to
the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the
other shares.
Prior to the offering, there has been no public
market for the shares. The initial public offering price has
been negotiated among us, the selling stockholders and the
representatives. Among the factors to be considered in
determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses.
We intend to apply for listing of our
Class A common stock
on                     under
the symbol "     ."
In connection with the offering, the underwriters
may purchase and sell shares of common stock in the open market.
These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in
the offering. "Covered" short sales are sales made in
an amount not greater than the underwriters' option to
purchase additional shares from us and the selling stockholders
in the offering. The underwriters may close out any covered
short position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. "Naked"
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the completion of
the offering.
The underwriters may also impose a penalty bid.
This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by
it because the representatives have repurchased shares sold by
or for the account of such underwriter in stabilizing or short
covering transactions.
Purchases to cover a short position and
stabilizing transactions may have the effect of preventing or
retarding a decline in the market price of our common stock, and
together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of our common
stock. As a result, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued at any
time. These transactions may be effected
on                     ,
in the over-the-counter market or otherwise.
Each underwriter will represent, warrant and
agree that: (i) it has not offered or sold and, prior
to the expiry of a period of six months from the closing date,
will not offer or sell any shares to persons in the United
Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995
(as amended); (ii) it has only communicated or caused to be
communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in
investment activity (within the meaning of section 21 of
the Financial Services and Markets Act 2000 ("FSMA"))
received by it in connection with the issue or sale of any
shares in circumstances in which section 21(1) of the FSMA
does not apply to the Issuer; and (iii) it has complied
100
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and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the
shares in, from or otherwise involving the United Kingdom.
The shares may not be offered or sold,
transferred or delivered, as part of their initial distribution
or at any time thereafter, directly or indirectly, to any
individual or legal entity in the Netherlands other than to
individuals or legal entities who or which trade or invest in
securities in the conduct of their profession or trade, which
includes banks, securities intermediaries, insurance companies,
pension funds, other institutional investors and commercial
enterprises which, as an ancillary activity, regularly trade or
invest in securities.
The shares may not be offered or sold by means of
any document other than to persons whose ordinary business is to
buy or sell shares or debentures, whether as principal or agent,
or in circumstances which do not constitute an offer to the
public within the meaning of the Companies Ordinance
(Cap. 32) of Hong Kong, and no advertisement, invitation or
document relating to the shares may be issued, whether in Hong
Kong or elsewhere, which is directed at, or the contents of
which are likely to be accessed or read by, the public in Hong
Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to shares which are or are
intended to be disposed of only to persons outside Hong Kong or
only to "professional investors" within the meaning of
the Securities and Futures Ordinance (Cap. 571) of Hong
Kong and any rules made thereunder.
This prospectus has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus and any other document or material
in connection with the offer or sale, or invitation or
subscription or purchase, of the shares may not be circulated or
distributed, nor may the shares be offered or sold, or be made
the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than under circumstances in which such offer, sale or invitation
does not constitute an offer or sale, or invitation for
subscription or purchase, of the shares to the public in
Singapore.
Each underwriter has acknowledged and agreed that
the securities have not been registered under the Securities and
Exchange Law of Japan and are not being offered or sold and may
not be offered or sold, directly or indirectly, in Japan or to
or for the account of any resident of Japan, except
(1) pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and
(ii) in compliance with any other applicable requirements
of Japanese law. As part of the offering, the underwriters may
offer securities in Japan to a list of 49 offerees in accordance
with the above provisions.
The underwriters do not expect sales to
discretionary accounts to exceed five percent of the total
number of shares offered.
We estimate that our share of the total expenses
of the offering, excluding underwriting discounts and
commissions, will be approximately
$          .
We and the selling stockholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us and our affiliates, for which they
received or will receive customary fees and expenses.
J.P. Morgan Securities Inc. is an affiliate of Chemical
Investments, Inc., which owns shares of DreamWorks Studios'
Class S stock. As a result of such ownership, in connection
with our separation from DreamWorks Studios, Chemical
Investments, Inc. will be entitled to
receive            shares
of our Class A common stock. J.P. Morgan Securities
Inc. is also an affiliate of JPMorgan Chase Bank, which is the
administrative agent and a lender under DreamWorks Studios'
senior credit facilities and J.P. Morgan Securities Inc.
was the sole lead arranger and sole book runner of DreamWorks
Studios' senior credit facilities. A portion of the
proceeds from this offering will be used to repay borrowings
under DreamWorks Studios' senior credit facilities that we
will assume in connection with our separation from DreamWorks
Studios. Because more than 10% of the net proceeds of this
offering will be paid to affiliates of the underwriters, this
offering is being conducted pursuant to Conduct
Rule 2710(h) of the National Association of Securities
Dealers, Inc. ("NASD"). That rule requires that the
price at which shares of our common stock are to be distributed
to the public can be no higher than that recommended by a
101
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"qualified independent underwriter," as
defined by the NASD. Goldman, Sachs & Co. has served in
that capacity and performed due diligence investigations and
reviewed and participated in the preparation of the registration
statement of which this prospectus is a part. Goldman,
Sachs & Co. has received $10,000 from us as
compensation for such role.
LEGAL MATTERS
The validity of our common stock offered hereby
will be passed upon for us by Cravath, Swaine & Moore
LLP, New York, New York. Certain legal matters will be passed
upon for the underwriters by Simpson Thacher & Bartlett
LLP, New York, New York. Each of Cravath, Swaine &
Moore LLP and Simpson Thacher & Bartlett LLP has acted
as counsel to DreamWorks Studios from time to time in certain
matters.
EXPERTS
Ernst & Young LLP, independent
registered public accounting firm, have audited our combined
financial statements at December 31, 2002 and 2003, and for
each of the three years in the period ended December 31,
2003, as set forth in their report. We have included our
combined financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young
LLP's report, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have not previously been subject to the
reporting requirements of the Securities Exchange Act of 1934,
as amended. We filed with the Securities and Exchange Commission
(the "Commission") a registration statement on
Form S-1 (the "Registration Statement") under the
Securities Act, with respect to the offer and sale of common
stock pursuant to this prospectus. This prospectus, filed as a
part of the registration statement, does not contain all of the
information set forth in the registration statement or the
exhibits and schedules thereto in accordance with the rules and
regulations of the Commission and no reference is hereby made to
such omitted information. Statements made in this prospectus
concerning the contents of any contract, agreement or other
document filed as an exhibit to the registration statement are
summaries of the terms of such contracts, agreements or
documents and are not necessarily complete. Reference is made to
each such exhibit for a more complete description of the matters
involved and such statements shall be deemed qualified in their
entirety by such reference. The registration statement and the
exhibits and schedules thereto filed with the Commission may be
inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by
the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, CA 90036-3648. The
Commission also maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other
information regarding registrants that file electronically with
the Commission. For further information pertaining to the common
stock offered by this prospectus and DreamWorks Animation, Inc.
reference is made to the registration statement.
Upon completion of this offering, we will become
subject to the information and periodic reporting requirements
of the Securities and Exchange Act and will file periodic
reports and other information with the Commission. These
periodic reports and other information will be available for
inspection and copying at the Commission's public reference
facilities and the web site of the Commission referred to above.
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INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public
    Accounting Firm
F-2
Combined Financial Statements:
Combined Balance Sheets as of December 31,
    2002 and 2003 and March 31, 2004 (unaudited)
F-3
Combined Statements of Operations for the years
    ended December 31, 2001, 2002 and 2003 and the three months
    ended March 31, 2003 and 2004 (unaudited)
F-4
Combined Statements of Owner's Equity
    (Deficiency) for the years ended December 31, 2001, 2002
    and 2003 and the three months ended March 31, 2004
    (unaudited)
F-5
Combined Statements of Cash Flows for the years
    ended December 31, 2001, 2002 and 2003 and the three months
    ended March 31, 2003 and 2004 (unaudited)
F-6
Notes to Combined Financial Statements
F-7
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
DreamWorks L.L.C., owner of DreamWorks Animation
We have audited the accompanying combined balance
sheets of DreamWorks Animation (a division of DreamWorks L.L.C.
as defined in Note 1) as of December 31, 2002 and
2003, and the related combined statements of operations,
owner's equity (deficiency), and cash flows for each of the
three years in the period ended December 31, 2003. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the combined
financial position of DreamWorks Animation at December 31,
2002 and 2003, and the combined results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with U.S. generally
accepted accounting principles.
As more fully described in Note 1, the
Company changed its method of accounting for film inventories as
of January 1, 2001, its method of accounting for goodwill
and intangible assets as of January 1, 2002, and its method
of accounting for consolidation of variable interest entities as
of December 31, 2003.
/s/ ERNST & YOUNG LLP
Los Angeles, California
July 9, 2004
F-2
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
COMBINED BALANCE SHEETS
December 31,
March 31,
2002
2003
2004
(Unaudited)
(In thousands)
ASSETS
Cash and cash equivalents
$
3
$
41
$
41
Accounts receivable, net of allowance for
    doubtful accounts and reserve for returns
150,915
131,329
45,190
Receivables from employees
2,080
2,480
2,260
Film inventories
471,847
422,343
475,116
Property, plant, and equipment, net of
    accumulated depreciation and amortization
15,375
85,064
83,982
Deferred costs, net of amortization of $341,
    $838, and $964, respectively
1,986
1,641
1,516
Goodwill
26,462
26,462
26,462
Other assets
578
1,644
2,194
Total assets
$
669,246
$
671,004
$
636,761
LIABILITIES AND OWNER'S EQUITY
    (DEFICIENCY)
Liabilities
Accounts payable
$
1,994
$
1,615
$
1,838
Accrued liabilities
112,645
97,280
88,319
Advances and unearned revenue
65,197
89,009
143,508
Obligations under capital leases
4,375
3,732
3,552
Debt allocated by DreamWorks Studios
313,814
418,379
380,062
Other debt
—
76,612
81,684
Total liabilities
498,025
686,627
698,963
Commitments and contingencies
Non-controlling minority interest
—
2,941
2,941
Owner's equity (deficiency)
171,221
(18,564
)
(65,143
)
Total liabilities and owner's equity
    (deficiency)
$
669,246
$
671,004
$
636,761
See accompanying notes.
F-3
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended
Years Ended December 31,
March 31,
2001
2002
2003
2003
2004
(Unaudited)
(In thousands)
Operating revenue
$
661,308
$
456,356
$
295,574
$
48,201
$
40,814
Costs of revenue
509,087
396,983
438,313
40,994
45,478
Gross profit (loss)
152,221
59,373
(142,739
)
7,207
(4,664
)
Selling, general and administrative expenses
49,568
56,954
24,910
9,183
7,767
Operating income (loss)
102,653
2,419
(167,649
)
(1,976
)
(12,431
)
Interest expense, net of interest income
(812
)
(3,940
)
(12,360
)
(3,585
)
(3,541
)
Other expense, net
(14,005
)
(27,419
)
(4,730
)
(6,300
)
(9,646
)
Income (loss) before income taxes and cumulative
    effect of accounting changes
87,836
(28,940
)
(184,739
)
(11,861
)
(25,618
)
Provision for income taxes
(1,434
)
(2,191
)
(1,839
)
(85
)
(303
)
Income (loss) before cumulative effect of
    accounting changes
86,402
(31,131
)
(186,578
)
(11,946
)
(25,921
)
Cumulative effect of accounting changes
(82,743
)
—
(2,522
)
—
—
Net income (loss)
$
3,659
$
(31,131
)
$
(189,100
)
$
(11,946
)
$
(25,921
)
Unaudited pro forma combined statement of
    operations data (see Note 14):
Income (loss) before income taxes and cumulative
    effect of accounting changes
$
87,836
$
(28,940
)
$
(184,739
)
$
(11,861
)
$
(25,618
)
Pro forma provision for income taxes
(36,349
)
(2,191
)
(1,839
)
(85
)
(303
)
Income (loss) before cumulative effect of
    accounting changes
51,487
(31,131
)
(186,578
)
(11,946
)
(25,921
)
Cumulative effect of accounting changes, net of
    tax
(50,751
)
—
(2,522
)
—
—
Pro forma net income (loss)
$
736
$
(31,131
)
$
(189,100
)
$
(11,946
)
$
(25,921
)
See accompanying notes.
F-4
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
COMBINED STATEMENTS OF OWNER'S EQUITY
(DEFICIENCY)
(In thousands)
Owner's equity at January 1, 2001
$
483,117
Net transfers to DreamWorks Studios
(6,564
)
Net income
3,659
Owner's equity at December 31, 2001
480,212
Net transfers to DreamWorks Studios
(277,860
)
Net loss
(31,131
)
Owner's equity at December 31, 2002
171,221
Net transfers to DreamWorks Studios
(685
)
Net loss
(189,100
)
Owner's deficiency at December 31, 2003
(18,564
)
Net transfers to DreamWorks Studios (unaudited)
(20,658
)
Net loss (unaudited)
(25,921
)
Owner's deficiency at March 31, 2004
    (unaudited)
$
(65,143
)
See accompanying notes.
F-5
Table of Contents
DREAMWORKS ANIMATION, INC.
(A Division of Dreamworks L.L.C.)
COMBINED STATEMENTS OF CASH FLOWS
December 31,
March 31,
2001
2002
2003
2003
2004
(Unaudited)
(In thousands)
Operating activities
Net income (loss)
$
3,659
$
(31,131
)
$
(189,100
)
$
(11,946
)
$
(25,921
)
Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:
Cumulative effect of accounting changes
82,743
—
2,522
—
—
Amortization and write off of film inventories
225,367
163,565
291,460
36,686
14,945
Compensation expense pursuant to Employee Equity
    Participation Plan
1,251
257
(2,255
)
(1,387
)
(1,149
)
Depreciation and amortization
4,458
3,483
4,138
877
1,387
Revenues recorded against advances and unearned
    revenue
(37,074
)
(37,046
)
(53,249
)
(3,451
)
(1,523
)
Provision for doubtful accounts and video returns
71,935
(58,129
)
(27,166
)
(12,848
)
(12,822
)
Change in operating assets and liabilities:
Accounts receivable
(238,819
)
221,180
46,752
153,950
98,961
Receivables from employees
1,184
(720
)
(400
)
58
220
Film inventories
(236,301
)
(191,202
)
(241,956
)
(62,673
)
(67,718
)
Other assets
1
(280
)
(1,066
)
48
(550
)
Accounts payable and accrued expenses
51,030
(21,236
)
(13,488
)
(31,500
)
(7,589
)
Unearned revenue
7,039
(4,135
)
13,783
359
7,173
Net cash provided by (used in) operating
    activities
(63,527
)
44,606
(170,025
)
68,173
5,414
Investing activities
Purchases of property, plant, and equipment
(4,663
)
(5,267
)
(3,108
)
(191
)
(179
)
Net cash used in investing activities
(4,663
)
(5,267
)
(3,108
)
(191
)
(179
)
Financing Activities
Transfers to DreamWorks Studios
(6,564
)
(277,860
)
(685
)
(227,692
)
(20,658
)
Other debt
—
—
6,553
—
5,072
Increase (decrease) in debt allocated from
    DreamWorks Studios
62,462
145,353
104,565
147,514
(38,317
)
Deferred debt costs
—
(2,327
)
(152
)
(152
)
(1
)
Payments on capital leases
(594
)
(626
)
(643
)
(180
)
(180
)
Advances
13,557
95,289
63,533
12,528
48,849
Net cash provided by (used in) financing
    activities
68,861
(40,171
)
173,171
(67,982
)
(5,235
)
Increase (decrease) in cash and cash equivalents
671
(832
)
38
—
—
Cash and cash equivalents at beginning of period
164
835
3
3
41
Cash and cash equivalents at end of period
$
835
$
3
$
41
$
3
$
41
See accompanying notes.
F-6
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
1.
Organization and Summary of Significant
    Accounting Policies
Basis of Presentation and
    Business
The combined financial statements of DreamWorks
Animation ("DreamWorks Animation" or the
"Company") present the stand-alone financial position,
results of operations, and cash flows of the animation
businesses and activities of DreamWorks L.L.C. and its
consolidated subsidiaries ("DreamWorks Studios" or the
"Parent"). The businesses and activities of DreamWorks
L.L.C.'s animation business include the development,
production and exploitation of animated films in the domestic
and international theatrical, home video, television and other
markets, as well the activities of its consumer products
division. DreamWorks Studios is a limited liability company
engaged primarily in the businesses of development, production
and distribution of live action and animated feature films. The
combined financial statements of the Company reflect all
adjustments, including allocations of costs incurred by
DreamWorks Studios, necessary for a fair presentation of the
operations of the Company. (See Note 2).
Interim Financial Data
The unaudited combined financial statements of
the Company for the three months ended March 31, 2003 and
2004 have been prepared on the same basis as the audited
combined financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring
adjustments) necessary to state fairly the financial information
set forth therein, in accordance with U.S. generally accepted
accounting principles.
The results of operations for the three months
ended March 31, 2004 are not necessarily indicative of the
results to be expected for the full fiscal year.
Changes in Accounting
    Principles
In June 2000, the Accounting Standards Executive
Committee of the American Institute of Certified Public
Accountants issued Statement of Position No. 00-2,
"Accounting by Producers or Distributors of Films"
(the "SOP"), which became effective for the Company on
January 1, 2001. The SOP established new accounting
standards for producers and distributors of films and television
programming, including changes in revenue recognition and
accounting for advertising, development, and overhead costs. In
addition, the SOP provided that development costs for abandoned
projects and certain indirect overhead costs should be charged
directly to expense, instead of capitalized to film costs.
Accordingly, the Company recorded a one-time cumulative
adjustment in 2001, which reduced Film Inventories, Net Income
and Owner's Equity by approximately $83 million. As
permitted by the SOP, the Company has presented unclassified
combined balance sheets.
The Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial
Accounting Standards ("FAS") No. 142,
"Goodwill and Other Intangible Assets", on
January 1, 2002. Under FAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized but
are reviewed annually for impairment, or more frequently if
impairment indicators arise. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the
amortization and impairment provisions of FAS 142 are
effective upon adoption of FAS 142. Pursuant to
FAS 142, goodwill must be assessed for impairment at least
annually or upon an adverse change in operations that
more-likely-than-not reduces the fair value of a reporting unit
below its carrying value. Upon adoption of FAS 142, the
Company had unamortized goodwill of $26.5 million and
amortization ceased as of January 1, 2002. The impact of
adopting the non-amortization provisions of FAS 142 was to
reduce net loss by approximately $1.5 million for both of
the years ended December 31, 2002 and 2003, and
$0.4 million for both of the three months ended
March 31, 2003 and 2004.
F-7
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
In January 2003, the FASB issued Interpretation
No. 46, "Consolidation of Variable Interest
Entities" ("Interpretation 46"). In November
2003, the FASB revised certain provisions of
Interpretation 46. Interpretation 46 requires a variable
interest entity (defined as a corporation, partnership, trust or
any other legal structure used for business purposes that either
does not have equity investors with voting rights or has equity
investors that do not provide sufficient financial resources for
the entity to support its activities) to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual
returns, or both. The consolidation requirements of
Interpretation 46, as revised, apply immediately to variable
interest entities created after January 31, 2003. The
consolidation requirements for older entities were effective on
December 31, 2003. Upon adoption of Interpretation 46, the
Company consolidated the special-purpose entity that acquired
its Glendale animation campus in March 2002 (see Note 6).
Such consolidation has resulted in an increase in property,
plant and equipment of $70.2 million, net of accumulated
depreciation, an increase in debt and a non-controlling minority
interest of $70.1 million and $2.9 million,
respectively, and a cumulative effect of a change in accounting
principle of $2.5 million.
Supplemental Cash Flow
    Information
Cash paid for taxes for the years ended
December 31, 2001, 2002 and 2003 was $1.4 million,
$2.2 million and $1.8 million, respectively, and was
$0.1 million and $0.3 million for the three months
ended March 31, 2003 and 2004, respectively.
In 2003, in connection with the adoption of
Interpretation 46, the Company recorded property, plant and
equipment, net of accumulated depreciation, of
$70.2 million, other debt of $70.1 million,
non-controlling minority interest of $2.9 million, and a
cumulative effect of accounting change of $2.5 million.
Cash and Cash Equivalents and Concentration
    of Credit Risk
Cash and cash equivalents consist of cash on
deposit and high quality money market investments, principally
commercial paper and commercial paper mutual funds, with
maturities when purchased of three months or less.
Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and accounts receivable. Cash and
cash equivalents consist of cash on deposit and high-quality
money market investments, principally commercial paper and
commercial paper mutual funds, with maturities when purchased of
three months or less. The Company limits its exposure to credit
loss by placing its cash and cash equivalents in short term
investments with high-credit, quality financial institutions.
Significant accounts receivable are due from Universal Studios,
Inc. ("Universal"), the Company's international
theatrical distributor and worldwide home video fulfillment
services provider. As of December 31, 2002 and 2003, and
March 31, 2004, approximately 82%, 68% and 44%,
respectively, of accounts receivable was due from Universal (See
Note 3). Accounts receivable resulting from revenues earned
in other markets are derived from sales to customers located
principally in North America, Europe and Asia. The Company
performs ongoing credit evaluations of its customers and
generally does not require collateral.
Financial Instruments
The fair value of cash and cash equivalents,
accounts receivable, accounts payable, and advances approximates
carrying value due to the short-term maturity of such
instruments. The fair value of interest rate swap and foreign
exchange agreements is the estimated amount the Company would
receive or pay to
F-8
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
terminate the agreements, taking into account
current interest or exchange rates and the current
creditworthiness of the counterparties.
DreamWorks Studios has entered into interest rate
swap agreements to serve as a hedge against interest rate
fluctuations associated with the Company's payment
obligations under its real estate lease agreement. (See
Note 6). Accordingly, DreamWorks Studios has attributed
interest rate swap agreements with a notional amount of
$73 million to the Company. These interest rate swap
agreements do not qualify for special hedge accounting and, as a
result, changes in the fair value of such interest rate swap
agreements has been reflected in Other Income (Expense) in the
combined statements of operations.
DreamWorks Animation has entered into loan
agreements with two banks for financing of the production of a
film (see Note 6). In connection with these agreements, the
Company entered into foreign currency exchange transactions to
limit the Company's foreign exchange rate exposure
associated with its purchase of British pounds to finance the
film. These agreements do not qualify for special hedge
accounting and, as a result, the fair value of such foreign
currency exchange transactions has been included in Other Income
(Expense) in the combined statements of operations.
The accompanying combined financial statements
also reflect the allocations of DreamWorks Studios'
indebtedness and the effects of DreamWorks Studios'
interest rate swap agreements as described in Note 6.
Inventories, Revenue and
    Costs
Inventories
Film inventories are stated at the lower of cost
or fair value. These inventories consist of development and
production costs, including capitalized overhead and interest.
The Company also maintains home video product in inventory,
which primarily consists of digital videodiscs and videocassette
tapes and are stated at the lower of cost or market.
Revenue
The following are the conditions that must be met
in order to recognize revenue in accordance with the SOP:
(i) persuasive evidence of a sale or licensing arrangement
with a customer exists; (ii) the film is complete and has
been delivered or is available for immediate and unconditional
delivery; (iii) the license period of the arrangement has
begun and the customer can begin its exploitation, exhibition or
sale; (iv) the arrangement fee is fixed or determinable and
(v) collection of the arrangement fee is reasonably
assured. Amounts received from customers prior to the
availability date of the product are included in unearned
revenue. Revenue is recognized upon meeting the criteria for
revenue recognition required by the SOP as follows:
Theatrical:
Revenue
from the theatrical distribution of films is recognized as the
films are exhibited in theaters.
Pay Television and Free
Television:
Revenue from both pay and
free television licensing agreements are recognized at the time
the production is made available for exhibition in those markets.
Home Video:
Revenue
from the sale of home video units is recognized at the time the
product is made available for retail sale. The Company follows
the practice of providing for future returns of home video
product at the time the products are sold. These provisions are
based on historical experience. Actual returns are charged
against the reserve. Revenue associated with the licensing of
home video product under revenue-sharing agreements is recorded
as earned under the terms of the underlying agreements.
F-9
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Costs
Inventories are amortized and contingent
compensation and residuals are accrued on an individual film
basis in the proportion that current revenues bear to total
remaining estimated lifetime revenues as required by the SOP.
Distribution and marketing costs, including
advertising and marketing are expensed as incurred. Theatrical
print costs are expensed upon release of the film. During the
years ended December 31, 2001, 2002 and 2003, and the three
months ended March 31, 2003 and 2004, the Company included
$275.0 million, $212.2 million, $142.0 million,
$14.6 million and $30.1 million, respectively, of
distribution and marketing costs in costs of revenue.
Home video manufacturing costs are charged to
costs of revenue at the time home video revenues are recognized.
Property, Plant and Equipment
Property, plant and equipment are stated at the
lower of cost or fair value. Depreciation of property, plant and
equipment is calculated using the straight-line method over the
useful life of the asset, ranging from three to forty years.
Leasehold improvements are amortized using the straight-line
method over the life of the asset, not to exceed the length of
the lease. Amortization of assets acquired under capital leases
is included in depreciation expense.
Talent Commitments
The Company enters into contracts with talent
(primarily performers, writers and producers) for the
development of new product. Advance payments made under such
contracts, net of expected recoupments from productions, are
amortized on a straight-line basis over the term of the
commitment.
Income Taxes
DreamWorks Studios paid no federal income taxes
as an entity as the operations of DreamWorks Studios were
included in the taxable income of its individual members. The
tax expense in the accompanying combined statements of
operations principally represent foreign withholding taxes and
state franchise taxes. See Note 14 for pro forma income tax
information reflecting the income tax provision that the Company
would have recorded if the Company had been subject to federal
taxation as a corporation and had filed separate tax returns for
all periods presented. Income taxes are recorded based on the
liability method, which requires recognition of deferred tax
assets and liabilities based on differences between financial
reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes, including estimates of ultimate revenues and
ultimate costs of film and television product. Actual results
could differ from those estimates.
F-10
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Goodwill
Goodwill of approximately $29.1 million,
associated with DreamWorks Studios' 2000 acquisition of a
majority interest in Pacific Data Images, Inc. ("PDI")
has been allocated to the Company. At December 31, 2003,
the Company has determined that there was no impairment of
goodwill.
Deferred Costs
Costs associated with negotiating the
Company's animation facility lease, which consist
principally of legal costs and bank fees, are deferred and
amortized to rent expense using the straight-line method over
the life of the lease.
Stock-Based Compensation
The Company follows the provisions of
FAS 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The provisions of
FAS 123 allow companies to either expense the estimated
fair value of equity awards or to continue to follow the
intrinsic value method set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company has
elected to continue to apply APB 25 in accounting for its
preexisting stock options which were outstanding at the time of
the acquisition of PDI. DreamWorks Studios uses stock
appreciation rights (which allow all employees to share in the
growth in value of DreamWorks Studios) as its principal
stock-based compensation plan. The vested amount of these awards
are recorded at their redemption value, and DreamWorks Studios
has allocated to the Company the redemption liability and the
associated compensation expense related to the Company's
employees. Compensation expense, determined using the
accelerated expense attribution method under FASB Interpretation
No. 28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option Plans", is adjusted to reflect
changes in redemption value (See Note 8).
Impairment of Long-Lived
    Assets
The Company records impairment losses on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets'
carrying amount. In such cases, the amount of the impairment is
determined based on the relative fair values of the impaired
assets.
Recent Accounting
    Pronouncements
In December 2002, the FASB issued
FAS No. 148, "Accounting for Stock-Based
Compensation — Transition and Disclosure"
("FAS 148"). FAS 148 amends FAS 123 to
provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for
stock-based employee compensation. In addition, FAS 148
amends the disclosure provisions of FAS 123 to require
prominent disclosure of the effects of an entity's
accounting policy with respect to stock-based employee
compensation on reported operating results, including per share
amounts, in annual and interim financial statements. The
disclosure provisions of FAS 148 were effective immediately
upon issuance in 2002. As of December 31, 2003, the Company
has no immediate plans to adopt the fair value method of
accounting for stock-based employee compensation.
2.
Relationship to DreamWorks Studios
During the periods covered by the combined
financial statements, DreamWorks Studios provided all marketing
and overhead services to the Company, including executive
management, domestic theatrical
F-11
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
marketing and distribution, oversight of
international theatrical distribution and worldwide home video
distribution, worldwide television sales, accounting and
finance, legal, employee benefits, risk management and
information technology. DreamWorks Studios has allocated such
costs to the Company to reflect the amounts that DreamWorks
Studios believes is a fair and reasonable allocation of its
costs to provide these services to the Company. In general,
these allocations have been calculated based on the percentage
that the Company's films, headcount, revenue or other
criteria constitute of the total films, headcount, revenue or
other criteria of DreamWorks Studios (including those of the
Company). Certain of these costs that are significantly or
exclusively related to the production of films are included in
capitalized overhead in accordance with the SOP and are reported
as Film Inventories in the accompanying combined balance sheets.
All other allocations have been included in Selling, General and
Administrative Expenses in the accompanying combined statements
of operations. Costs, including capitalized costs, allocated
from DreamWorks Studios for the years ended December 31,
2001, 2002 and 2003 are $40.2 million, $34.2 million
and $34.6 million, respectively, and were $9.4 million
and $9.9 million for the three-months ended March 31,
2003 and 2004, respectively. DreamWorks Studios has provided all
working capital required for the development, production, and
marketing of films, as well as overhead, through centralized
cash management. The net impact of DreamWorks Studios'
funding of the Company's operations, after the allocation
of its indebtedness (Note 6), have been reflected as a
component of Owner's Equity (Deficiency) in the
accompanying combined financial statements.
Allocations
Worldwide Marketing and
Distribution:
Certain overhead
expenses for the marketing and distribution of the
Company's films have been allocated to the Company by
DreamWorks Studios. These costs include the salaries, fringe
benefits, and operating expenses of the employees in DreamWorks
Studios' theatrical, home video, marketing and television
sales/distribution departments. The allocation of the overhead
associated with these functions has been based on several
factors, including: (1) marketing costs incurred for the
Company's films as a percentage of marketing costs incurred
for all DreamWorks Studios' films; (2) the number of
films the Company has released as a percentage of all DreamWorks
Studios' films released in a given year and
(3) estimates of time spent on the Company's releases
as a percentage of time spent on all DreamWorks Studios'
releases.
Executive
Management:
Executive management
expense is comprised of the expenses relating to the principals
and chief operating officers employed by DreamWorks Studios,
including the costs associated with transportation provided by
DreamWorks Studios to the Company's executives. These costs
have been allocated to the Company based on a combination of
(1) revenue generated by the Company as a percentage of
DreamWorks Studios consolidated revenue and (2) the
Company's headcount as a percentage of DreamWorks Studios
consolidated headcount.
Finance and
Accounting:
DreamWorks Studios has
allocated accounting and finance services related costs,
including the costs of financial systems, to the Company based
on several factors, including: (1) revenue generated by the
Company as a percentage of DreamWorks Studios consolidated
revenue; (2) the Company's headcount as a percentage
of DreamWorks Studios total headcount and (3) estimates of
time spent on the Company's finance projects as a
percentage of time spent on all DreamWorks Studios finance
projects.
Legal:
Costs related
to legal services, other than outside legal fees and film
specific trademark related expenses, which have been directly
charged to the Company, have been allocated to the Company based
on actual time spent by DreamWorks Studios' attorneys on
matters related primarily to the Company or the Company's
films.
F-12
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Human Resources:
DreamWorks Studios has allocated human resources costs,
including management, benefits administration and employee
relations to the Company based on the Company's headcount
as a percentage of the consolidated headcount of DreamWorks
Studios. Other costs related to human resources, such as
recruiting and relocation costs have been directly incurred by
the Company.
Occupancy and Facilities
Management:
The costs of facilities,
facilities management and mail services have been allocated to
the Company based on the square footage that the Company has
occupied at of the Company's Glendale animation campus and
the Company's Redwood City production facility as a
percentage of total square footage of all DreamWorks Studios
facilities.
Insurance:
Property
insurance premiums have historically been allocated to the
Company based on the Company's insurable asset values as a
proportion of DreamWorks Studios' total insurable asset
values. Asset values are representative of the asset's fair
market or replacement value as determined at the time of premium
renewal. The insurance premiums for policies such as errors and
omissions, directors and officers, travel, and excess liability,
have been allocated to the Company based on (1) the
Company's headcount as a percentage of the consolidated
headcount of DreamWorks Studios and (2) the number of films
the Company has released as a percentage of all DreamWorks
Studios' films released in a given year.
Information
Technology:
DreamWorks Studios has
allocated to the Company the costs of network infrastructure and
administrative desktop computer support. This allocation has
been based on the Company's headcount as a percentage of
total DreamWorks Studios headcount, in each case excluding the
headcount of the Company's Redwood City facility, as the
costs related to Redwood City have been directly incurred by the
Company. For telecommunications, the Company has been allocated
a fixed fee for every telephone user, which includes the costs
of the equipment and related maintenance and support costs. The
Company has also been charged for actual local and long distance
usage.
Other Allocations:
The Company has been allocated certain other costs, including
(1) costs to track, deliver and store various film and film
related content (for example, film elements, photos and
artwork); (2) costs to oversee dubbing of the
Company's films and (3) costs to oversee the placement
of musical content in the Company's films.
DreamWorks Studios provides fringe benefits to
the Company's employees. DreamWorks Studios pays all costs
of the employer provided benefits package, including health and
401(k) plans and employer payroll taxes, and allocates such
costs to the Company based on a percentage of total salaries
incurred by or allocated to the Company in relation to the total
salaries incurred by DreamWorks Studios. Employee fringe expense
allocated to the Company for the years ended December 31,
2001, 2002 and 2003 was $6.3 million, $7.6 million and
$9.7 million, respectively, and $2.4 million and
$3.2 million for the three-months ended March 31, 2003
and 2004, respectively, which were recorded as Selling, General
and Administrative expenses.
The Company leases its animation campus in
Glendale, California (see Note 6). The Company incurs all
costs related to the operation of the facility, and allocates
occupancy costs to DreamWorks Studios. DreamWorks Studios was
allocated occupancy expense of approximately $9.4 million,
$8.9 million, and $9.0 million for the years ended
December 31, 2001, 2002 and 2003, respectively, and
$1.8 million and $2.8 million for the three-months
ended March 31, 2003 and 2004, respectively. A portion of
these costs has been reallocated to the Company through the
departmental allocations discussed above.
3.
Distribution, Licensing and Other Operating
    Agreements
In prior years, DreamWorks Studios entered into
several agreements with Universal and its affiliates to provide
international theatrical distribution and international and
domestic home video fulfillment services. In 2001, DreamWorks
Studios amended and extended its agreements with Universal (the
"2001 Universal
F-13
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Agreement"). In accordance with the
Universal Agreement, DreamWorks Studios received an advance
against amounts due to DreamWorks Studios based on the projected
net receipts, as defined, of pictures in release and pictures in
production or pre-production (the "2001 Advance").
DreamWorks Studios is required to provide to Universal quarterly
estimates of projected cash receipts, net of projected expenses,
distribution and service fees, due to DreamWorks Studios from
Universal in the markets where Universal provides distribution
and fulfillment services (the "Pipeline Estimate").
The 2001 Advance is calculated as the lesser of
$100 million or 87% of the Pipeline Estimate. At each of
December 31, 2002, and 2003, and at March 31, 2004,
the 2001 Advance was calculated to be $100 million. A
portion of the 2001 Advance has been allocated to the Company
based on the relative share of the Company's net receipts
included in the Pipeline Estimate. Accordingly, at
December 31, 2002 and 2003 and March 31, 2004,
$32.3 million, $12.8 million and $12.2 million,
respectively, of the 2001 Advance has been allocated to the
Company and is included in Advances and Unearned Revenue in the
accompanying combined balance sheets.
In October 2003, DreamWorks Studios entered into
a new amended and restated agreement with Universal (the
"2003 Universal Agreement"). The 2003 Universal
Agreement extends the terms of the international theatrical
distribution and international and domestic home video
fulfillment services agreements until December 31, 2010,
with an option for Universal to extend the term for an
additional one or two years if certain performance thresholds
are not met. Pursuant to the 2003 Universal Agreement,
DreamWorks Studios retains responsibility for all direct
distribution costs and Universal receives a fee for distribution
and fulfillment services.
Pursuant to the 2003 Universal Agreement,
Universal agreed to pay to DreamWorks Studios an additional
advance of $75 million (the "2003 Advance"), of
which $37.5 million was received in December 2003 and
$37.5 million was received in March 2004. The entire 2003
Advance is based on projected net receipts, as defined, of the
Company's animated features released subsequent to
December 31, 2002. As a result, 100% of the 2003 Advance
has been allocated to the Company and is included in Advances
and Unearned Revenue in the accompanying combined balance sheets.
If future Pipeline Estimates fall below the
levels required to maintain the maximum advance, the excess
advance must be repaid within five business days. The advances
are otherwise not recoupable or refundable until the earlier of
a payment default or termination of the Universal Agreements.
DreamWorks Studios has received advances from
Home Box Office, Inc. ("HBO") against license
fees payable for future film product under an exclusive 10-year
domestic pay television license agreement between HBO and
DreamWorks Studios. Since the advances are identified for each
film, the Company has been allocated the portion of the advances
related to its animated features. During the years ended
December 31, 2001, 2002 and 2003, the Company recognized as
revenue $20 million, $10 million and $10 million
of such advances, respectively, in each case representing a
portion of the license fee due from HBO upon availability of the
underlying films. No such revenues were recognized in the three
months ended March 31, 2003 and 2004. Unrecognized advances
of $10 million were allocated to the Company at
December 31, 2002. As of December 31, 2003 and
March 31, 2004, there were no unrecognized advances from
HBO. DreamWorks Studios and the Company are obligated to refund
the advances if the advances exceed the license fees earned by
the films in accordance with the HBO agreement.
F-14
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
4.
Film Inventories
The following is an analysis of film inventories
(in thousands):
December 31,
March 31,
2002
2003
2004
(Unaudited)
In development:
Animated feature films
$
20,659
$
31,633
$
41,867
In production:
Animated feature films
318,918
299,213
347,715
Television series
—
10,414
15,663
In release, (net of amortization):
Animated feature films
132,270
81,083
69,871
Total film inventories
$
471,847
$
422,343
$
475,116
The Company anticipates that 96% of completed and
released film inventories as of December 31, 2003 will be
amortized over the next three years. The Company further
anticipates that 54% of "in release" inventory will be
amortized during 2004.
Interest capitalized to film inventories during
the years ended December 31, 2002 and 2003 and the three
months ended March 31, 2004 totaled $10.2 million,
$6.9 million, and $2.2 million, respectively.
5.
Property, Plant and Equipment
Property, plant and equipment are comprised of
the following (in thousands):
December 31,
March 31,
2002
2003
2004
(Unaudited)
Leasehold improvements
$
17,262
$
19,158
$
19,257
Furniture and equipment
7,002
7,934
8,013
Computer hardware and software
4,093
4,373
4,374
Equipment acquired under capital leases
6,982
6,982
6,982
Land and buildings
—
73,000
73,000
Total property, plant and equipment
35,339
111,447
111,626
Accumulated depreciation and amortization
(19,964
)
(26,383
)
(27,644
)
Property, plant and equipment, net
$
15,375
$
85,064
$
83,982
For the years ended December 31, 2001, 2002,
and 2003 and the three months ended March 31, 2003 and 2004
the Company recorded depreciation and amortization expense
(other than film amortization) of $2.9 million,
$3.1 million, $3.6 million, $0.8 million and
$1.3 million, respectively. Accumulated depreciation and
amortization includes depreciation of assets acquired under
capital leases. On December 31, 2003, the Company adopted
Interpretation 46, as revised, and has consolidated the
special-purpose entity that acquired the Glendale animation
campus, which increased property, plant and equipment as of
December 31, 2003, and will increase non-film depreciation
and amortization in the future (see Note 6).
F-15
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
6.
Debt
DreamWorks Studios has allocated its debt and
related interest to the Company based on the proportion of the
Company's capital invested in films in production as a
percentage of total capital invested by DreamWorks Studios in
all films in production. Management of the Company believes that
this allocation best reflects the Company's actual use of
capital. For the years ended December 31, 2001, 2002 and
2003, interest allocated to the Company amounted to
$17.4 million, $15.3 million and $20.5 million,
respectively, and for the three months ended March 31, 2003
and 2004, interest allocated to the Company was
$5.6 million and $5.1 million, respectively. Of these
amounts, interest capitalized to Film Inventories in accordance
with FAS 34 "Capitalization of Interest Cost",
totaled $16.8 million, $10.2 million and
$6.9 million for the years ended December 31, 2001,
2002 and 2003, respectively, and $1.7 million and
$2.2 million for the three months ended March 31, 2003
and 2004, respectively.
DreamWorks Studios' indebtedness is
principally based on variable rates based on LIBOR, Eurodollar
or commercial paper rates, plus a margin. Substantially all of
the assets of the Company have been pledged as collateral to the
lenders under the revolving credit facility of DreamWorks
Studios, and its subsidiaries, including the Company, have
guaranteed this facility. In addition, a portion of the
Company's assets held by DW Funding, L.L.C., a wholly
owned subsidiary of DreamWorks Studios, have been pledged as
collateral under its securitization documents. DreamWorks
Studios' existing credit facility places restrictions on
its ability to sell assets or make distributions to its members,
and such restrictions extend to the Company.
DreamWorks Studios utilizes interest rate swap
agreements to hedge the interest rate sensitivity of its
indebtedness. These agreements do not qualify for special hedge
accounting and, as a result, changes in the fair value of such
agreements have been charged to operations. The impact of these
agreements has been allocated to the Company in a manner similar
to the allocation of debt. Accordingly, the net change in the
fair value of these contracts has been charged to Other Income
(Expense), and the allocated fair value of these contracts has
been reflected in Accrued Liabilities. For the years ended
December 31, 2001, 2002 and 2003, and for the three months
ended March 31, 2003 and 2004, the Company recorded other
expense of $10.0 million, $19.9 million,
$0.6 million, 3.1 million, and $7.3 million,
respectively, related to the allocated changes in the fair value
of these instruments.
DreamWorks Studios has entered into interest rate
swap agreements and has allocated to the Company agreements with
aggregate notional principal amounts of $76.5 million for
the year ended December 31, 2001, and $73.0 million
for the years ended December 31, 2002 and 2003. These
contracts are intended to serve as a hedge against the interest
rate fluctuations associated with the Company's animation
campus indebtedness. Pursuant to these agreements, DreamWorks
Studios paid and allocated to the Company fixed rates of
interest ranging from 6.06% to 6.20% in 2002 and 2003 (weighted
average of 6.16%) and received and allocated to the Company
floating LIBOR-based rates of interest (weighted average of
2.14% at December 31, 2001, 1.51% at December 31, 2002
and 1.18% at December 31, 2003).
At December 31, 2002 and 2003 and
March 31, 2004, the Company estimates it would have been
required to pay approximately $33.9 million,
$31.8 million and $38.3 million, respectively, to
terminate the all the aforementioned swap agreements. These
amounts have been recorded in Accrued Liabilities in the
accompanying combined financial statements.
In May 1996, DreamWorks Animation entered into an
agreement with a financial institution for the construction of
an animation campus in Glendale, California, and the subsequent
lease of the facility upon its completion in early 1998. The
lease on the property, which was acquired and financed by the
financial institution for $76.5 million, qualified as an
operating lease for the Company. In March 2002, the Company
renegotiated the lease through the creation of a special-purpose
entity that acquired the property from the
F-16
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
financial institution for $73.0 million and
the special-purpose entity leased the facility to the Company
for a five-year term. This transaction was structured to qualify
as an operating lease and obligated the Company to provide a
residual value guarantee of approximately $61 million. The
entire amount of the obligation, $70.1 million at
March 31, 2004, is due and is payable in March 2007.
In connection with the adoption of Interpretation 46, the
special-purpose entity has been consolidated by the Company as
of December 31, 2003 (see Note 5).
In October 2003, the Company entered into an
agreement to acquire an animated film currently in production.
Pursuant to the acquisition agreement, the Company will pay
approximately $45.0 million to acquire substantially all
rights to the film. In connection with the acquisition,
DreamWorks Studios entered into loan agreements for the
financing of the production costs of up to approximately
$28.7 million. Of this amount, $6.6 million and
$11.6 million had been incurred as of December 31,
2003 and March 31, 2004, respectively. This obligation is
included in Other Debt and Film Inventories in the accompanying
combined balance sheets. The Company has entered into certain
foreign exchange transactions intended to hedge the fluctuations
of foreign currency payments related to the acquisition of this
film. Pursuant to these transactions, the Company is obligated
to purchase up to 16.7 million British pounds at an
exchange rate specified in the transaction documents. At
December 31, 2003 and March 31, 2004, the banks would
be required to pay the Company approximately $1.2 million
and $1.8 million, respectively, to terminate the foreign
currency agreements. These amounts have been recorded in Other
Assets in the accompanying combined financial statements.
7.
Commitments and Contingencies
In addition to the lease expense related to the
Glendale animation campus (until its consolidation on
December 31, 2003), the Company is allocated lease expense
by DreamWorks Studios for certain non-cancelable office space
and equipment operating leases. Certain of these office leases
contain escalations in the monthly rental amounts. DreamWorks
Studios has also entered into several operating leases for
furniture, computers and production equipment with terms ranging
from three to five years. These leases also provide for certain
termination and purchase options. For the years ended
December 31, 2001, 2002 and 2003, and the three months
ended March 31, 2003 and 2004, the Company incurred lease
expense, including that allocated by DreamWorks Studios, of
approximately $13.6 million, $9.8 million,
$11.6 million, $2.7 million, and $1.5 million,
respectively.
In December 1997, DreamWorks Studios entered into
a capital lease with Pacific Enterprises for the energy
management assets associated with the Company's Glendale
animation campus. This capital lease has been attributed to the
Company, and, accordingly, the Company has reflected an asset of
approximately $7.0 million. As of December 31, 2003,
$3.7 million of the related capital lease obligation
remains outstanding. Payments of obligations under the capital
lease totaled approximately $0.6 million in each of the
years ended December 31, 2001, 2002 and 2003 and
$0.2 million in each of the three months ended
March 31, 2003 and 2004.
F-17
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Future minimum lease payments of all leases are
as follows (in thousands):
Operating
Capital
2004
$
8,753
$
1,080
2005
9,869
996
2006
8,386
996
2007
4,020
996
2008
2,050
332
Thereafter
15,144
—
Subtotal
48,222
4,400
Less amount representing interest
—
(668
)
Total
$
48,222
$
3,732
The Company estimates that during the year ending
December 31, 2004, it will pay approximately
$7.5 million of its accrued contingent compensation and
residual costs as of December 31, 2003.
The Company also has a purchase commitment
related to the acquisition of a film as described in Note 6.
From time to time, DreamWorks Studios is involved
in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company does not believe
that adverse decisions in any pending or threatened proceedings,
or any amount which the Company might be required to pay by
reason thereof, would have a material adverse effect on the
financial condition or operating results of the Company.
8.
Employee Benefit Plans
401(k) Plans
The Company participates in DreamWorks
Studio's defined contribution retirement plan (the
"Plan") under provisions of Section 401(k) of the
Internal Revenue Code ("IRC"). Substantially all
employees not covered by collective bargaining agreements are
eligible to participate in the Plan. The maximum contribution
for the employer match is equal to 50% of the employees'
contribution, up to 4% of their compensation, as limited by Sec.
415 of the IRC. The costs of the employer match, as well as all
costs of administering the Plan are included in DreamWorks
Studios fringe benefit allocation to the Company.
Employee Equity Participation
    Plan
The Company participates in DreamWorks
Studios' Employee Equity Participation Plan (the
"Equity Plan"). DreamWorks Studios may grant to
employees or consultants either actual or phantom shares of
Class E stock (the "Shares") or alternative
Class E stock (the "Alternative Shares"), with
the aggregate outstanding Shares or Alternative Shares not to
exceed 10% of the equity of DreamWorks Studios. Most of the
Shares or Alternative Shares granted vest ratably over seven
years and the employees become fully vested in their Shares or
Alternative Shares on the seventh anniversary date of the
granting of such Shares or Alternative Shares. The employees and
consultants may redeem the Shares or Alternative Shares for cash
or subordinated debt of DreamWorks Studios, at a predetermined
interest rate, at the greater of a percentage of fair market
value or the stipulated minimums provided in the Equity Plan,
after a three-year blackout period, provided that DreamWorks
Studios achieves certain defined operating performance
thresholds. If these thresholds are not achieved, the redemption
price will be based on a percentage of fair market value only.
F-18
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
For the years ended December 31, 2001 and
2002, compensation expense attributable to the Company's
employees pursuant to the Equity Plan of $1.3 million and
$0.3 million, respectively, was allocated to the Company.
During the years ended December 31, 2002 and 2003,
DreamWorks Studios determined that the fair market value of the
Shares and Alternative Shares had decreased from the previously
determined fair market value. Accordingly, for the year ended
December 31, 2002, the amount of recorded compensation
expense was reduced to reflect the reduction in fair value as of
December 31, 2002. For the year ended December 31,
2003, the Company reversed previously recorded compensation
expense related to the Equity Plan aggregating $2.3 million
to reflect the reduction in fair value as of December 31,
2003. As of December 31, 2002 and 2003 and March 31,
2004, deferred compensation liabilities associated with the
Equity Plan of $8.7 million, $6.4 million and
$5.3 million, respectively, were allocated to the Company.
In connection with the acquisition of PDI in
2000, the Company inherited a stock option plan that was
previously established by PDI. As of March 31, 2004, there
were approximately 2.6 million stock options outstanding
under this plan, for the purchase of approximately 19% of the
outstanding stock of PDI, substantially all of which were
vested. There have been no additional grants or exercises of
stock options since the acquisition of PDI in 2000.
9.
Related Party Transactions
The Company has made loans to certain of its
executives and employees pursuant to various notes receivable
arrangements. These arrangements require interest to be paid at
rates ranging from 0% to 5.88%. Payments are due under terms
ranging from 1 to 10 years. Amounts due at
December 31, 2002 and 2003 and March 31, 2004 are
reflected in Receivables from Employees in the accompanying
combined balance sheets. Interest income associated with these
notes receivable for the years ended December 31, 2001,
2002 and 2003 and for the three months ended March 31, 2003
and 2004 was not material.
The Company provides services to DreamWorks
Studios related to the licensing of products based on DreamWorks
Studios' films and characters in such films. In the years
ended December 31, 2001, 2002 and 2003 and the three months
ended March 31, 2003 and 2004, revenues earned from
licensing activities on behalf of DreamWorks Studios totaled
$1.8 million, $0.7 million, $3.7 million,
$0.4 million and $0.2 million, respectively.
10.
Segment and Geographic Information
The Company operates in a single segment: the
production and distribution of animated films. Revenues
attributable to foreign countries were approximately
$214.0 million, $199.1 million and $135.6 million
for the years ended December 31, 2001, 2002 and 2003,
respectively, and were approximately $30.3 million and
$32.5 million, respectively, for the three-months ended
March 31, 2003 and 2004. Long-lived assets located in
foreign countries were not material.
Pursuant to the terms of the distribution
agreements in place at DreamWorks Studios, whereby DreamWorks
Studios has not been responsible for collecting foreign
currency, there is a relatively short period between revenue
recognition and cash payment. DreamWorks Studios generally has
not used foreign currency swap transactions to hedge foreign
currency exchange risks associated with these distribution
agreements.
F-19
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
11.
Valuation and Qualifying Accounts and
    Reserves
The following is a summary of the valuation and
qualifying accounts included in the combined balance sheets for
the years ended December 31, 2001, 2002, and 2003 and the
three months ended March 31, 2004 (in thousands):
Balance at
Charged to
Deductions (Actual
Beginning
(Credited)
Returns and Bad
Balance at
of Period
Operations
Debt Write-offs)
End of Period
2001
Reserve for returns
$
47,296
$
117,993
$
(45,894
)
$
119,395
Allowance for doubtful accounts
788
(136
)
(28
)
624
2002
Reserve for returns
119,395
(43,552
)
(33,433
)
42,410
Allowance for doubtful accounts
624
24,332
(5,476
)
19,480
2003
Reserve for returns
42,410
18,085
(30,421
)
30,074
Allowance for doubtful accounts
19,480
(3,589
)
(11,241
)
4,650
March 31, 2004 (unaudited)
Reserve for returns
30,074
2,452
(15,109
)
17,417
Allowance for doubtful accounts
4,650
(141
)
(24
)
4,485
In 2001, the animated film,
Shrek
, was
released in the home video market. At the time of release, the
Company estimated a return reserve based on its historical
experience and sales data available at the time. In 2002, the
actual sales of units at the retail level exceeded the
Company's estimates and, accordingly, the return reserve
was reduced.
In 2003, the Company collected receivables from
customers in bankruptcy which had been previously reserved.
12.
Accrued Liabilities
Accrued liabilities consists of the following:
December 31,
March 31,
2002
2003
2004
(unaudited)
Fair value of derivative instruments
$
33,913
$
31,828
$
38,263
Accrued distribution costs
43,603
27,079
16,130
Other accrued liabilities
35,129
38,373
33,926
$
112,645
$
97,280
$
88,319
13.
Subsequent Event (unaudited)
In July 2004, DreamWorks Animation, Inc. filed a
registration statement with the Securities and Exchange
Commission to issue shares of Class A common stock of
DreamWorks Animation, Inc. Upon consummation of the offering,
the assets, liabilities and subsidiaries that comprise the
Company will be contributed, by merger or otherwise, into
DreamWorks Animation, Inc.
F-20
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
In connection with the offering, DreamWorks
Animation expects to enter into a distribution agreement with
DreamWorks Studios (the "Distribution Agreement").
Pursuant to the Distribution Agreement, the Company will grant
DreamWorks Studios the exclusive right to distribute throughout
the world all of its animated feature films that it delivers to
Dreamworks Studios through the later of (i) delivery of
12 animated feature films, beginning with
Shark
Tale
, and (ii) December 31, 2010. DreamWorks
Studios will be responsible for (1) the domestic and
international theatrical exhibition of our films, (2) the
domestic and international home video exhibition of our films
and direct-to-video pictures, (3) the domestic and
international television licensing of the films, including
pay-per-view, pay television, network, basic cable and
syndication, and (4) non-theatrical exhibition of the
films, such as on airlines, in schools and in armed forces
institutions. DreamWorks Studios will also grant Internet, radio
(for promotional purposes only) and new media rights with
respect to the films. DreamWorks Animation will retain all other
rights to exploit the films, including the right to make sequels
and commercial tie-in and promotional rights with respect to
each film, as well as merchandising, interactive, literary
publishing, music publishing, soundtrack, radio, legitimate
stage and theme park rights.
Pursuant to the Distribution Agreement,
DreamWorks Animation will be responsible for all of the costs
and developing and producing its animated feature films and for
contingent compensation and residual payments. DreamWorks
Studios will generally be responsible for all out-of-pocket
costs, charges and expenses incurred in the distribution
(including prints and the manufacture of home video units),
advertising, marketing, publicizing and promotion of the films,
and has agreed to make expenditures consistent with historical
levels with respect to its films. The Distribution Agreement
will also provide that DreamWorks Studios will be entitled to
(1) retain a fee of 8.0% of revenue (without deduction for
any distribution and marketing fees and third-party distribution
and fulfillment services fees) and (2) recoup all of its
distribution and marketing costs prior to the Company
recognizing any revenue.
14.
Pro Forma Provision for Income Taxes
    (unaudited)
Upon the consummation of the transactions
described in Note 13, the Company will be taxed at regular
corporate rates. Deferred tax assets and liabilities will be
recognized for the tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities will be measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. A deferred tax asset valuation allowance will be
recorded if it is more likely than not that all or a portion of
the recorded deferred tax assets will not be realized.
For informational purposes, the consolidated
statements of operations include a pro forma adjustment for
income taxes that would have been recorded if the Company had
been incorporated historically, calculated in accordance with
FAS No. 109, "Accounting for Income Taxes".
F-21
Table of Contents
DREAMWORKS ANIMATION
(A Division of DreamWorks L.L.C.)
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
(Information for the three months ended
March 31, 2003 and 2004 is unaudited)
Significant components of the pro forma provision
for (benefit from) income taxes on income (loss), before
cumulative effect of accounting changes, are as follows (in
thousands):
Years Ended December 31,
2001
2002
2003
Current:
Federal
$
48,386
$
(18,924
)
$
—
State and local
5,468
251
92
Foreign
1,419
1,940
1,747
Total current provision (benefit)
55,273
(16,733
)
1,839
Deferred:
Federal
(18,924
)
18,924
—
State and local
—
—
—
Total deferred provision (benefit)
(18,924
)
18,924
—
Total income tax provision
$
36,349
$
2,191
$
1,839
The pro forma federal and state tax benefit for
the years 2002 and 2003 is fully offset by valuation allowances
arising in each of those years, since the resulting net
operating loss carryforwards created would require a valuation
allowance as the likelihood of their realization could not be
established at such time.
F-22
Table of Contents
Shares
Class A Common Stock
(LOGO TO COME)
PROSPECTUS
,
2004
Goldman, Sachs & Co.
JPMorgan
You
should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, common shares
only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common shares.
No
action is being taken in any jurisdiction outside the United
States to permit a public offering of the common shares or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
Through
and
including                     ,
2004 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Table of Contents
The information in this
preliminary prospectus is not complete and may be changed. These
securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
[Concurrent Conversion — Alternative
Page]
Subject to Completion, dated
July 20, 2004
Shares
DreamWorks Animation, Inc.
Class A Common Stock
This
Prospectus is being furnished to you as a stockholder of record
of Pacific Data Images, Inc. ("PDI") in connection
with the combination of the businesses of PDI and DreamWorks
Animation, Inc. (the "Company") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement"),
dated as
of                ,
2004, by and among PDI, the Company, and DWA Acquisition Corp.,
a wholly owned subsidiary of the Company ("Merger
Sub"), which provides for the merger of Merger Sub with and
into PDI, with PDI becoming a wholly owned subsidiary of the
Company (the "Merger").
Concurrently with
the Merger, the Company and certain Selling Stockholders (as
defined herein) are
selling               and                shares
of Class A common stock, respectively, and an
additional                shares
if the underwriters exercise their over-allotment option in
full, in an underwritten public offering (the
"Offering"). It is currently anticipated that the
initial public offering price in the Offering will be between
$          and
$      per share.
In the proposed
Merger, each share of PDI's outstanding capital stock (the
"Shares"), other than those shares canceled in
accordance with the Merger Agreement or held by persons
exercising appraisal rights, will be converted into the right to
receive                shares
of Class A common stock, $.01 par value, of the Company
based on an assumed initial public offering price of
$          .
PDI and the Company expect to complete the Merger simultaneously
with the consummation of the Offering.
PDI has already
received the requisite shareholder consent to approve the Merger
under the California General Corporation Law (the
"CGCL"). As a stockholder of record of PDI, you are
entitled to dissenter's rights under Chapter 13 of the
CGCL. The procedures for exercising these rights are explained
on page [     ] of this Prospectus.
Prior to this
offering, there has been no public market for our common stock.
We intend to apply for listing of our Class A common stock
on                     under
the symbol
"            ."
See
"Risk Factors" beginning on page 11 to read about
factors you should consider before buying shares of our
Class A common stock.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
It is expected that
the conversion of Shares into Common Stock will occur
on                ,
2004.
,
2004.
Table of Contents
[Concurrent Conversion — Alternative
Page]
The Conversion
The Merger is being consummated in connection
with our initial public offering and pursuant to the Separation
Agreement between us and DreamWorks Studios. DreamWorks Studios,
the owner
of           %
of the common stock of PDI and in its capacity as a majority
shareholder, has approved the Merger Agreement. See
"Related Party Agreements — Separation
Agreement." In the Merger, shareholders of record of PDI
will
receive            shares
of our Class A common stock in exchange for each share of
PDI common stock. In accordance with Section 13 of the
CGCL, shareholders electing not to exchange their PDI shares for
our Class A common stock are entitled to receive
$           per
share for each share of PDI common stock, an amount determined
by us to represent their fair market value. See "The PDI
Merger."
Common stock outstanding immediately after this
    Merger:
Class A
shares
(1)(2)
Class B
shares
(3)
Class C
shares
(4)
Total
shares
Use of Proceeds
We will not receive any proceeds from the
    conversion of the Shares into our Class A common stock.
Dividend Policy
We do not anticipate paying any dividends on our
    common stock in the foreseeable future.
Voting Rights
In general, the Class A, Class B and
    Class C are substantially identical on all matters. In
    addition, each class of stock has the following characteristics.
Class A
One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
Class B
15
    votes per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors.
Class C
One
    vote per share for all matters on which stockholders are
    entitled to vote, including the election and removal of
    directors. In addition, the right to elect one director voting
    as a separate class.
Proposed Trading Symbol
Risk Factors
See "Risk Factors" beginning on
    page 11 of this prospectus for a discussion of factors that
    you should carefully consider before deciding to invest in
    shares of our Class A common stock.
(1)
Represents the number of shares of our
    Class A common stock that would be required to convert all
    of
    the            shares
    of common stock of PDI that are not held by DreamWorks Studios,
    assuming that the initial public offering price in the Offering
    is
    $           .
    Stockholders of PDI (other than DreamWorks Studios) have
    dissenter's rights under Section 13 of the CGCL. To
    the extent these rights are exercised, the number of shares of
    our Class A common stock required in the conversion would
    decrease.
(2)
Does not include any of the options that were
    issued and outstanding as
    of                     ,
    2004, under our 2004 Equity Compensation Plan to purchase a
    total
    of            shares
    of our Class A common stock at a weighted average exercise
    price of
    $           per
    share
    and            shares
    of Class A common stock available for future issuance of
    options and restricted stock under our 2004 Equity Compensation
    Plan.
(3)
Of this amount, DreamWorks Studios will
    hold            shares,
    Holdco will
    own            shares
    and entities controlled by each of Jeffrey Katzenberg and David
    Geffen will hold one share.
(4)
To be held by Vulcan.
6
Table of Contents
[Concurrent Conversion — Alternative
Page]
from taking advantage of certain corporate
opportunities. See "Description of Capital
Stock — Corporate Opportunities." So long as
Jeffrey Katzenberg, David Geffen, or entities controlled by
them, and DreamWorks Studios continue to collectively own shares
of our Class B common stock with significant voting power,
Jeffrey Katzenberg and David Geffen, or entities controlled by
them, will continue to collectively be able to strongly
influence or effectively control our decisions.
Under certain circumstances, Jeffrey Katzenberg
and David Geffen, or entities controlled by them, could cease to
have a majority of the voting control of our common stock, in
which case other significant stockholders may be able to
strongly influence or effectively control our decisions.
Additionally, pursuant to the tax agreement that
we expect to enter into with Vulcan in connection with our
separation from DreamWorks Studios, future income taxes to
various tax authorities may be reduced as a result of the
partial increase in the tax basis of our tangible and intangible
assets. We will be required to pay to Vulcan a portion of the
amounts by which income taxes are actually reduced, subject to
repayment provisions if it is determined that these tax savings
should not have been available to us. As a result, the interests
of Vulcan and the holders of our Class A common stock could
differ.
You will experience immediate and substantial
dilution as a result of the conversion.
Prior investors have paid substantially less per
share for our common stock than the assumed initial public
offering price in the Offering, and the initial public offering
price will be the basis on which your shares of PDI common stock
will be converted into shares of our Class A common stock.
Accordingly, if you do not exercise your dissenter's rights
under Section B of the CGCL, the common stock you receive
in as a result of the conversion will result in immediate and
substantial dilution of your investment. Based upon the issuance
and sale
of                million
shares of common stock by us at an assumed initial public
offering price of $   per share in the Offering
(the midpoint of the price range set forth on the cover page of
the IPO Prospectus), you will incur immediate dilution of
approximately $  in the net tangible book value per
share pursuant to the conversion.
We also have
approximately               outstanding
stock options to purchase common stock with exercise prices that
are below the assumed initial public offering price of the
common stock. To the extent that these options are exercised,
there will be further dilution.
Anti-takeover provisions of our charter and
by-laws, as well as Delaware law may reduce the likelihood of
any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
The anti-takeover provisions of Delaware law
impose various impediments to the ability of a third-party to
acquire control of us, even if a change in control would be
beneficial to our existing stockholders. Additionally,
provisions of our charter and by-laws could deter, delay or
prevent a third-party from acquiring us, even if doing so would
benefit our stockholders. These provisions include:
•
the division of our capital stock into
    Class A common stock and Class C common stock, each
    entitled to one vote per share, and Class B common stock,
    entitled to 15 votes per share, all of which will initially
    be owned or controlled by Jeffrey Katzenberg, David Geffen,
    Holdco and DreamWorks Studios;
•
the right of the holder of Class C common
    stock (voting as a separate class) to elect one director;
•
the authority of the board to issue preferred
    stock with terms as the board may determine;
•
the prohibition of cumulative voting in the
    election of directors;
•
following such time as the outstanding shares of
    Class B common stock cease to represent a majority of the
    combined voting power of the voting stock, prohibition on
    stockholder action by written consent;
•
limitations on who may call special meetings of
    stockholders;
•
advance notice requirements for stockholder
    proposals;
•
following such time as the outstanding shares of
    Class B common stock cease to represent a majority of the
    combined voting power of the voting stock, super-majority voting
    requirements for stockholders to amend the by-laws; and
•
stockholder super-majority voting requirements to
    amend certain provisions of the charter.
23
Table of Contents
[Concurrent Conversion — Alternative
Page]
USE OF PROCEEDS
We will not receive any cash proceeds from the
conversion of the Shares into our Class A common stock.
We estimate that we will receive approximately
$           million
in net proceeds from the sale of Class A common stock in
the Offering, assuming an initial public offering price of
$           per
share (the midpoint of the range set forth on the cover page of
the IPO Prospectus), after deducting underwriting discounts and
commissions and estimated offering expenses and assuming no
exercise of the underwriters' over-allotment option.
We intend to retain approximately
$175 million of the net proceeds of the Class A common
stock offered by us for general corporate and working capital
purposes, including possible acquisitions, joint ventures and
investments. In addition, we will use the remaining net proceeds
to repay all or a portion of the indebtedness that we intend to
assume from DreamWorks Studios in connection with our
separation, which we expect will be approximately
$           million.
We expect that the debt that we assume will have a maturity date
of            and
bear an interest rate
of            basis
points above LIBOR. We have no current agreements or commitments
with respect to any potential acquisitions, joint ventures or
investments.
We will not receive any of the proceeds from the
sale of shares of our Class A common stock in the Offering
by the selling stockholders.
25
Table of Contents
[Concurrent Conversion-Alternative
Page]
DIVIDEND POLICY
We currently intend to retain all our earnings to
finance the growth and development of our business. We do not
anticipate paying any dividends on our common stock in the
foreseeable future. Any future change in our dividend policy
will be made at the discretion of our board of directors and
will depend on contractual restrictions contained in our credit
facility or other agreements, our results of operations,
earnings, capital requirements and other factors considered
relevant by our board of directors.
DILUTION
Your interest in our Class A common stock
will be diluted to the extent of the difference between the
initial public offering price per share of our Class A
common stock in the Offering and the net tangible book value per
share of our common stock after the Offering.
Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided
by the number of shares of common stock then outstanding. Our
net tangible book value as
of                     ,
2004 was approximately
$           million,
or approximately $   per share based
on                shares
of common stock outstanding as of such date. After giving effect
to our sale of shares of Class A common stock in the
Offering and the conversion of shares pursuant to the Merger at
the initial public offering price of $   per
share (the midpoint of the price range set forth on the cover
page of the IPO prospectus), and after deducting estimated
underwriting discounts and estimated offering expenses, our net
tangible book value as
of                     ,
2004 would have been
$              ,
or $   per share of common stock (assuming no
exercise of the underwriters' over-allotment option). This
represents an immediate increase in the net tangible book value
of $   per share to existing common stockholders
and an immediate and substantial dilution of
$   per share to new stockholders receiving
common stock in the Offering and the conversion. Tangible assets
consist of trade receivables, receivables due from DreamWorks
Studios, film inventories, property, plant and equipment and
other tangible assets of $   million, which
include non-trade receivables of $   million
included in other current assets and investments of
$   million included in other assets. The
following table illustrates this dilution per share:
Assumed initial public offering price per share
$
Net tangible book value per share as
    of           ,
    2004
$
Increase in net tangible book value per share
    attributable to the Offering
$
Net tangible book value per share after giving
    effect to the Offering
$
Dilution per share to new holders of Class A
    Common Stock
$
The foregoing discussion and tables assume no
exercise of outstanding stock options. As
of                     ,
2004, there were options outstanding to purchase a total
of                shares
of our Class A common stock at a weighted average exercise
price of $   per share. To the extent that any of
these options are exercised, there may be further dilution to
new investors.
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CAPITALIZATION
The following table sets forth, as of
March 31, 2004, (a) our historical capitalization and
(b) our pro forma as adjusted capitalization, which gives
effect to our issuance and sale
of                shares
of Class A common stock offered hereby (at an assumed
initial public offering price of
$           per
share, the midpoint of the range of the initial public offering
price set forth on the cover page of the IPO Prospectus, and
after deducting the underwriting discount and estimated expenses
of the offering and assuming no exercise of the
underwriters' over-allotment option) and the application of
the net proceeds of the Offering as described under the heading
"Use of Proceeds."
As of March 31, 2004
Pro forma
Historical
as Adjusted
(In thousands)
Cash
$
41
$
Obligations under capital leases
3,552
Debt allocated by DreamWorks Studios
380,062
Other debt
81,684
Stockholders' and owner's equity
    (deficiency)
Owner's equity (deficiency)
(65,143
)
Class A common stock, par value
    $.01 per
    share,            shares
    authorized;            shares
    issued and outstanding, pro forma as adjusted(1)
—
Class B common stock, par value
    $.01 per
    share,            shares
    authorized;            shares
    issued and outstanding, pro forma as adjusted(1)
—
Class C common stock, par value $.01 per
    share,            shares
    authorized;            shares
    issued and outstanding, pro forma as adjusted
—
Additional paid-in capital
—
Total stockholders' and owner's equity
    (deficiency)
(65,143
)
Total capitalization
$
400,196
$
(1)
Does not include (a) options issued under
    our 2004 Equity Compensation Plan
    for                      shares
    of Class A common stock with a weighted average exercise
    price
    of                     per
    share, and
    (b)                      shares
    of Class A common stock reserved for issuance under our
    2004 Equity Compensation Plan under which options
    for                      shares
    of common stock will be issued on the date hereof at the
    offering price set forth on the cover page of the IPO Prospectus.
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THE PDI MERGER
Overview
PDI is a subsidiary of DreamWorks Studios and
will become a subsidiary of the Company after the separation. As
of July 19, 2004, DreamWorks Studios owned 91.9% of the
common stock issued and outstanding of PDI. In connection with
our initial public offering, the Board of Directors of PDI has
determined that it is in the best interests of PDI and its
shareholders to consummate the Merger.
The Merger.
In order
to combine PDI's business with ours, PDI has entered into
the Merger Agreement with us which provides for the merger of
DWA Acquisition Corp. with and into PDI with PDI being the
surviving corporation and becoming our wholly owned subsidiary.
The Merger Agreement provides that upon consummation of the
Merger:
•
Each outstanding share of DWA Acquisition
    Corp.'s capital stock shall be converted into and become
    one fully paid and nonassessable share of PDI common stock.
•
All shares of PDI common stock that are owned by
    PDI (as treasury stock), us or DWA Acquisition Corp. shall be
    cancelled and retired with no consideration delivered in
    exchange;
•
Each issued and outstanding share of PDI common
    stock, other than shares cancelled and retired as described
    above and shares, if any, held by persons exercising
    dissenters' rights, will be converted into the right to
    receive            shares
    of our Class A common stock.
Approval of the Merger Agreement and the
Articles Amendment
Consents Required by Applicable Law and the
Articles of Incorporation.
The CGCL
and our Articles of Incorporation require that in order to
consummate the Merger, the principal terms of the Merger
Agreement must be approved by more than 50% of the outstanding
shares of PDI's common stock. PDI has already received the
requisite shareholder consent to approve the Merger under the
CGCL and the Articles of Incorporation.
Fairness Opinion
Under Section 1203 of the CGCL, the Board of
Directors of PDI is required to deliver to the shareholders of
PDI an affirmative opinion as to the fairness of the
consideration to the shareholders of PDI (the "Fairness
Opinion"). The Fairness Opinion will be delivered under
separate cover.
California Dissenters' Rights
A brief description of the procedure that you
must follow if you wish to exercise your dissenter's rights
under the CGCL is set forth below.
Please note that the
description set forth below is only a summary, does not purport
to be complete and is qualified in its entirety by
Sections 1300, 1301, 1302, 1303 and 1304 of the CGCL.
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(1) If you wish to exercise your
dissenter's rights under the CGCL, you must deliver to PDI
a written demand for purchase of your Shares at the following
address:
Pacific Data Images, Inc.
c/o DreamWorks Animation
1000 Flower Street
Glendale, California 91201
Attention: Katherine Kendrick
The demand must be received by PDI within thirty
(30) days after the mailing of this notice. The demand must
include a statement of the price that you claim is the fair
market value of the Shares as of the day before the announcement
of the proposed merger, along with the number and class of the
Shares. For purposes of the CGCL, PDI has determined that
$ represents the fair market value of each share of common
stock of PDI as of the day before the first announcement of the
terms of the proposed merger, excluding any appreciation or
depreciation in consequence of the proposed merger, but adjusted
for any stock split, reverse stock split or share dividend that
becomes effective thereafter. You must deliver your share
certificate to PDI within the same thirty (30) day period
described above, so that that the certificate may be stamped as
representing dissenting shares and returned to you.
(2) If we do not agree on the price per
Share, you must file suit in court for a determination of the
price. You must file this suit within six (6) months after
this notice was mailed. In certain cases, PDI can be required to
pay your attorney and appraiser fees.
(3) If we agree on the price per Share or if
a price is fixed by a court, you must surrender the certificates
representing your Shares in order to receive payment of the
price.
Contact Information for Questions
If you have any questions about the proposed
merger or the information contained in this notice, please
contact our outside
attorney,                     at                     .
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CERTAIN UNITED STATES FEDERAL INCOME
TAX
CONSEQUENCES OF THE PDI MERGER
This section describes the material U.S. federal
income tax consequences associated with the exchange of PDI
common stock for shares of Class A common stock pursuant to
the Merger. This section only applies to you if you are an
individual who is treated as a U.S. citizen or resident of the
United States for U.S. federal income tax purposes, your PDI
common stock is fully vested, you hold your PDI common stock as
a "capital asset" and you are not subject to any
special U.S. federal income tax rules.
We encourage you to
consult your own tax advisor concerning the tax consequences of
the Merger and your ownership of shares of Class A common
stock, including any federal, state, local, gift and estate tax
consequences and non-U.S. tax consequences, in light of your
particular circumstances.
The Conversion of PDI common stock into shares of
Class A common stock pursuant to the Merger will not be
treated as a taxable event for U.S. federal income tax purposes.
Accordingly, a holder of PDI common stock will not recognize any
income, gain or loss for U.S. federal income tax purposes in
connection with his or her conversion of PDI common stock for
shares of our Class A common stock pursuant to the Merger.
In addition, any such PDI common stockholder will have the same
tax basis and holding period in the shares of Class A
common stock received pursuant to the Merger as he or she had in
the PDI common stock surrendered therefor, as measured
immediately before the exchange.
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DESCRIPTION OF PDI CAPITAL STOCK
PDI is a California corporation incorporated in
August 1980. PDI's business is conducted through its
subsidiary, Pacific Data Images, LLC, a Delaware limited
liability company ("PDI LLC"). In April, 1997,
DreamWorks Studios and PDI formed a joint venture, Pacific Data
Images, LLC ("PDI LLC") that was initially 60% owned
by PDI and 40% owned by DreamWorks Studios. In April 2000,
DreamWorks Studios acquired approximately 86.3% of the
outstanding common stock of PDI. As of July 19, 2004,
DreamWorks Studios owned approximately 91.9% of the outstanding
common stock of PDI (75.2% fully diluted) and the remaining
common stock was owned by current and former employees of PDI.
PDI is authorized to issue one class of shares
designated Common Stock in the aggregate amount of
30,000,000 shares. As of July 2004, 11,326,243 shares
of PDI common stock are issued and outstanding. PDI has no other
capital authorized, issued or outstanding.
PLAN OF DISTRIBUTION
Because the merger of PDI with and into DWA
Acquisition Corp. will result in holders of PDI common stock
(other than DreamWorks Studios and persons exercising
dissenter's rights) automatically receiving the right to
receive                 shares
of our Class A common stock, the transaction will not be
underwritten.
LEGAL MATTERS
The validity of our common stock to be issued in
connection with the Merger will be passed upon for us by
Cravath, Swaine & Moore LLP, New York, New York.
Cravath, Swaine & Moore LLP has acted as counsel to
DreamWorks Studios from time to time in certain matters.
EXPERTS
Ernst & Young LLP, independent
registered public accounting firm, have audited our combined
financial statements at December 31, 2002 and 2003, and for
each of the three years in the period ended December 31,
2003, as set forth in their report. We have included our
combined financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young
LLP's report, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have not previously been subject to the
reporting requirements of the Securities Exchange Act of 1934,
as amended. We filed with the Securities and Exchange Commission
(the "Commission") a registration statement on
Form S-1 (the "Registration Statement") under the
Securities Act, with respect to the offer and sale of common
stock pursuant to the IPO prospectus and the conversion of PDI
common stock into our Class A common stock pursuant to the
Merger. This prospectus, filed as a part of the registration
statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules thereto
in accordance with the rules and regulations of the Commission
and no reference is hereby made to such omitted information.
Statements made in this prospectus concerning the contents of
any contract, agreement or other document filed as an exhibit to
the registration statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more
complete description of the matters involved and such statements
shall be deemed qualified in their entirety by such reference.
The registration statement and the exhibits and schedules
thereto filed with the Commission may be inspected, without
charge, and copies may be obtained at prescribed rates, at the
public reference facility maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at 5670 Wilshire Boulevard, 11th Floor,
Los Angeles, CA 90036-3648. The Commission also maintains a
website (http://www.sec.gov) that contains reports, proxy and
information statements and other information
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regarding registrants that file electronically
with the Commission. For further information pertaining to the
common stock offered by this prospectus and DreamWorks
Animation, Inc. reference is made to the registration statement.
Upon completion of this offering, we will become
subject to the information and periodic reporting requirements
of the Securities and Exchange Act and will file periodic
reports and other information with the Commission. These
periodic reports and other information will be available for
inspection and copying at the Commission's public reference
facilities and the web site of the Commission referred to above.
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Shares
Class A Common Stock
(LOGO TO COME)
PROSPECTUS
,
2004
You
should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, common shares
only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of our common shares.
No
action is being taken in any jurisdiction outside the United
States to permit a public offering of the common shares or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
Through
and
including                     ,
2004 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other Expenses of Issuance and
    Distribution.
The following table sets forth the expenses
(other than underwriting compensation expected to be incurred)
in connection with this offering. All of such amounts (except
the SEC registration fee and the NASD filing fee) are estimated.
SEC registration fee
$
82,355
Listing fee
NASD filing fee
30,500
Blue Sky fees and expenses
Printing and engraving costs
Legal fees and expenses
Accounting fees and expenses
Transfer Agent and Registrar fees and expenses
Miscellaneous
Total
$
Item 14.
Indemnification of Directors and
    Officers.
Our By-Laws provide that we shall, subject to the
limitations contained in the Delaware General Corporation Law,
as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section           of
the Underwriting Agreement, to be filed as Exhibit 1,
provides that the Underwriters named therein will indemnify us
and hold us harmless and each of our directors, officers or
controlling persons from and against certain liabilities,
including liabilities under the Securities Act.
Section           of
the Underwriting Agreement also provides that such Underwriters
will contribute to certain liabilities of such persons under the
Securities Act.
Item 15.
Recent Sales of Unregistered
    Securities.
We were incorporated under the laws of the State
of Delaware under the name DreamWorks Animation, Inc. on
July 13, 2004. We issued 1,000 shares of our common
stock, par value $0.01 per share, to DreamWorks L.L.C. in
consideration of a capital contribution of $10.00 by DreamWorks
L.L.C. That issuance was exempt from registration under the
Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof because such issuance did not involve
any public offering of securities.
Item 16.
Exhibits and Financial Statement
    Schedules.
(a) Exhibits
Exhibit
Number
Description
1
.1
Underwriting Agreement.*
3
.1
Restated Certificate of Incorporation of
    DreamWorks Animation, Inc.*
3
.2
By-laws of DreamWorks Animation, Inc.*
5
.1
Opinion of Cravath, Swaine & Moore LLP.*
10
.1
2004 Equity Compensation Plan.*
10
.2
Separation Agreement,
    dated           ,
    2004 between DreamWorks Animation L.L.C., DW Funding LLC and
    DreamWorks L.L.C.*
II-1
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Exhibit
Number
Description
10
.3
Escrow and Distribution Agreement
    dated           ,
    2004 between DreamWorks Animation L.L.C. and the stockholders
    named therein.*
10
.4
Class B Stockholder Agreement,
    dated           ,
    2004 among DreamWorks L.L.C., Holdco, M&J K Dream
    Limited Partnership and DG-DW, L.P.*
10
.5
Vulcan Stockholder Agreement,
    dated           ,
    2004 among DreamWorks L.L.C., Holdco, M&J K Dream
    Limited Partnership, DG-DW, L.P. and Vulcan.*
10
.6
Registration Rights Agreement
    dated           ,
    2004 between DreamWorks Animation Inc. and the stockholders
    named therein.*
10
.7
Distribution Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.8
Services Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.9
Trademark License and Assignment Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.10
Glendale Lease Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.11
Tax Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and Vulcan.*
10
.12
Employment Agreement,
    dated           between
    DreamWorks Animation Inc. and Jeffrey Katzenberg.*
10
.13
Employment Agreement,
    dated           between
    DreamWorks Animation Inc. and Roger Enrico.*
10
.14
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Ann Daly.*
10
.15
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Kathrine Kendrick.*
10
.16
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Kristina M. Leslie.*
10
.17
Consulting Agreement
    dated           between
    DreamWorks Animation Inc. and David Geffen.*
10
.18
Consulting Agreement
    dated           between
    DreamWorks Animation Inc. and Steven Spielberg.*
21
.1
List of subsidiaries of DreamWorks Animation,
    Inc.*
23
.1
Consent of Ernst & Young LLP.
23
.2
Consent of Cravath, Swaine & Moore LLP
    (contained in Exhibit 5).*
24
.1
Powers of Attorney.
27
.1
Financial Data Schedule(b).*
99
.1
Consent of Paul Allen to be named as director
    nominee.
99
.2
Consent of Lewis W. Coleman to be named as
    director nominee.
99
.3
Consent of Roger A. Enrico to be named as
    director nominee.
99
.4
Consent of David Geffen to be named as director
    nominee.
99
.5
Consent of Jeffrey Katzenberg to be named as
    director nominee.
99
.6
Consent of Nathan Myhrvold to be named as
    director nominee.
99
.7
Consent of Howard Schultz to be named as director
    nominee.
*
To be filed by amendment.
(b) Financial Statement Schedules.
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The financial statement schedules are omitted
because they are inapplicable or the requested information is
shown in the consolidated financial statements of DreamWorks
Animation, Inc. or related notes thereto.
Item 17.
Undertakings
The undersigned registrant hereby undertakes as
follows:
(1) The undersigned will provide to the
    Underwriters at the closing specified in the Underwriting
    Agreement certificates in such denominations and registered in
    such names as required by the underwriters to permit prompt
    delivery to each purchaser.
(2) For purposes of determining any
    liability under the Securities Act, the information omitted from
    the form of prospectus filed as part of this registration
    statement in reliance on Rule 430A and contained in a form
    of prospectus filed by the registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it is declared effective.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Los Angeles the State of
California, on the 20th day of July, 2004
DREAMWORKS ANIMATION, INC.
By:
/s/ JEFFREY KATZENBERG
Name:     Jeffrey
    Katzenberg
Title:     President
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
Signature
Title
Date
/s/ JEFFREY KATZENBERG
Jeffrey Katzenberg
President and Director
July 20, 2004
/s/ KATHERINE KENDRICK
Katherine Kendrick
Vice President, General Counsel and Director
July 20, 2004
/s/ KRISTINA M. LESLIE
Kristina M. Leslie
Chief Financial Officer, Chief Accounting Officer
    and Director
July 20, 2004
II-4
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Exhibit Index
Exhibit
Number
Description
1
.1
Underwriting Agreement.*
3
.1
Restated Certificate of Incorporation of
    DreamWorks Animation, Inc.*
3
.2
By-laws of DreamWorks Animation, Inc.*
5
.1
Opinion of Cravath, Swaine & Moore LLP.*
10
.1
2004 Equity Compensation Plan.*
10
.2
Separation Agreement,
    dated           ,
    2004 between DreamWorks Animation L.L.C., DW Funding LLC and
    DreamWorks L.L.C.*
10
.3
Escrow and Distribution Agreement
    dated           ,
    2004 between DreamWorks Animation L.L.C. and the stockholders
    named therein.*
10
.4
Class B Stockholder Agreement,
    dated           ,
    2004 among DreamWorks L.L.C., Holdco, M&J K Dream
    Limited Partnership and DG-DW, L.P.*
10
.5
Vulcan Stockholder Agreement,
    dated           ,
    2004 among DreamWorks L.L.C., Holdco, M&J K Dream
    Limited Partnership, DG-DW, L.P. and Vulcan.*
10
.6
Registration Rights Agreement
    dated           ,
    2004 between DreamWorks Animation Inc. and the stockholders
    named therein.*
10
.7
Distribution Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.8
Services Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.9
Trademark License and Assignment Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.10
Glendale Lease Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and DreamWorks L.L.C.*
10
.11
Tax Agreement,
    dated           ,
    2004 between DreamWorks Animation Inc. and Vulcan.*
10
.12
Employment Agreement,
    dated           between
    DreamWorks Animation Inc. and Jeffrey Katzenberg.*
10
.13
Employment Agreement,
    dated           between
    DreamWorks Animation Inc. and Roger Enrico.*
10
.14
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Ann Daly.*
10
.15
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Kathrine Kendrick.*
10
.16
Employment Agreement,
    dated           ,
    2004 between DreamWorks Animation, Inc. and Kristina M. Leslie.*
10
.17
Consulting Agreement
    dated           between
    DreamWorks Animation Inc. and David Geffen.*
10
.18
Consulting Agreement
    dated           between
    DreamWorks Animation Inc. and Steven Spielberg.*
21
.1
List of subsidiaries of DreamWorks Animation,
    Inc.*
23
.1
Consent of Ernst & Young LLP.
23
.2
Consent of Cravath, Swaine & Moore LLP
    (contained in Exhibit 5).*
24
.1
Powers of Attorney.
27
.1
Financial Data Schedule(b).*
99
.1
Consent of Paul Allen to be named as director
    nominee.
99
.2
Consent of Lewis W. Coleman to be named as
    director nominee.
99
.3
Consent of Roger A. Enrico to be named as
    director nominee.
Table of Contents
Exhibit
Number
Description
99
.4
Consent of David Geffen to be named as director
    nominee.
99
.5
Consent of Jeffrey Katzenberg to be named as
    director nominee.
99
.6
Consent of Nathan Myhrvold to be named as
    director nominee.
99
.7
Consent of Howard Schultz to be named as director
    nominee.
*
To be filed by amendment.
(b) Financial Statement Schedules.