8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 2, 2006

DreamWorks Animation SKG, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-32337	68-0589190
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1000 Flower Street, Glendale, California	91201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (818) 695-5000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02.     RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On May 2, 2006, DreamWorks Animation SKG, Inc. issued an earnings release announcing its results for the quarterly period ending March 31, 2006, which is furnished as Exhibit 99.1 hereto.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference to such filing.

ITEM 9.01.     FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits:

Exhibit No.	Description
99.1	Earnings release issued by DreamWorks Animation SKG, Inc. on May 2, 2006.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		DreamWorks Animation SKG, Inc.
Date:	May 3, 2006	By:	/s/ KRISTINA M. LESLIE
			Kristina M. Leslie Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Earnings release issued by DreamWorks Animation SKG, Inc. on May 2, 2006.

EX-99.1

Exhibit 99.1

DREAMWORKS ANIMATION REPORTS

FIRST QUARTER 2006 FINANCIAL RESULTS

Glendale, California – May 2, 2006 – For the first quarter of 2006, DreamWorks Animation SKG, Inc. (NYSE:DWA) reported total revenue of $60.1 million and net income of approximately $12.3 million, or $0.12 per share on a fully diluted basis. This compares to revenue of $167.0 million and net income of $45.7 million, or $0.44 per share on a fully diluted basis for the same period in 2005. The Company ended the period with $505.5 million of cash and cash equivalents.

“The quarter’s results were primarily driven by the home video performance of Madagascar,” commented Jeffrey Katzenberg, DreamWorks Animation’s CEO. “During its initial release the title performed well in a highly competitive home video market.”

Madagascar contributed approximately $30.7 million of revenue in the quarter, and since its release in the fourth quarter of 2005, the film has reached an estimated 17.5 million units shipped through the first quarter of 2006, net of actual returns and estimated future returns. In addition, international pay television and home video sales for Shark Tale contributed approximately $13.1 million. Library and other films accounted for approximately $16.3 million in revenue for the quarter. By the end of the first quarter the Company’s distributor had not fully recovered the marketing and distribution costs for Shrek 2 and Wallace and Gromit: The Curse of the Were-Rabbit. As a result, DreamWorks Animation did not recognize any revenue under the distribution agreement for these films.

The Company reported that it is now operating under its new distribution agreement with Paramount Pictures. DreamWorks Animation’s first movie under the Paramount distribution agreement, Over the Hedge, will be released on May 19^th. The Paramount agreement, which runs through 2012, replaced the Company’s distribution deal with DreamWorks Studios. As previously disclosed, the Company received a $75 million signing bonus from Paramount as part of this new agreement. In the first quarter, these proceeds were used towards the repayment of the $75 million advance, plus interest, to Universal Studios. The repayment of the Universal advance reduced the Company’s debt balance to approximately $119.7 million at the end of the first quarter.

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Looking at the remainder of the year, the Company expects the balance of 2006 to be primarily driven by the theatrical and home video performance of Over the Hedge. As with any of its films, the Company does not expect to recognize any significant revenue until after its distributor recovers the upfront distribution and marketing costs which may not occur until a film is released in home video.

“We are certainly proud of our next release, Over the Hedge, which is a fun film for the entire family and a great way to kick off the summer movie season,” added Katzenberg.

As previously stated, the Company anticipates that SG&A for the full year of 2006 will increase by approximately 15% over the $76.5 million of SG&A for the full year of 2005. This is primarily driven by increased management costs as well as additional services that the Company has taken responsibility for under the new distribution agreement with Paramount. Under the new agreement, the Company will receive reimbursements to help offset some of these the additional costs. These reimbursements will effectively serve as a reduction to the Company’s cost of distribution and the benefit will be amortized equally over the minimum number of films required under the new distribution agreement. This benefit will be recorded as film revenue and the Company will now recognize approximately $4.6 million of revenue upon the release of each film starting with Over the Hedge in the second quarter of 2006.

Items related to the first quarter of 2006 will be discussed in more detail on the Company’s first quarter 2006 earnings conference call later today.

Conference Call Information

DreamWorks Animation will host a conference call and webcast to discuss the results on Tuesday, May 2, 2006, at 4:30 p.m. (EDT). Investors can access the call by dialing 800-473-6123 in the U.S. and 973-582-2745 internationally and entering 7274405 as the conference ID number. The call will also be available via live webcast at www.dreamworksanimation.com.

A replay of the conference call will be available shortly after the call ends on Tuesday, May 2, 2006 through May 16, 2006. To access the replay, dial 877-519-4471 in the U.S. and 973-341-3080 internationally and enter 7274405 as the conference ID number. Both the earnings release and archived webcast will be available on the Company’s website at www.dreamworksanimation.com.

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About DreamWorks Animation SKG

DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films. With world-class creative talent, a strong and experienced management team and advanced CG filmmaking technology and techniques, DreamWorks Animation makes high quality CG animated films meant for a broad movie-going audience. The company has theatrically released a total of eleven animated feature films, including Antz, Shrek, Shrek 2, Shark Tale, Madagascar and Wallace & Gromit: The Curse of the Were-Rabbit. DreamWorks Animation’s newest release, Over the Hedge, opens in theaters May 19, 2006.

Caution Concerning Forward-Looking Statements

This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company’s plans, prospects, strategies, proposals and our beliefs and expectations concerning performance of our current and future releases and anticipated talent, directors and storyline for our upcoming films, constitute forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management’s beliefs and assumptions. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of DreamWorks Animation SKG, Inc. These risks and uncertainties include: audience acceptance of our films, our dependence on the success of a limited number of releases each year, the transition to a new distribution and servicing partner, the increasing cost of producing and marketing feature films, piracy of motion pictures, the effect of rapid technological change or alternative forms of entertainment and our need to protect our proprietary technology and enhance or develop new technology. In addition, due to the uncertainties and risks involved in the development and production of animated feature films, the release dates for the films described in this document may be delayed. For a further list and description of such risks and uncertainties, see the reports filed by us with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our most recent quarterly reports on Form 10-Q. DreamWorks Animation is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

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Contacts:

Investors

Rich Sullivan

DreamWorks Animation Investor Relations

(818) 695-3900

ir@dreamworksanimation.com

Media

Bob Feldman

DreamWorks Animation Public Relations

(818) 695-6677

** FINANCIAL TABLES ATTACHED**

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DreamWorks Animation SKG, Inc.

Unaudited Condensed Consolidated Balance Sheets

	March 31, 2006		December 31, 2005
	In thousands
Assets
Cash and cash equivalents	$	505,472	$	403,796
Trade accounts receivable, net of allowance for doubtful accounts		4,601		10,186
Receivable from affiliate, net of allowance for doubtful accounts		—		97,991
Receivables from employees		1,625		1,082
Film inventories, net		577,384		535,886
Property, plant and equipment, net of accumulated depreciation and amortization		84,490		85,293
Deferred costs, net of amortization		2,809		3,005
Income taxes recoverable		25,084		35,851
Deferred taxes, net		60,445		80,175
Goodwill		34,216		34,216
Prepaid expenses and other assets		34,241		25,695
Total assets	$	1,330,367	$	1,313,176
Liabilities and stockholders’ equity
Liabilities
Accounts payable	$	7,817	$	7,201
Payable to affiliate		—		2,667
Payable to Paramount		43,650		—
Payable to stockholder		47,579		73,789
Accrued liabilities		50,908		55,014
Other advances and unearned revenue		45,277		30,863
Obligations under capital leases		2,056		2,264
Universal Studios advance		—		75,000
Bank borrowings and other debt		117,595		117,267
Total liabilities		314,882		364,065
Commitments and contingencies
Non-controlling minority interest		2,941		2,941
Stockholders’ equity		1,012,544		946,170
Total liabilities and stockholders’ equity	$	1,330,367	$	1,313,176

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DreamWorks Animation SKG, Inc.

Unaudited Condensed Consolidated Statements of Operations

	Three months ended March 31,
	2006			2005
	In thousands, except per share
Operating revenue	$	60,096		$	166,959
Costs of revenue		26,954			80,419
Gross profit		33,142			86,540
Selling, general and administrative expenses		18,707			17,396
Operating income		14,435			69,144
Interest income (expense), net		4,766			(6	)
Other income (expense), net		1,460			(287	)
Increase in income tax benefit payable to stockholder		(3,790	)		—
Income before income taxes		16,871			68,851
Provision for income taxes		4,543			23,178
Net income	$	12,328		$	45,673
Basic net income per share	$	0.12		$	0.44
Diluted net income per share	$	0.12		$	0.44
Shares used in computing net income per share
Basic		103,188			102,985
Diluted		103,645			104,616

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DreamWorks Animation SKG, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

	Three months ended March 31,
	2006			2005
	In thousands
Operating activities
Net income	$	12,328		$	45,673
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and write off of film inventories		25,932			77,269
Stock compensation expense		4,758			4,556
Depreciation and amortization		1,979			1,947
Revenue earned against advances and unearned revenue		(3,781	)		(1,061	)
Deferred taxes, net		19,730			—
Change in operating assets and liabilities:
Trade accounts receivable		5,585			7,769
Receivables from employees		(543	)		185
Receivable from\Payable to Distributor for Distribution and Services Agreements		138,974			310,072
Film inventories		(68,544	)		(90,103	)
Prepaid expenses and other assets		(8,546	)		(15,154	)
Payable to stockholder		(26,210	)		—
Accounts payable and accrued expenses		(3,545	)		(6,743	)
Income taxes		(15,558	)		22,982
Advances and unearned revenue		19,697			19,845
Net cash provided by operating activities		102,256			377,237
Investing activities
Purchases of property, plant, and equipment	$	(652	)	$	(1,737	)
Net cash used in investing activities		(652	)		(1,737	)
Financing activities
Increase in bank borrowings and other debt	$	—		$	4,837
Payments on capital leases		(208	)		(195	)
Receipts from exercise of stock options		464			1,769
Excess tax benefits from employee equity awards		116			—
Purchase of treasury stock		(300	)		(42	)
Paramount signing bonus deemed a contribution from controlling stockholders		75,000			—
Repayment of Universal Studios advance		(75,000	)		—
Net cash provided by financing activities		72			6,369
Increase in cash and cash equivalents		101,676			381,869
Cash and cash equivalents at beginning of period		403,796			63,134
Cash and cash equivalents at end of period	$	505,472		$	445,003
Supplemental disclosure of cash flow information:
Cash paid during period for income taxes	$	256		$	196
Cash paid during period for interest, net of amounts capitalized	$	61		$	1,086
Supplemental disclosure of non-cash operating activities:
Transfer on January 31, 2006 of net receivable from affiliate to Paramount for Distribution and Servicing Agreements	$	102,509		$	—

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