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DreamWorks Animation SKG, Inc. (NASDAQ:DWA)

Q3 2011 Earnings Call

October 25, 2011 16:30 a.m. ET

Executives

Richard Sullivan – Head - Corporate Finance

Jeffrey Katzenberg – CEO

Lewis W. Coleman – President and CFO

Analysts

Benjamin Swinburne – Morgan Stanley

Vasily Karasyov – Susquehanna Financial

David Miller - Caris & Company

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Barton Crockett – Lazard Capital Markets

Richard Greenfield – BTIG

Chris Marvin – Barclays Capital

Tony Wible – Janney

Marla Backer – Hudson Square Research

Tuna Amobi – Standard & Poor’s Equity Group

Operator

Welcome to the DreamWorks Animation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded.

I would now like to turn the conference over to host, Mr. Rich Sullivan. Please go ahead, sir.

Richard Sullivan

Thank you and good afternoon everyone. We apologize for a few minutes late. Welcome to DreamWorks Animation’s Third Quarter 2011 Earnings Conference Call. With me today is our Chief Executive Officer, Jeffrey Katzenberg and our President and Chief Financial Officer, Lew Coleman.

This call will begin with a brief discussion of our quarterly financials disclosed in today’s press release followed by an opportunity for you to ask questions. I’d like to remind everyone that the press release is available on our website that web address www.dreamworksanimation.com.

Before we begin, we need to remind you that certain statements made in this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainty including those contained in the Company’s annual and quarterly reports as well as other filings with the SEC. I would encourage all of you to review the risk factors listed in these documents. The Company undertakes no obligation to update any of its forward-looking statements.

With that, let me turn the call over to DreamWorks Animation’s President and Chief Financial Officer, Lew Coleman. Lew?

Lewis Coleman

Thanks, Rich and good afternoon everyone. For the third quarter, the Company reported total revenue of approximately $161 million resulting in net income of $20 million or $0.23 per share on a fully diluted basis. As we have said in the past, both the timing of our feature film releases and the number of our films in any given year cause our financial results to fluctuate, which can make year-over-year comparisons less relevant.

In this case, the third quarter where our financial results reflect the earlier release of Kung Fu Panda 2 in 2011 compared to Shrek Forever After in 2010 on a similar international box office performance level.

Taking a closer look at key drivers of revenue for the quarter, Kung Fu Panda 2 contributed revenue of approximately $39 million primarily from its performance at the international box office.

Our fall 2010 release, Megamind contributed revenue of approximately $26 million primarily from domestic pay-TV. Through the end of the quarter, the title reached an estimated 4.6 million net home entertainment unit sold worldwide.

Our other two 2010 movies Shrek Forever After and How to Train Your Dragon contributed approximately $15 million and $9 million revenue to the quarter respectively, primarily from international pay-TV and worldwide home video.

By the end of the third quarter, Shrek Forever After and How to Train Your Dragon had each reached an estimated 9 million net home entertainment unit sold worldwide.

Our film catalog and other items contributed approximately $71 million of revenue to the quarter, including $19 million in revenue from non-film businesses.

Moving on to the remainder of the income statement, cost to revenues for the quarter equaled a $108 million, resulting in approximately $53 million in gross profit. Selling, general and administrative expenses for the quarter totaled $27 million, including approximately $6 million of stock-based compensation expense.

Turning to taxes, the Company’s income tax expense for the third quarter was approximately $8 million. Our combined effective tax rate, which is our actual tax rate coupled with the effect of our tax sharing agreement with a former stockholder was approximately 27% for the quarter. We expect our full year combined effective tax rate to be slightly under 30%.

Moving onto the balance sheet, the Company ended the third quarter with a cash balance of approximately $150 million. We expect our cash balance to decline over the next three quarters due to production and development costs that are ramping up as we get ready for another three film year in 2013 as well as up coming tax and other payments.

The Company’s diluted share count for the quarter was approximately $85 million and our remaining share repurchase authorization is $125 million.

Looking ahead to the fourth quarter, we expect financial results to be driven by three events. First is a theatrical release of Puss In Boots, which opens domestically on Friday and in a majority of its international territories by the end of December.

A few remaining markets are scheduled to open in the first quarter of 2012, including Japan, Korea, Hong Kong and the Nordic Region.

Second is the home entertainment release of Kung Fu Panda 2, which enters the US market on December 13th. And the third is the release of several of our television specials into the home entertainment market.

With that I’ll turn the call over to Jeffrey.

Jeffrey Katzenberg

Thank you and good afternoon everyone. As Lew mentioned, our third quarter results were driven primarily by the blockbuster success of Kung Fu Panda 2, the number one animated movie of the year. It has surpassed $664 million at the worldwide box office and is the fourth highest grossing movie of 2011 on a global basis.

In total, 3D contributed approximately 53% of Kung Fu Panda 2’s worldwide gross and this was even without the benefit of IMAX. The next big event for the company is Puss In Boots, which has been well received by critics and preview audience alike. We are very proud of the film and we’re now looking forward to its opening weekend in just three days.

We recently made the strategic move to open a week earlier than our original November 4th date, because we looked ahead at the fall release schedule and saw big opportunity to lengthen the Puss In Boots theatrical run.

The biggest opening two day on a holiday weekend – Halloween holiday weekend was $33.6 million and we believe we can exceed that benchmark. And we’ve seen in the past, as we’ve seen in the past, it’s not where we start, but where we finish that is going to count. We learned with How to Train Your Dragon that a strong movie can have a longer run at the box office and we think we have another strong movie in Puss In Boots.

Our other big fourth quarter event is the home video release of Kung Fu Panda 2. While, we think the strong and competitive title of the DVD marketplace will be crowded again for the holiday season.

As we’ve done in the past, we are releasing premium configurations, double pack on DVD and Blu-ray featuring a companion story called Kung Fu Panda: Secrets of the Masters. And our new TV series Kung Fu Panda: Legends of Awesomeness premiers on Nickelodeon in two weeks. So, we plan to maximize both of these franchise events to fuel one and another. Aside from Kung Fu Panda 2, we’ll have a number of TV specials in the home video market place during the fourth quarter.

We recently put out our two Halloween theme specials together in a double pack Scared Shrekless and Monsters vs. Aliens: Mutant Pumpkins from Outer Space. On November 15th, we will release a new How to Train Your Dragon double pack on DVD and Blu-ray. It features Gift of the Night Fury and Book of Dragons together with a new online video game.

In addition to being sold at retail, a number of our TV specials will also be available for streaming on Netflix. Yet an another that provides us the significant value for our content.

As you know, we announced our new Netflix relationship last month. It’s a historic deal for DreamWorks Animation and for the industry as a whole. We believe that in the domestic pay-TV window, our movies are now the most highly valued in all of Hollywood today. Aside from our feature film releases and TV content, we’re also able to get substantial value from Netflix for a number of our catalog titles. This is an arrangement that reaffirms the premium nature of DreamWorks Animation’s branded content.

Now, before we get to your questions, I want to spend a few minutes addressing a topic that’s recently been covered in the media. There continues to be broad speculation about how our films will get distributed when our current agreement expires at the end of 2012.

First, I’d like reiterate what I’ve said many times before, Paramount has done and continues to do an excellent job distributing our movies on a worldwide basis. Having said that, we intend to evaluate a wide range of options because we see this as an important and significant strategic opportunity for the company, particularly given the size and the value of our business today. Put that in context for you, since 2006 DreamWorks Animation’s 11 movies have generated $5.5 billion in worldwide box office.

When you add in the worldwide home video as well as free and pay television sales, we estimate that DreamWorks Animation films have generated nearly $10 billion in total in that timeframe. And over the life of our distribution agreement, we estimate that we’ll have paid roughly $700 million in distribution fees.

So, clearly we represent a very valuable and significant business and we’ll be exploring all of our distribution possibilities starting in the Spring of 2012. As we announced this morning, we’ve hired Chuck Viane one of the best, most seasons distribution and marketing executive in the business, as a consultant as we drive towards our decision.

As I said, this is among the biggest strategic opportunities for DreamWorks Animation and for our shareholders. With that, we will be happy to take your questions. Thank you.

Richard Sullivan

Okay, operator. We’re ready for the first question.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) And we go to the line of Ben Swinburne of Morgan Stanley, please go ahead.

Benjamin Swinburne – Morgan Stanley

Good afternoon, guys. Jeffrey, I don’t know if you would comment on the decision to move from HBO to Netflix further. But, one of the things that has been discussed in the press or been rumored out there is that, DreamWorks paid HBO something to get out of their contract early and go to Netflix. I’m just wondering if you could walk us through your thought process on the timing of the deal. Obviously, looking at Netflix results they may have been extremely well timed. I’m just curious as to why you guys decided to move now rather than wait and maybe, there’s always the chance that there’s more bidders coming into the market like an Amazon or somebody else, so that the numbers got even bigger. I am just wondering if you could maybe spend a minute on your thought process on that front?

Jeffery Katzenberg

Right. Well, first, let me say, we’ve had a 17 year history with HBO, they have been a fantastic partner for DreamWorks on the outset and we very, very much valued our great working relationship with them in the past and continue to.

Having said that, we have a deal that was approaching expiration within a reasonably short window, two years. And that created an opportunity for us to see what the value of our properties might be in the marketplace. We feel that that opportunity that Netflix has presented to us, had a lot of great value in it. And, we think is the best for our product and our brand in the long term. I don’t want to get into the specifics of the actual financial terms or the basis under which, we move from one platform to the next other than to say that HBO could not be treated as more generously and been more supportive in helping us make what was best for our movies and for our shareholders.

Benjamin Swinburne – Morgan Stanley

And if I could just ask one follow up on that, I believe Croods is the first film to go – new film to go into the Netflix window, is there going to be any financial impact to DreamWorks before that in the next couple of years?

Jeffery Katzenberg

Well, the financial impact will be from other – that will be the first feature film that will move onto the Netflix deal, but in the meantime we do have various catalog and other holiday specials that we will begin to air sooner than that on Netflix. So yes, you will see the benefits of that deal over the next two years.

Benjamin Swinburne – Morgan Stanley

Thank you very much.

Jeffery Katzenberg

Thank you, Ben.

Operator

And next we’ll go to the line of Vasily Karasyov of Susquehanna Financial, please go ahead.

Vasily Karasyov – Susquehanna Financial

Thank you, good afternoon. Jeff, you mentioned that you’re expecting, you’re hoping to beat the $33 million opening up for the Halloween weekend. You clearly have a range in mind, would you mind commenting on what kind of opening for Puss would consider successful and what you are hoping for?

Jeffery Katzenberg

We would consider anything that breaks the record for the weekend standing, which is $33.6, yeah $33.6 or $33.7 million is the current biggest opening for any movie on a Halloween weekend and so anything above and beyond that goes in the wind call.

Vasily Karasyov – Susquehanna Financial

Okay. And then, you probably won’t tell me the exact number, but how does your P&A spending for Puss compared to previous films, is it inline, is it a little high because of advertising pricing increases, can you please give us an idea?

Jeffery Katzenberg

No, it’s completely in the range of what has been our previous budget and also our guidance to you. So, no change on that.

Vasily Karasyov – Susquehanna Financial

All right, thank you very much.

Richard Sullivan

Thank you. Next question, please.

Operator

We’ll go to line of David Miller, Caris & Company, please go ahead.

David Miller - Caris & Company

Actually Jeffery, I just have a question on the possibility of you guys self distributing, if in fact, through your consultation with Chuck Viane that the best avenue to approach in the future is to self distribute. I just want to make sure, I have facts straight and forgive me if I sound naïve. But, I would assume that you would do it purely electronically and if you do, do that or is every single worldwide theater that you would be interested in distributing to equipped for electronic distribution or would you have to print some what’s called an analog print. And related to that would the economics be fairly similar to what DCIP has talked about in the past, which is roughly $700 maybe $750 per virtual print. I appreciate your assistance. Thanks a lot.

Jeffery Katzenberg

So David, I think you’re sort of mixing apples and submarines here. So, the issue of self distribution and what are the mechanics, the physical mechanics of distributing today whether it’s analog or digital is one set of physical things and to that end it’s a relatively easy achievable and not overly expensive mechanism to do self distribution.

The real issues about self distribution are not at the theatrical part of the business, they are to the marketing side of it, they are to the home video, they are to the international marketplace. We for instance dub our movies into 46 different languages, we are distributing in over 100 countries. So, there are lot of very complex and challenging issues to self distribution all of which I think are very clearly understood by us. I don’t think there is an aspect about it in which our eyes are not wide open and for which the facts are fairly apparent to us and it is one of the things that we will take into consideration when we look at what our alternatives are next spring. That’s the timing for this. So, Chuck is coming on board here, there is an opportunity for him to get well acquainted with our product, our oncoming productions and to help us assess what the different opportunities maybe.

David Miller - Caris & Company

Okay, thank you.

Jeffery Katzenberg

Thank you.

Richard Sullivan

Thanks David. Next question please.

Operator

We will go to the line of Ben Mogil with Stifel Nicolaus, please go ahead.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Thanks for taking the call. So, two questions, first one for Lew is on the 19 million of non-film revenue leverage, I just want to get a sense of what that was and how sort of sustainable or lumpy that is and then for Jeffery, sort of a larger question on 3D, clearly we have seen international 3D have much better tie-ratio as then in the US, now want you to sort name names etcetera, but if you can talk a little bit about what you see working abroad that is not sort of domestically and hope that eventually migrates over back home here?

Jeffery Katzenberg

I thought mine first. I think that there from the outset seem to be a lot more excitement and just pure enthusiasm for 3D in the international market place particularly in emerging markets, I think the experience of it, they may have been a bit more forgiving for some of the movies that were disappointments here. The good news is that we are hearing a much higher caliber of 3D films are coming into the marketplace and I think you will see with that rise in quality, I think we will see a rise in viewership.

We have seen it time and time again here, which is when you really offer people a very, very high end of real quality experience, they appreciate it, they value it and they think there is good value from it. I will say that in our previews for Puss in Boot, the 3D version of the movie, because we previewed it both in 2D and 3D, the 3D version of the film is highly appreciated by the audience and they were verbal in expressing that they thought it was a great value.

So, I am hoping with consistent good 3D experiences, we will re-earn the trust of the audience and we will start to see of the percentage in conversion to 3D start to tick up again.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

And certainly the reviews itself for abroad and Hollywood report, both of the things sort of highlighted how good the 3D was in the movie?

Jeffery Katzenberg

Well, it’s interesting, right now I would laugh, I look we are very, very high, we’re like a 89 on Rot Tomatoes which is extremely high and I think almost every review actually singled out the quality of the 3D experience. So, it is meaningful, Lew.

Lewis Coleman

Ben, approximately two-thirds of the $19 million of other revenue in the catalog number comes from Shrek on London Broadway at the moment. So, this is a revenue for the Shrek show in London, you know, like most London theatre revenue, its going to be a little bit more bias to the summer than to the winter, so you will see some fluctuation in there, but I don’t think you will see a huge amount.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

And the rest of it was just sort of the other $9 million, which is sort of a whole bunch of – which is in the online stuff or…

Lewis Coleman

Oh, it sort of mixed up. The next biggest category happens to be our TV specials.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay.

Lewis Coleman

So, between the TV specials and London Shrek, you probably have 75% of the number.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. And for margin perspective Lew, should we assume that, that $19 million of revenue comes at a relatively similar gross margins, what you reported in the quarter?

Lewis Coleman

No. I am just trying to think of a way to put that. I think, the safest thing to do is just to assume reasonably lower margins on that revenue.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay, okay. That’s great, that’s it from me. Thank you very much.

Richard Sullivan

Great, next question please.

Operator

Yes, we go to line of Barton Crockett of Lazard Capital Markets. Please go ahead.

Barton Crockett – Lazard Capital Markets

Thanks for taking the question. You commented that in the fourth quarter one of the big drivers is the TV specials on DVD and the home video market. Could you kind of compare how you see your average this year relative to last year, is it about the same, more ambitious, less ambitious, I appreciate some color there?

Lewis Coleman

Are you speaking specifically on the TV specials or the home video market in general?

Barton Crockett – Lazard Capital Markets

I’m talking about the TV specials.

Lewis Coleman

I think, as Jeffery alluded to in his script. We have plans to put our two TV specials into the market this year, first is the Halloween pack and the second is going to be the holiday pack, which is eventually dragon along with Madagascar will continue to be in the market. So, last year we did not have an opportunity to release those titles into the DVD market, so this year we’re going to be more aggressive with that.

Barton Crockett – Lazard Capital Markets

Okay. So, we should see a nice lift on that line versus last year?

Lewis Coleman

Yes.

Barton Crockett – Lazard Capital Markets

Okay, great. And then, you also commented that you’ll see a decline in cash in the quarter within that or you are assuming that the cash receipts for the Kung Fu Panda DVD come in the first quarter as opposed to the fourth quarter?

Jeffery Katzenberg

Yeah, I think, Barton, I think that’s probably right.

Barton Crockett – Lazard Capital Markets

Yes.

Jeffery Katzenberg

Also I was trying to make the comment over several quarters not just the fourth quarter.

Barton Crockett – Lazard Capital Markets

Okay, all right, great, thank you.

Richard Sullivan

Thanks Barton. Next question please.

Operator

Next question comes from the line of Richard Greenfield of BTIG. Please go ahead.

Richard Greenfield – BTIG

Kind of one follow up and two questions, first one follow up regarding the HBO versus DreamWorks. Is it fair to say that as you look forward your benefit, because you struck a good deal with Netflix, is it fair to say that you benefit more after your current deal with HBO would have ended than you do initially from the Netflix transaction. Two, when you look at the Q3 numbers, was there any impact from change and open that from the Netflix agreement. And then three, in terms of the title that are made available, I think, two of them actually went up today, on the Netflix service, I assume that’s revenue that starts to flow in immediately and just wondering if there was any way to quantify how significant that could be in calendar Q4, thanks?

Lewis Coleman

Rich, I think, the answer was yes, yes and yes. Yeah. So, pretty accurate. So, Jeff I don’t know if you want to take the first one on HBO versus Netflix and whether we are in a better…

Jeffery Katzenberg

Yeah, we are in a better position at the end of term and Netflix deal. So, the answer to the first is yes, the answer to the second was yes and even third was, if there is…

Lewis Coleman

Yeah, Rich you are right, we actually started to air the Halloween special actually today on Netflix and you’ll see a similar effect once the DVD for the holiday pack goes out, you will also start to see that stuff on Netflix as well. I don’t want to get into the financial terms of that, but the way to look at that is similar how we recognize our other pay-TV with historical deal, so we get via an upfront payment on availability and so you would expect to see that in the fourth quarter when it’s made available.

Richard Greenfield – BTIG

So, when you look at that library this quarter excluding the TV stuff or even the overall library number 71 million, can you discuss how much of that was related to an adjustment in ultimate from the Netflix deal?

Jeffery Katzenberg

I can, I mean, for the most part the big impact from the Netflix deal on ultimate is going to be for films released in 2013 and beyond. We do have some really short form content namely Father of the Bride and Joseph, which are also available on Netflix today and those are reflecting that library number, but it’s relatively a material base – relative to the overall number itself.

Lewis Coleman

And then, Rich the two titles that – which was just mentioned were third quarter titles.

Richard Greenfield – BTIG

Got it.

Lewis Coleman

Its to answer your middle question.

Richard Greenfield – BTIG

Well, like title like Shrek for, the title like, kind of think, a few years ago like Shark Tale, even though that’s going to come out at some point on Netflix you didn’t adjust the ultimate and actually change your numbers for Q3 in that library catalog number, that will happen when Shark Tale becomes available?

Lewis Coleman

Yes.

Richard Greenfield – BTIG

Okay. Thank you.

Operator

And now we’ll go to line of Anthony Diclemente with Barclays Capital, please go ahead.

Chris Marvin – Barclays Capital

Hi, this is actually Chris Marvin for Anthony. International obviously a big driver for Kung Fu Panda 2, you know, I think, where we saw international too close to three times domestic and I think, and historically it has been, close to two times for first time your films. So, I wonder if Puss in Boots if you could help us in better think about the opportunity for international relative to domestic on the theatrical side?

Lewis Coleman

Well, our expectations are that Puss in Boots will fall more inline with what our traditional ratio have been between domestic and international. I think that we have a, we talked about this on the last call. I think we have a unique experience on Kung Fu Panda 2 in which we opened in the domestic marketplace and by the way it was only place in the world that we did, Hangover 2 and somehow another Hangover 2 became a family-friendly movie in the last minute and we found ourselves, I think really cut short on the domestic marketplace.

So, we actually look at the film and believe that we underperformed domestically here because of the competitive landscape and that ratio would have been more traditional if we were not for that. And by the way, some of that was just in our thinking of our, when we looked more granularly at the release of Puss In Boots and made the decision to move out up a week and have opening weekend more to ourselves whereas the following week there are couple of other very big comedies coming out. And so, we’re taking nothing for granted around here.

So, we just think strategically this is a better opportunity for us and the combined of those two weekends would be greater than how we just stayed on November 4th.

Chris Marvin – Barclays Capital

Great, thank you.

Richard Sullivan

Thanks, Chris. Next question please.

Operator

And we go to the line of Tony Wible of Janney. Please go ahead.

Tony Wible – Janney

Again a little bit to Kung Fu Panda 2. The film grossing well over $650 worldwide and you guys have pulled in about $95 million in revenue since the release. I guess it’s a little bit lighter than what I would have thought to, is there any higher international film rent that’s being paid or is there a higher P&A there? I guess just trying to put the disparity between the over $650 worldwide and the $95 million of merchandize and theatrical receipts you guys had so far?

Jeffrey Katzenberg

Yes, to answer to your question, I think, we are around $500 million international, we have to remember that, some of that early box office almost a $100 million that came from China and another $40 or so came from Russia. Those tend to have a little bit of less beneficial settlement rate on those films in some of the traditional more mature markets.

Tony Wible – Janney

Right. And what kind of international rents should we kind of be assuming on Puss In Boots?

Jeffrey Katzenberg

I think, it’s going to depend on how they perform in territory.

Tony Wible – Janney

Okay, thank you.

Richard Sullivan

Next question please.

Operator

Sure. And we go to line of Marla Backer of Hudson Square. Please go ahead.

Marla Backer – Hudson Square Research

I’m wondering with the more aggressive stand upon the holiday titles in home entertainment window, as you continue to build awareness of the different franchises, are there further opportunities down the road even in the absence of a theatrical release. Are there further opportunities to develop a licensing platform around the DVDs?

Jeffrey Katzenberg

We are always looking at new ways to packet the title and we do think that’s the case and next we have the Kung Fu Panda TV series coming into the market place in a few weeks. And then the Dragons TV show next year and we believe they also will create opportunities for us in home video.

Marla Backer – Hudson Square Research

No, I may phrase my question a little too generally. I mean, the titles as they release in home video, they firmly support and build awareness I would assume of the franchises. So, are there opportunities for, I don’t know toys and other merchandize that can ultimately accompany some of the TV specials and…

Lewis Coleman

Yes. The answer is, yes. And we do always look to build merchandizing support around DVD releases of all our titles. So, the answer is yes.

Marla Backer – Hudson Square Research

Okay. One house keeping, which is, what’s the timeline on figuring out what your distribution strategy is if you need to be in place for the movies for 2013. How far and advanced you have to have determined what your strategy will be?

Lewis Coleman

We think by summer of next year, our first release is late spring of 2013, Croods which is the end of March 2013. And so, we believe if we have our distribution arrangements in place by summer of next year that would be more than enough time to make sure that we can take care of the product well.

Richard Sullivan

Great, thanks Marla. Next question please.

Operator

Next comes from line of Tuna Amobi, Standard & Poor’s. Please go ahead.

Tuna Amobi – Standard & Poor’s Equity Group

Yeah, thank you very much. I have got one question for Jeffery and one for Lew. So, for Jeffery, I think you alluded earlier that the holiday season maybe crowded, I wasn’t sure if you were talking about the overall market in general or just the 3D films and along those lines do you foresee any kind of major issues with the kind of crunch on the screen count that was evident last holiday season. And, how do you plan to mitigate that also the idea that the absolute amount of 3D is now more important than the percentage. I was wondering if you subscribe to that, that would be helpful and then I have a question for Lew.

Jeffery Katzenberg

All right, well let me try and do those. Again I think, you’re mixing two different things together here, what I was referring to is in the home video market place, the release of Kung Fu Panda 2 in DVD, which is scheduled for December13th and because there was a fairly robust, theatrical marketplace for family films this past summer, they all will be rolling into that holiday release period. We think we have an excellent release date, we are the sort of last major title – somebody is ringing on the phone here for us, it’s probably technical meltdown here this afternoon.

Anyway, we think we’ve got a very good release window on Kung Fu Panda 2 for the holidays but again, its somewhat crowded marketplace. On the theatrical side, again I think, we have by moving up a week put Puss in Boots in a very, very good competitive situation. We don’t have any real family competition coming in until the fourth week of our release, which is when Happy Feet and Twilight come into the marketplace and then there are three more titles for the Thanksgiving weekend.

So, we’ve got four solid weeks of playing time. We have as larger footprint as we ever had in terms of IMAX theaters and we got them for a longer period then traditionally we have got them for three weeks windows as opposed to two. We’ve got great 3D screen count for the movie, so I am not sure what your question was in terms of 3D.

Tuna Amobi – Standard & Poor’s Equity Group

My question is answered that was nice clarification. So for Lew, so first of all congratulation on your extension, I think that must mean you are doing a great job.

So, it appears to me that you elected and correct me if I am wrong, your participation in equity incentive plan is significantly reduced. So, I’m just kind of wondering what you would say to investors who might be thinking of buying the stock in the context of alignment with the shareholder incentive interest?

Lewis Coleman

Good question, Tuna and thank you for the congratulations. I think, what I would tell them is that over a period of time I have collected lot of stock in DreamWorks Animation and not sold very much and given my current age, which you will see in the approx is down 70 years old, it is sort of become time to think a little bit about how to rearrange my financial affairs. So, it’s the old guy option more than anything else.

Jeffery Katzenberg

And, we love having him here, old and beautiful.

Tuna Amobi – Standard & Poor’s Equity Group

Fair enough. Thank you.

Jeffery Katzenberg

Old and beautiful and very good at his job, so we are thrilled to have him.

Tuna Amobi – Standard & Poor’s Equity Group

Thanks.

Operator

There is no one else in queue, please continue.

Richard Sullivan

Great, well that concludes today’s third quarter earnings conference call. I would like to remind everyone that a replay of the call will be available shortly on the DreamWorks Animation website that web address again www.dreamworksanimation.com, if you do have any additional questions please contact the DreamWorks Animation Investor Relation Department.

Thanks again for participating and have a great evening.

Operator

Ladies and gentlemen this conference will be made available for replay after 7 p.m. today through Tuesday November 8th, 2011. You know may access the AT&T executive replay system at anytime by dialing 1800-475-6701 and entering the access code of 219123. International participants dial 1320-365-3844. Those numbers again are 1800-475-6701 and 1320-365-3844 with access code of 219123.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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