DWA 6.30.14 10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________

FORM 10-Q

___________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

Commission File Number 001-32337

DREAMWORKS ANIMATION SKG, INC.

(Exact name of registrant as specified in its charter)



Delaware	68-0589190
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1000 Flower Street

Glendale, California 91201

(Address of principal executive offices) (Zip code)

(818) 695-5000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	T	Accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.

Indicate the number of shares outstanding of each of the registrant's classes of common stock: As of July 17, 2014, there were 76,831,503 shares of Class A common stock and 7,838,731 shares of Class B common stock of the registrant outstanding.

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TABLE OF CONTENTS



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements—DreamWorks Animation SKG, Inc. (unaudited)	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 5.	Other Information	49

Item 6.	Exhibits	49

SIGNATURES		50

EXHIBIT INDEX		51

Unless the context otherwise requires, the terms "DreamWorks Animation," the "Company," "we," "us" and "our" refer to DreamWorks Animation SKG, Inc., its consolidated subsidiaries, predecessors in interest and the subsidiaries and assets and liabilities contributed to it by the entity then known as DreamWorks L.L.C. ("Old DreamWorks Studios") on October 27, 2004 (the "Separation Date") in connection with our separation from Old DreamWorks Studios (the "Separation").

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PART I—FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2014			December 31, 2013
	(in thousands, except par value and share amounts)
Assets
Cash and cash equivalents	$	32,196		$	95,467
Trade accounts receivable, net of allowance for doubtful accounts (see Note 7 for related party amounts)	146,991			130,744
Receivables from distributors, net of allowance for doubtful accounts (see Note 7 for related party amounts)	212,669			283,226
Film and other inventory costs, net	979,919			943,486
Prepaid expenses	22,133			20,555
Other assets	31,940			23,385
Investments in unconsolidated entities	49,300			38,542
Property, plant and equipment, net of accumulated depreciation and amortization	184,200			186,670
Deferred taxes, net	250,265			221,920
Intangible assets, net of accumulated amortization	197,438			150,511
Goodwill	189,667			179,722
Total assets	$	2,296,718		$	2,274,228
Liabilities and Equity
Liabilities:
Accounts payable	$	4,899		$	5,807
Accrued liabilities	232,317			263,668
Payable to former stockholder	261,694			262,309
Deferred revenue and other advances	35,082			36,425
Revolving credit facility	100,000			—
Senior unsecured notes	300,000			300,000
Total liabilities	933,992			868,209
Commitments and contingencies (Note 17)
Equity:
DreamWorks Animation SKG, Inc. Stockholders' Equity:
Class A common stock, par value $0.01 per share, 350,000,000 shares authorized, 104,334,982 and 104,155,993 shares issued, as of June 30, 2014 and December 31, 2013, respectively	1,043			1,042
Class B common stock, par value $0.01 per share, 150,000,000 shares authorized, 7,838,731 shares issued and outstanding, as of June 30, 2014 and December 31, 2013	78			78
Additional paid-in capital	1,116,412			1,100,101
Accumulated other comprehensive income (loss)	95			(600		)
Retained earnings	1,014,075			1,072,398
Less: Class A Treasury common stock, at cost, 27,503,479 and 27,439,119 shares, as of June 30, 2014 and December 31, 2013, respectively	(770,037		)	(768,224		)
Total DreamWorks Animation SKG, Inc. stockholders' equity	1,361,666			1,404,795
Non-controlling interests	1,060			1,224
Total equity	1,362,726			1,406,019
Total liabilities and equity	$	2,296,718		$	2,274,228

See accompanying notes.

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DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(in thousands, except per share amounts)
Revenues (see Note 7 for related party amounts)	$	122,277		$	213,436		$	269,518		$	348,084
Costs of revenues	87,532			133,276			248,221			218,797
Gross profit	34,745			80,160			21,297			129,287
Product development	611			1,069			1,151			2,032
Selling, general and administrative expenses	54,595			49,711			101,774			92,500
Change in fair value of contingent consideration	(7,220		)	—			(4,720		)	—
Other operating income (see Note 7 for related party amounts)	(2,317		)	(2,859		)	(3,989		)	(2,859		)
Operating (loss) income	(10,924		)	32,239			(72,919		)	37,614

Non-operating income (expense):
Interest (expense) income, net	(2,484		)	777			(4,257		)	1,640
Other income, net	1,853			1,050			3,071			2,042
Decrease (increase) in income tax benefit payable to former stockholder	1,695			(371		)	2,622			(1,069		)
(Loss) income before loss from equity method investees and income taxes	(9,860		)	33,695			(71,483		)	40,227

Loss from equity method investees	3,467			1,329			6,727			1,329
(Loss) income before income taxes	(13,327		)	32,366			(78,210		)	38,898
Provision (benefit) for income taxes	2,601			10,118			(19,866		)	10,536
Net (loss) income	(15,928		)	22,248			(58,344		)	28,362
Less: Net (loss) income attributable to non-controlling interests	(541		)	(5		)	(21		)	532
Net (loss) income attributable to DreamWorks Animation SKG, Inc.	$	(15,387	)	$	22,253		$	(58,323	)	$	27,830

Net (loss) income per share of common stock attributable to DreamWorks Animation SKG, Inc.
Basic net (loss) income per share	$	(0.18	)	$	0.27		$	(0.69	)	$	0.33
Diluted net (loss) income per share	$	(0.18	)	$	0.26		$	(0.69	)	$	0.33
Shares used in computing net (loss) income per share
Basic	84,554			83,524			84,520			84,094
Diluted	84,554			84,533			84,520			84,898

See accompanying notes.

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DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(in thousands)
Net (loss) income	$	(15,928	)	$	22,248		$	(58,344	)	$	28,362
Other comprehensive (loss) income, net of tax:
Foreign currency translation gains (losses)	563			(104		)	695			(2,596		)
Comprehensive (loss) income	(15,365		)	22,144			(57,649		)	25,766
Less: Comprehensive (loss) income attributable to non-controlling interests	(541		)	(5		)	(21		)	532
Comprehensive (loss) income attributable to DreamWorks Animation SKG, Inc.	$	(14,824	)	$	22,149		$	(57,628	)	$	25,234

See accompanying notes.

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DREAMWORKS ANIMATION SKG, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended
	June 30,
	2014			2013
	(in thousands)
Operating activities
Net (loss) income	$	(58,344	)	$	28,362
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Amortization and write-off of film and other inventory costs⁽¹⁾	206,493			178,023
Amortization of intangible assets	6,436			4,408
Stock-based compensation expense	8,421			9,837
Amortization of deferred financing costs	550			—
Depreciation and amortization	2,249			2,351
Change in fair value of contingent consideration	(4,720		)	—
Revenue earned against deferred revenue and other advances	(32,584		)	(39,061		)
Income related to investment contributions	(3,989		)	(10,700		)
Loss from equity method investees	6,727			1,329
Deferred taxes, net	(26,590		)	9,576
Changes in operating assets and liabilities, net of the effects of acquisitions:
Trade accounts receivable	(15,691		)	7,208
Receivables from distributors	70,315			(18,933		)
Film and other inventory costs	(236,376		)	(210,984		)
Intangible assets	—			1,015
Prepaid expenses and other assets	(14,312		)	(8,537		)
Accounts payable and accrued liabilities	(38,113		)	3,694
Payable to former stockholder	(615		)	(14,929		)
Income taxes payable/receivable, net	7,353			2,212
Deferred revenue and other advances	56,355			74,825
Net cash (used in) provided by operating activities	(66,435		)	19,696
Investing activities
Investments in unconsolidated entities	(13,365		)	(14,720		)
Purchases of property, plant and equipment	(17,653		)	(14,858		)
Acquisitions of character and distribution rights	(51,000		)	—
Acquisitions, net of cash acquired	(12,605		)	(30,093		)
Net cash used in investing activities	(94,623		)	(59,671		)
Financing activities
Proceeds from stock option exercises	261			—
Purchase of treasury stock	(1,956		)	(25,854		)
Borrowings from revolving credit facility	110,000			45,000
Repayments of borrowings from revolving credit facility	(10,000		)	(10,000		)
Net cash provided by financing activities	98,305			9,146
Effect of exchange rate changes on cash and cash equivalents	(518		)	428
Decrease in cash and cash equivalents	(63,271		)	(30,401		)
Cash and cash equivalents at beginning of period	95,467			59,246
Cash and cash equivalents at end of period	$	32,196		$	28,845
Non-cash investing activities:
Contingent consideration portion of business acquisition purchase price	$	—		$	95,000
Intellectual property and technology licenses granted in exchange for equity interest	3,395			10,129
Services provided in exchange for equity interest	600			571
Total non-cash investing activities	$	3,995		$	105,700
Supplemental disclosure of cash flow information:
Cash refunded during the period for income taxes, net	$	608		$	1,529
Cash paid during the period for interest, net of amounts capitalized	$	5,273		$	690

⁽¹⁾ Included within this amount is depreciation and amortization, interest expense and stock-based compensation previously capitalized to "Film and other inventory costs" (see Note 1). During the six months ended June 30, 2014 and 2013, these amounts totaled $14,066 and $17,378, respectively.

See accompanying notes.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.	Business and Basis of Presentation

Business

The businesses of DreamWorks Animation SKG, Inc. ("DreamWorks Animation" or the "Company") is primarily devoted to the development, production and exploitation of animated films and their associated characters in the worldwide theatrical, home entertainment, digital, television, merchandising and licensing and other markets. The Company continues to build upon the value of its intellectual property created from its animated films by creating high-quality entertainment through the development and production of non-theatrical content such as television series and specials and live performances based on characters from its feature films. In addition, the Company has an extensive library of other intellectual property rights through its acquisition of Classic Media, which can be exploited in various markets. The Company's activities also include technology initiatives as it explores opportunities to exploit its internally developed software.

Distribution and Servicing Arrangements

The Company derives revenue from Twentieth Century Fox Film Corporation's worldwide (excluding China and South Korea) exploitation of its films in the theatrical and post-theatrical markets. Pursuant to a binding term sheet (the "Fox Distribution Agreement") entered into with Twentieth Century Fox and Twentieth Century Fox Home Entertainment, LLC (collectively, "Fox"), the Company has agreed to license Fox certain exclusive distribution rights and exclusively engage Fox to render fulfillment services with respect to certain of the Company's animated feature films and other audiovisual programs during the five-year period beginning on January 1, 2013. The rights licensed to, and serviced by, Fox will terminate on the date that is one year after the initial home video release date in the United States ("U.S.") of the last film theatrically released by Fox during such five-year period.

Also beginning in 2013, the Company's films are distributed in China and South Korea territories by distinct distributors. The key terms of the Company's distribution arrangements with its Chinese and South Korean distributors are largely similar to those with Fox and Paramount such that the Company also recognizes revenues earned under these arrangements on a net basis. The Company's distribution partner in China is Oriental DreamWorks Holding Limited ("ODW"), which is a related party.

Lastly, the Company has continued to derive revenues from the distribution in worldwide theatrical, home entertainment, digital and television markets by Paramount Pictures Corporation, a subsidiary of Viacom Inc., and its affiliates (collectively, "Paramount"), for films that were released on or before December 31, 2012, pursuant to a distribution agreement and a fulfillment services agreement (collectively, the "Paramount Agreements"). With respect to each film for which Paramount has rendered fulfillment services, Paramount generally has had the right to continue rendering such services for 16 years from such film's initial general theatrical release. On June 30, 2014, the Company reacquired certain distribution rights from Paramount and, as a result, Paramount only retains television distribution rights (which includes subscription and free video-on-demand formats) for titles covered by the Paramount Agreements. The reacquired rights are now subject to the Fox Distribution Agreement. The amount paid to reacquire these rights was recorded as a definite-lived intangible asset (see Note 6).

The Company generally retains all other rights to exploit its 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. The Company's activities associated with its Classic Media properties and AwesomenessTV, Inc. ("ATV") business are not subject to the Company's distribution agreements with its theatrical distributors.

Basis of Presentation

The accompanying unaudited financial data as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information. Accordingly, certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2013 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(the "2013 Form 10-K"). Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the Company's 2014 presentation.

The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring items, which in the opinion of management, are necessary for a fair statement for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year, or for any future period, as fluctuations can occur based upon the timing of the Company's films' theatrical and home entertainment releases, and television series and specials broadcasts.

Consolidation

The consolidated financial statements of the Company present the financial position, results of operations and cash flows of DreamWorks Animation and its wholly-owned subsidiaries. The Company also consolidates less-than-wholly owned entities if the Company has a controlling financial interest in that entity. The Company uses the equity method of accounting for investments in companies in which it has a 50% or less ownership interest and has the ability to exercise significant influence. Such investments are presented as investments in unconsolidated entities on the Company's consolidated balance sheets (refer to Note 7 for further information of such investments). Prior to recording its share of net income or losses from equity method investees, investee financial statements are converted to U.S. GAAP. All significant intercompany accounts and transactions have been eliminated. Intra-entity profit related to transactions with equity method investees is eliminated until the amounts are ultimately realized.

In addition, the Company reviews its relationships with other entities to identify whether they are variable interest entities ("VIE") as defined by the Financial Accounting Standards Board ("FASB"), and to assess whether the Company is the primary beneficiary of such entity. If the determination is made that the Company is the primary beneficiary, then the entity is consolidated. As of June 30, 2014, the Company determined that it continued to have a variable interest in ODW as ODW does not have sufficient equity at risk (i.e., cash on hand to fund its operations) as a result of the timing of capital contributions to the entity in accordance with the Transaction and Contribution Agreement (see Note 7). However, the Company concluded that it is not the primary beneficiary of ODW as it does not have the ability to control ODW. As a result, it does not consolidate ODW into its financial statements. Refer to Note 7 for further discussion of how the Company accounts for its investment in ODW, including the Company's remaining contributions (which represent the maximum exposure to the Company).

The Company also determined that, as of June 30, 2014, it continued to have a variable interest in an entity that was created to operate and tour its live arena show that is based on its feature film How to Train Your Dragon, and that the Company is the primary beneficiary of this entity as a result of the Company's obligation to fund all losses. Accordingly, the Company's consolidated financial statements included the activities of the VIE. The consolidation of the VIE had an immaterial impact as of and for the three and six months ended June 30, 2014 and 2013.

Film and Other Inventory Costs Amortization

Amortization and write-off of film and other inventory costs in any period includes depreciation and amortization, interest expense and stock-based compensation expense that were capitalized as part of film and other inventory costs in the period that those charges were incurred. The total amount of such expenses reflected as a component of amortization and write-off of film and other inventory costs for the six months ended June 30, 2014 and 2013 is presented in the statements of cash flows.

Goodwill

The Company performs a goodwill impairment test on an annual basis, or sooner if indicators of impairment are identified. As of June 30, 2014, $118.2 million of total goodwill was attributable to the ATV reporting unit (“ATV Goodwill”). ATV Goodwill represented the excess of the purchase price over the identifiable acquired net assets as of the time of the acquisition of ATV. A large portion of ATV’s purchase price was derived from the fair value of the contingent consideration arrangement entered into in connection with the acquisition (see Note 3). As a result, the cash flow assumptions used for purposes of the goodwill impairment assessment are closely aligned with those used to determine the fair value of the contingent consideration. In connection with the fair value assessment of the contingent consideration as of June 30, 2014, the Company evaluated the revised forecasts for the acquired business, noting a decline in the forecasted earnings for the period applicable to the determination of the contingent consideration payment. Based on this information, the Company determined

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

that an interim goodwill impairment test was necessary and, accordingly, performed a qualitative assessment (commonly referred to as Step 0) to determine whether it was more likely than not that the fair value of the reporting unit was below its carrying value. This assessment included a review of the forecast for periods extending beyond the contingent consideration performance period, which reflected a significant decline in forecasted earnings for certain of the reporting unit's revenue streams when compared to the forecasted amounts at the time of the initial valuation of ATV, as well as delays in the timing of revenue growth. Based on this evaluation, the Company concluded that it was more likely than not that the fair value of the ATV reporting unit was less than the reporting unit's carrying amount and, accordingly, the Company proceeded with determining whether the reporting unit's fair value was greater than its carrying value (referred to as Step 1). The Company used the income approach to determine fair value and applied a blended discount rate of 35%. Because a key driver of fair value when applying the income approach is the forecast of future cash flows, the Company's determination of fair value was highly dependent on the level and timing of forecasted earnings and the resulting cash flows. Due to ATV’s limited operating history, there is significant uncertainty in the underlying estimates of ATV’s forecasted earnings. Changes in one or more of the key assumptions could lead to a different fair value of the reporting unit. For further discussion, see "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Goodwill."

Upon completion of this analysis, the Company concluded that the fair value of the ATV reporting unit was greater than its carrying value by approximately 12% as of June 30, 2014 and, thus, ATV Goodwill was not impaired as of June 30, 2014.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates made by management in the preparation of the financial statements relate to the following:


•	ultimate revenues and ultimate costs of film, television product and live performance productions;


•	relative selling price of the Company's products for purposes of revenue allocation in multi-property licenses and other multiple deliverable arrangements;


•	determination of fair value of assets and liabilities for the allocation of the purchase price in an acquisition;


•	determination of the fair value of reporting units for purposes of testing goodwill for impairment;


•	determination of fair value of non-cash contributions to investments in unconsolidated entities;


•	useful lives of intangible assets;


•	product sales that will be returned and the amount of receivables that ultimately will be collected;


•	the potential outcome of future tax consequences of events that have been recognized in the Company's financial statements;


•	loss contingencies and contingent consideration arrangements; and


•	assumptions used in the determination of the fair value of equity-based awards for stock-based compensation or their probability of vesting.

Actual results could differ from those estimates. To the extent that there are material differences between these estimates and actual results, the Company's financial condition or results of operations will be affected. Estimates are based on past experience and other assumptions that management believes are reasonable under the circumstances, and management evaluates these estimates on an ongoing basis.


2.	Recent Accounting Pronouncements

In June 2014, the FASB issued an accounting standards update relating to the accounting for certain share-based awards. The accounting update states that, when the terms of an award provide that a performance target could be achieved after the requisite service period, the performance target should be treated as a performance condition that affects vesting and should not be reflected in the grant-date fair value. Companies are permitted to apply the guidance either prospectively to all awards granted or modified after the effective date or retrospectively to awards outstanding as of the beginning of the earliest annual period presented. The guidance is effective for the Company's fiscal year beginning January 1, 2016, with early adoption permitted. The Company adopted the new guidance upon issuance of the accounting standards update, which did not have an impact on its consolidated financial statements as the Company's existing accounting policy was already consistent with this guidance.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In May 2014, the FASB issued an accounting standards update to provide companies with a single model for use in accounting for revenue from contracts with customers. Once it becomes effective, the new guidance will replace most existing revenue recognition guidance in U.S. GAAP, including industry-specific guidance. The core principle of the model is to recognize revenue when control of goods or services transfers to the customer and in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods or services that have transferred. Under current U.S. GAAP, the Company recognizes revenue when the risks and rewards of ownership transfer to the customer. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized and the related cash flows. The guidance is effective for the Company's fiscal year beginning January 1, 2017, including interim periods within that fiscal year. Early adoption is not permitted. Companies are permitted to either apply the guidance retrospectively to all prior periods presented or, alternatively, apply the guidance in the year of adoption with the cumulative effect recognized at the date of initial application (referred to as the modified retrospective approach). The Company is in the process of determining the method of adoption, as well as evaluating the impact that the new standard will have on its consolidated financial statements.

In July 2013, the FASB issued an accounting standards update relating to the presentation of unrecognized tax benefits. The accounting update requires companies to present a deferred tax asset net of related unrecognized tax benefits if there is a net operating loss or other tax carryforwards that would apply in settlement of the uncertain tax position. To the extent that an uncertain tax position would not be settled through a reduction of a net operating loss or other tax carryforwards, the unrecognized tax benefit will be presented as a liability. The guidance is effective for the Company's fiscal year beginning January 1, 2014, with early adoption permitted. The Company adopted the new guidance effective January 1, 2014. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.


3.	Acquisitions

Recent Acquisitions

The Company entered into an Agreement and Plan of Merger and Reorganization (the "Big Frame Merger Agreement”) pursuant to which, on April 7, 2014 (the “Big Frame Closing Date”), a wholly-owned subsidiary of the Company merged with and into Big Frame, Inc. (“Big Frame”). As a result of this transaction, Big Frame became a wholly-owned subsidiary of the Company. Big Frame is an online multi-channel network that connects advertisers with highly engaged audiences. The goodwill that resulted from the acquisition represents the potential synergies between Big Frame and the Company’s multi-channel network presence on the Internet and is not deductible for tax purposes.

Additionally, on May 20, 2014, the Company acquired certain rights, properties and other items pertaining to Felix the Cat and related characters pursuant to an Asset Purchase Agreement. The acquisition was accounted for as a business combination due to the Company assuming certain licensing arrangements related to the rights. The goodwill that resulted from the acquisition represents potential synergies between the rights acquired and consumer product opportunities. The goodwill is deductible for tax purposes.

The Company’s total cash consideration for these two transactions totaled approximately $33.6 million. As a result of these transactions and the preliminary purchase price allocations, the primary assets acquired were identifiable intangible assets of $22.1 million and resulting goodwill of $10.4 million. The results of operations for these two acquisitions have been included in the Company’s consolidated financial statements since their respective closing dates and had an immaterial impact for the three and six months ended June 30, 2014.

AwesomenessTV

On May 1, 2013, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, on May 3, 2013 (the "ATV Closing Date"), a wholly-owned subsidiary of the Company ("the Merger Sub") merged with and into ATV. As a result of this transaction, ATV became a wholly-owned subsidiary of the Company. ATV is an online next-generation media production company that generates revenues primarily from online advertising sales and distribution of content through media channels such as theatrical, home entertainment and television. Through ATV's multi-channel network presence on the Internet, the Company will be able to gain access to new content distribution methods, as well as a broader audience. The goodwill that resulted from the acquisition represents the potential synergies between ATV's filmed content, character portfolio and the Company's cross-platform expansion plans. The goodwill is allocated to a reporting unit that is currently not part of a separately reportable segment.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company's total consideration for this transaction totaled $128.5 million, including an accrual for estimated contingent consideration of $95.0 million. The following table outlines the components of consideration for the transaction (in thousands):



	As of
	May 3, 2013
Cash payment	$	33,460
Estimated contingent consideration	95,000
Total consideration	$	128,460

The following table summarizes the final allocation of the purchase price (in thousands):



	As of
	May 3, 2013⁽¹⁾
Cash and cash equivalents	$	1,340
Trade receivables⁽²⁾	1,279
Prepaid and other assets	434
Production costs	612
Property, plant and equipment	183
Intangible assets	12,900
Total identified assets acquired	16,748

Accounts payable	655
Deferred revenue	2,057
Deferred tax liabilities, net	3,765
Total liabilities assumed	6,477
Net identified assets acquired	10,271
Goodwill⁽³⁾	118,189
Total consideration	$	128,460

____________________


⁽¹⁾	Measurement period adjustments include a $0.9 million decrease in goodwill, which resulted from changes in the fair value of the estimated contingent consideration of $0.5 million, as well as a decrease to deferred tax liabilities of $0.4 million.


⁽²⁾	Gross contractual amounts due total $1.3 million and, of this amount, no amounts are deemed to be uncollectible.


⁽³⁾	The goodwill resulting from the acquisition of ATV is not deductible for tax purposes.

Contingent Consideration

Pursuant to the Merger Agreement, the Company may be required to make future cash payments to ATV's former shareholders as part of the total purchase price to acquire ATV. The contingent consideration is based on whether ATV increases its adjusted earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") over an adjusted EBITDA threshold, over a two-year period (which commenced on January 1, 2014). Adjustments to EBITDA for purposes of determining the contingent consideration earned include, but are not limited to: ATV's employee bonus plan, non-cash gains and losses (such as those related to foreign currency accounting and reversals of prior year accruals) and changes in the fair value of contingent payment liabilities resulting from the acquisition of ATV. The Company estimates the fair value of contingent consideration using significant unobservable inputs in a Monte-Carlo simulation model and bases the fair value on the estimated risk-adjusted cost of capital of ATV's adjusted EBITDA following integration into the Company (an income approach). The estimate of the liability may fluctuate if there are changes in the forecast of ATV's future earnings or as a result of actual earnings levels achieved. Any changes in estimate of the contingent consideration liability will be reflected in the Company's results of operations in the period that the change occurs.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The estimated fair value of the contingent consideration arrangement at the acquisition date was $95.0 million. The key assumptions in applying the income approach were as follows: an 8.5% discount rate, volatility of 32.6% and a probability-adjusted earnings measure for ATV of $25.0 million for 2014 and $41.0 million for 2015. Changes in one or more of the key assumptions could lead to a different fair value estimate of the contingent consideration. For example, using a discount rate of 15.0% or a volatility rate of 20.0% would change the estimated fair value of the contingent consideration to $90.5 million and $103.5 million, respectively. Under the Merger Agreement, the maximum contingent consideration that may be earned is $117.0 million. The estimate of contingent consideration liability decreased from $96.5 million as of December 31, 2013 to $91.8 million as of June 30, 2014, primarily due to changes in the forecast of cash flows. The change in estimate was recorded as a gain in the consolidated statements of operations. As of June 30, 2014, the discount rate and volatility applied were 16.5% and 35.3%, respectively. Using a discount rate of 25% or a volatility of 20% would change the estimated fair value of the contingent consideration to $88.6 million and $99.3 million, respectively.

Pro Forma Financial Information

The following table presents (in thousands, except per share data) pro forma results of the Company as though ATV had been acquired as of January 1, 2012 (the beginning of the prior annual reporting period based on the period in which the acquisition occurred).



	Three Months Ended		Six Months Ended
	June 30, 2013		June 30, 2013
Revenues	$	213,984	$	348,905
Net income attributable to DreamWorks Animation SKG, Inc.	$	22,443	$	26,340
Basic net income per share	$	0.27	$	0.31
Diluted net income per share	$	0.27	$	0.31

These pro forma results do not necessarily represent what would have occurred if the ATV transaction had taken place on January 1, 2012, nor do they represent the results that may occur in the future. The pro forma amounts include the historical operating results of the Company and ATV prior to the acquisition, with adjustments directly attributable to the acquisition. The pro forma results include a increase to tax expense in the amount of $1.4 million for the six months ended June 30, 2013. The pro forma results also include an increase to amortization expense related to the fair value of the intangible assets acquired of $1.0 million for the three months ended June 30, 2013 and $3.9 million for the six months ended June 30, 2013.


4.	Financial Instruments

The fair value of cash and cash equivalents, accounts payable, advances and amounts outstanding under the revolving credit facility approximates carrying value due to the short-term maturity of such instruments and floating interest rates. As of June 30, 2014, the fair value of trade accounts receivable approximated carrying value due to the similarities in the initial and current discount rates. In addition, as of June 30, 2014, the fair value of the senior unsecured notes approximated carrying value as the current borrowing rate approximated the debt instrument's actual interest rate. The fair value of trade accounts receivable and the senior unsecured notes was determined using significant unobservable inputs by performing a discounted cash flow analysis and using current discount rates as appropriate for each type of instrument.

The Company has short-term money market investments which are classified as cash and cash equivalents on the consolidated balance sheets. The fair value of these investments at June 30, 2014 and December 31, 2013 was measured based on quoted prices in active markets.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


5.	Film and Other Inventory Costs

Film, television, live performance and other inventory costs consist of the following (in thousands):



	June 30, 2014		December 31, 2013
In release, net of amortization:
Feature films	$	443,929	$	285,238
Television series and specials	55,527		58,631
In production:
Feature films	305,295		474,609
Television series and specials	49,937		15,332
In development:
Feature films	108,443		75,498
Television series and specials	165		1,500
Product inventory and other⁽¹⁾	16,623		32,678
Total film, television, live performance and other inventory costs, net	$	979,919	$	943,486

____________________

⁽¹⁾

This category includes $8.8 million and $24.8 million of capitalized live performance costs as of June 30, 2014 and December 31, 2013, respectively. In addition, as of June 30, 2014 and December 31, 2013, this category includes $7.7 million and $7.9 million, respectively, of physical inventory of certain DreamWorks Animation and Classic Media titles for distribution in the home entertainment market.

The Company anticipates that approximately 51% and 83% of the above "in release" film and other inventory costs as of June 30, 2014 will be amortized over the next 12 months and three years, respectively.

As a result of the weaker-than-expected worldwide theatrical performance of Mr. Peabody and Sherman (released into the domestic theatrical market during March 2014), the Company performed an analysis as of March 31, 2014 to determine whether the unamortized film inventory costs exceeded fair value and was thus impaired. Key assumptions used in the fair value measurement were a discount rate of 7% and estimated remaining cash flows over a period of approximately 15 years. As a result of the analysis, the six-month period ended June 30, 2014 includes an impairment charge of $57.1 million.

No impairment charges were recorded on film and other inventory costs during the six months ended June 30, 2013.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


6.	Intangible Assets

As of June 30, 2014 and December 31, 2013, intangible assets included $69.2 million and $49.5 million, respectively, of indefinite-lived intangible assets. In addition, intangible assets were comprised of definite-lived intangible assets as follows (in thousands, unless otherwise noted):



	Weighted Average Estimated Useful Life (in years)	Gross		Accumulated Amortization			Impact of Foreign Currency Translation		Net
As of June 30, 2014:
Character rights	13.9	$	99,000	$	(11,994	)	$	3,003	$	90,009
Distribution rights	11.2	30,000		—			—		30,000
Programming content	2.0	11,200		(6,533		)	—		4,667
Trademarks and trade names	10.0	1,410		(145		)	—		1,265
Other intangibles	4.4	2,700		(403		)	—		2,297
Total		$	144,310	$	(19,075	)	$	3,003	$	128,238

As of December 31, 2013:
Character rights	13.9	$	99,000	$	(8,663	)	$	1,754	$	92,091
Programming content	2.0	11,200		(3,733		)	—		7,467
Trademarks and trade names	10.0	1,200		(80		)	—		1,120
Other intangibles	2.0	500		(167		)	—		333
Total		$	111,900	$	(12,643	)	$	1,754	$	101,011

The Company expects to record amortization over the next five fiscal years as follows (in thousands):



2015	$	12,260
2016	11,168
2017	11,588
2018	11,515
2019	11,130
Total	$	57,661


7.	Investments in Unconsolidated Entities

The Company has made investments in entities which are accounted for under either the cost or equity method of accounting. These investments are classified as investments in unconsolidated entities in the consolidated balance sheets and consist of the following (in thousands, unless otherwise indicated):



	Ownership
	Percentage at	June 30,		December 31,
	June 30, 2014	2014		2013
Oriental DreamWorks Holding Limited	45.45%	$	16,645	$	16,389
All Other	17.5%-50.0%	3,642		3,140
Total equity method investments		20,287		19,529

Total cost method investments		29,013		19,013
Total investments in unconsolidated entities		$	49,300	$	38,542

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the equity method of accounting, the carrying value of an investment is adjusted for the Company's proportionate share of the investees' earnings and losses (adjusted for the amortization of any differences in the Company's basis, with respect to the Company's investment in ODW, compared to the Company's share of venture-level equity), as well as contributions to and distributions from the investee. The Company classifies its share of income or loss from investments accounted for under the equity method as income/loss from equity method investees in its consolidated statements of operations.

(Loss) income from equity method investees consist of the following (in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Oriental DreamWorks Holding Limited⁽¹⁾	$	(2,394	)	$	(957	)	$	(4,604	)	$	(957	)
All Other	(1,073		)	(372		)	(2,123		)	(372		)
(Loss) income from equity method investees	$	(3,467	)	$	(1,329	)	$	(6,727	)	$	(1,329	)

____________________


⁽¹⁾	The Company currently records its share of ODW results on a one-month lag. Accordingly, the Company's consolidated financial statements include its share of losses incurred by ODW from December 1, 2013 to May 31, 2014.

Oriental DreamWorks Holding Limited

On April 3, 2013 ("ODW Closing Date"), the Company formed a Chinese Joint Venture, ODW (or the "Chinese Joint Venture"), through the execution of a Transaction and Contribution Agreement, as amended, with its Chinese partners, China Media Capital (Shanghai) Center L.P. ("CMC"), Shanghai Media Group ("SMG") and Shanghai Alliance Investment Co., Ltd. ("SAIL", and together with CMC and SMG, the "CPE Holders"). In exchange for 45.45% of the equity of ODW, the Company has committed to making a total cash capital contribution to ODW of $50.0 million (of which $6.6 million had been funded as of June 30, 2014, with the balance to be funded over time) and non-cash contributions valued at approximately $100.0 million (of which approximately $28.7 million had been satisfied as of June 30, 2014). Such non-cash contributions include licenses of technology and certain other intellectual property of the Company, rights in certain trademarks of the Company, two in-development feature film projects developed by the Company and consulting and training services. During the three and six months ended June 30, 2013, the Company's consolidated statements of operations included $7.8 million of revenues recognized in connection with non-cash contributions made to ODW. The Company's consolidated statements of operations included other operating income recognized in connection with non-cash contributions made to ODW of $2.3 million and $2.9 million during the three months ended June 30, 2014 and 2013, respectively, and $4.0 million and $2.9 million during the six months ended June 30, 2014 and 2013, respectively.

As of June 30, 2014, the Company's remaining contributions consisted of the following: (i) $43.4 million in cash (which is expected to be funded over the next three years), (ii) two of the Company's in-development film projects, (iii) remaining delivery requirements under the licenses of technology and certain other intellectual property of the Company and (iv) approximately $7.0 million in consulting and training services. Some of these remaining contribution commitments will require future cash outflows for which the Company is not currently able to estimate the timing of contributions as this will depend on, among other things, ODW's operations.

Basis Differences. The Company's investment in ODW does not equal the venture-level equity (the amount recorded on the balance sheet of ODW) due to various basis differences. Basis differences related to definite-lived assets are being amortized based on the useful lives of the related assets. Basis differences related to indefinite-lived assets are not being amortized. The following are the differences between the Company's venture-level equity and the balance of its investment in ODW (in thousands):



	June 30, 2014
Company's venture-level equity	$	40,997
Technology and intellectual property licenses⁽¹⁾	(17,042		)
Other⁽²⁾	(7,310		)
Total ODW investment recorded	$	16,645

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

____________________


⁽¹⁾	Represents differences between the Company's historical cost basis and the equity basis reflected at the venture-level (the amount recorded on the balance sheet of ODW) related to the Company's contributions of technology and intellectual property licenses. These basis differences arise because the contributed assets are recorded at fair value by ODW.


⁽²⁾	Represents the Company's net contribution commitment due to ODW.

Other Transactions with ODW. The Company has various other transactions with ODW, a related party. The Company has entered into a distribution agreement with ODW for the distribution of the Company's feature films in China (beginning with The Croods). In addition, from time to time, the Company may provide consulting and training services to ODW, the charges of which are based on the Company's actual cost of providing such services. The Company's consolidated statements of operations included revenues earned through ODW's distribution of its feature films of $1.3 million and $2.0 million during the three- and six-month periods ended June 30, 2014, respectively, and $13.0 million during each of the three- and six-month periods ended June 30, 2013. As of June 30, 2014 and December 31, 2013, the Company's consolidated balance sheets included receivables from ODW of $7.1 million and $3.8 million, respectively, which were classified as a component of trade accounts receivable, and $3.6 million and $16.7 million, respectively, which were classified as a component of receivables from distributors.


8.	Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



	June 30, 2014		December 31, 2013
Employee compensation	$	28,571	$	65,625
Participations and residuals	46,495		50,690
Contingent consideration⁽¹⁾	92,691		97,545
Interest payable	7,958		7,849
Income taxes payable	7,494		118
Deferred rent	10,793		8,114
Other accrued liabilities	38,315		33,727
Total accrued liabilities	$	232,317	$	263,668

____________________


⁽¹⁾	Primarily represents the Company's estimate of the amount of contingent consideration payable in connection with the acquisition of ATV (refer to Note 3 for further information).

As of June 30, 2014, the Company estimates that over the next 12 months it will pay approximately $23.9 million of its accrued participation and residual costs.


9.	Deferred Revenue and Other Advances

The following is a summary of deferred revenue and other advances included in the consolidated balance sheets as of June 30, 2014 and December 31, 2013 and the related amounts earned and recorded either as revenue in the consolidated statements of operations or recorded as an offset to other costs (as described below) for the three- and six-month periods ended June 30, 2014 and 2013 (in thousands):



					Amounts Earned
					Three Months Ended				Six Months Ended
	June 30,		December 31,		June 30,				June 30,
	2014		2013		2014		2013		2014		2013
Deferred Revenue	$	8,673	$	14,578	$	8,628	$	5,741	$	16,265	$	13,473
Strategic Alliance/Development Advances⁽¹⁾	4,167		1,667		8,229		6,816		15,367		15,890
Other⁽²⁾	22,242		20,180		6,228		23,865		26,125		28,617
Total deferred revenue and other advances	$	35,082	$	36,425

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

____________________

⁽¹⁾

Of the total amounts earned against the "Strategic Alliance/Development Advances," for the three months ended June 30, 2014 and 2013, $3.5 million and $2.7 million, respectively, and $5.9 million and $7.9 million for the six months ended June 30, 2014 and 2013, respectively, were capitalized as an offset to property, plant and equipment. Additionally, during the three months ended June 30, 2014 and 2013, of the total amounts earned, $2.5 million and $0.7 million, respectively, and for the six months ended June 30, 2014 and 2013, $3.5 million and $1.2 million, respectively, were recorded as a reduction to other assets. During the six months ended June 30, 2014 and 2013, $0.5 million and $1.3 million, respectively, were recorded as a reduction to prepaid expenses. During the three months ended June 30, 2014 and 2013, of the total amounts earned, $0.5 million and $0.6 million, respectively, and for the six months ended June 30, 2014 and 2013, $1.6 million and $1.0 million, respectively, were recorded as a reduction to operating expenses.


⁽²⁾	Of the total amounts earned, for the six months ended June 30, 2014, $14.0 million was recorded as a reduction to film and other inventory costs.


10.	Financing Arrangements

Senior Unsecured Notes. On August 14, 2013, the Company issued $300.0 million in aggregate principal amount of 6.875% Senior Notes due 2020 (the "Notes"). In connection with the issuance of the Notes, the Company entered into an indenture (the “Indenture”) with The Bank of New York Mellon Trust Company, N.A., as trustee, specifying the terms of the Notes. The Notes were sold at a price to investors of 100% of their principal amount and were issued in a private placement pursuant to the exemptions under Rule 144A and Regulation S under the Securities Act of 1933, as amended. The net proceeds from the Notes amounted to $294.0 million and a portion was used to repay the outstanding borrowings under the Company's revolving credit facility. The Notes are effectively subordinated to indebtedness under the revolving credit facility. Beginning on February 15, 2014, the Company is required to pay interest on the Notes semi-annually in arrears on February 15 and August 15 of each year. The principal amount is due upon maturity. The Notes are guaranteed by all of the Company's domestic subsidiaries that also guarantee its revolving credit facility.

The Indenture contains certain restrictions and covenants that, subject to certain exceptions, limit the Company's ability to incur additional indebtedness, pay dividends or repurchase the Company's common shares, make certain loans or investments, and sell or otherwise dispose of certain assets, among other limitations. The Indenture also contains customary events of default, which, if triggered, may accelerate payment of principal, premium, if any, and accrued but unpaid interest on the Notes. Such events of default include non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, failure to satisfy material judgments and bankruptcy or insolvency. If a change of control as described in the Indenture occurs, the Company may be required to offer to purchase the Notes from the holders thereof at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

At any time prior to August 15, 2016, the Company may redeem all or part of the Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a specified premium as of the date of redemption, plus (iii) accrued and unpaid interest to, but not including, the date of redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. On or after August 15, 2016, the Company may redeem all or a part of the Notes, at specified redemption prices plus accrued and unpaid interest thereon, to, but not including, the applicable redemption date, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. In addition, at any time prior to August 15, 2016, the Company may redeem up to 35% of the Notes with the net proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount thereof, in each case plus accrued and unpaid interest and additional interest, if any, thereon to, but not including, the redemption date.

Revolving Credit Facility. The Company has a revolving credit facility with a number of banks. On August 10, 2012, the Company and the facility banks terminated the then-existing credit agreement and entered into a new Credit Agreement ("New Credit Agreement"). The New Credit Agreement allows the Company to have outstanding borrowings up to $400.0 million at any one time, on a revolving basis. The Company may from time to time, so long as no default or event of default has occurred under the New Credit Agreement, increase the commitments under the New Credit Agreement by up to $50.0 million. Borrowings are secured by substantially all of the Company's assets. The New Credit Agreement requires the Company to maintain a specified ratio of total debt to total capitalization and a specified ratio of net remaining ultimates to facility exposure. In addition, subject to specified exceptions, the New Credit Agreement also restricts the Company and its subsidiaries from

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

taking certain actions, such as granting liens, entering into any merger or other significant transactions, making distributions, entering into transactions with affiliates, agreeing to negative pledge clauses and restrictions on subsidiary distributions, and modifying organizational documents. The revolving credit facility also prohibits the Company from paying dividends on its capital stock if, after giving pro forma effect to such dividend, an event of default would occur or exist under the revolving credit facility. The Company is required to pay a commitment fee on undrawn amounts at an annual rate of 0.375%. Interest on borrowed amounts (per draw) is determined by reference to either i) the lending banks' base rate plus 1.50% per annum or ii) the London Interbank Offered Rate ("LIBOR") plus 2.50% per annum.

The following table summarizes information associated with the Company's financing arrangements (in thousands, except percentages):



							Interest Expense
							Three Months Ended				Six Months Ended
	Balance Outstanding at				Maturity Date		June 30,				June 30,
	June 30, 2014		December 31, 2013		Maturity Date	Interest Rate at June 30, 2014	2014		2013		2014		2013
Senior Unsecured Notes	$	300,000	$	300,000	August 2020	6.875%	$	2,849	N/A		$	5,083	N/A
Revolving Credit Facility	$	100,000	$	—	August 2017	2.70%	$	466	$	215	$	841	$	435

____________________

N/A: Not applicable

Additional Financing Information

Interest Capitalized to Film Costs. Interest on borrowed funds that are invested in major projects with substantial development or construction phases is capitalized as part of the asset cost until the projects are released or construction projects are put into service. Thus, capitalized interest is amortized over future periods on a basis consistent with that of the asset to which it relates. During the three months ended June 30, 2014 and 2013, the Company incurred interest costs totaling $6.2 million and $1.7 million, respectively, of which $2.6 million and $1.5 million, respectively, were capitalized to film costs. During the six months ended June 30, 2014 and 2013, the Company incurred interest costs totaling $12.3 million and $3.3 million, respectively, of which $5.8 million and $2.9 million, respectively, were capitalized to film costs.

As of June 30, 2014, the Company was in compliance with all applicable financial debt covenants.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


11.	Income Taxes

Set forth below is a reconciliation of the components that caused the Company's provision/benefit for income taxes (including the income statement line item "Decrease (increase) in income tax benefit payable to former stockholder") to differ from amounts computed by applying the U.S. Federal statutory rate of 35% for the three and six months ended June 30, 2014 and 2013.



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013⁽⁴⁾		2014		2013⁽⁴⁾
Provision for income taxes (combined with decrease/increase in income tax benefit payable to former stockholder)⁽¹⁾
U.S. Federal statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
U.S. state taxes, net of Federal benefit	0.5		(1.7	)	1.4		(1.9	)
Export sales exclusion/manufacturer's deduction⁽²⁾	15.4		(0.7	)	3.9		0.8
Research and development credit⁽²⁾	—		(1.8	)	—		(6.1	)
Federal energy tax credit⁽³⁾	—		(2.0	)	—		(2.1	)
Executive compensation	(39.4	)	3.2		(7.6	)	3.2
Non-controlling interests	5.8		—		1.1		—
Change in fair value of contingent consideration	(2.5	)	—		(1.5	)	—
Losses from an equity method investee	(19.0	)	—		(3.5	)	—
Other	(1.8	)	—		(1.0	)	0.1
Effective tax rate (combined with decrease/increase in income tax benefit payable to former stockholder)⁽¹⁾	(6.0	)%	32.0	%	27.8	%	29.0	%
Less: change in income tax benefit payable to former stockholder⁽¹⁾:
U.S. state taxes, net of Federal benefit	0.5		—		0.1		—
Export sales exclusion/manufacturer's deduction⁽²⁾	(15.9	)	0.4		(3.9	)	(1.0	)
Imputed interest on payable to former stockholder	3.1		(1.5	)	0.6		(1.6	)
Other	1.0		—		—		—
Total change in income tax benefit payable to former stockholder⁽¹⁾	(11.3	)%	(1.1	)%	(3.2	)%	(2.6	)%
Effective tax rate	(17.3	)%	30.9	%	24.6	%	26.4	%

____________________

⁽¹⁾

As a result of a partial increase in the tax basis of the Company's tangible and intangible assets attributable to transactions entered into by affiliates controlled by a former stockholder at the time of the Company's 2004 initial public offering, the Company may pay reduced tax amounts to the extent it generates sufficient taxable income in the future. The Company is obligated to remit to an affiliate of the former stockholder 85% of any realized cash savings in U.S. Federal income tax, California franchise tax and certain other related tax benefits. Refer to the Company's 2013 Form 10-K for a more detailed description.

⁽²⁾

The American Taxpayer Relief Act of 2012 (the "Act"), enacted on January 2, 2013, included extensions to many expiring corporate income tax provisions. The Act included a two-year extension of research and development credits and other federal tax incentives, which were to be retroactively applied beginning with January 1, 2012 and ending on December 31, 2013. The Company recognized the effects of the retroactive changes in its results for the three months ended March 31, 2013 (the period of enactment).


⁽³⁾	The Company's policy for accounting for investment tax credits is to recognize the income tax benefit in the year that the credit is generated.


⁽⁴⁾	Certain reclassifications have been made to the prior period presentation to conform to current period presentation.

Although the Company recognized a pre-tax loss for the three months ended June 30, 2014, the Company's effective tax rate and combined effective tax rate were negative due to limitations on its ability to recognize a portion of its state tax benefit during the quarter.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company's federal income tax returns for the tax years ended December 31, 2007 through 2009 are currently under examination by the Internal Revenue Service, and all subsequent tax years remain open to audit. The Company's California state tax returns for all years subsequent to 2007 remain open to audit. The Company's India subsidiary's income tax returns are currently under examination for the tax years ended March 31, 2011 through 2012.


12.	Stockholders’ Equity and Non-controlling Interests

Class A Common Stock

Stock Repurchase Program. In July 2010, the Company's Board of Directors terminated the then-existing stock repurchase program and authorized a new stock repurchase program pursuant to which the Company may repurchase up to an aggregate of $150.0 million of its outstanding stock. During the three and six months ended June 30, 2014, the Company did not repurchase any shares of its Class A Common Stock. During the three and six months ended June 30, 2013, the Company repurchased 0.5 million and 1.3 million shares, respectively, of its outstanding Class A Common Stock for $8.8 million and $25.0 million, respectively, under the July 2010 authorization. As of June 30, 2014, the Company's remaining authorization under the current stock repurchase program was $100.0 million.

Non-controlling Interests

The Company's consolidated balance sheets include non-controlling interests, which are presented as a separate component of equity. A non-controlling interest represents the other equity holder's interest in a joint venture that the Company consolidates. The net income or loss attributable to the non-controlling interests is presented in the Company’s consolidated statements of operations. There is no other comprehensive income or loss attributable to the non-controlling interests.

The following table presents the changes in equity for the six-month periods ended June 30, 2014 and 2013 (in thousands):



	DreamWorks Animation SKG, Inc. Stockholders' Equity			Non-controlling Interests			Total Equity
Balance as of December 31, 2013	$	1,404,795		$	1,224		$	1,406,019
Proceeds from stock option exercises	261			—			261
Stock-based compensation	15,989			—			15,989
Purchase of treasury shares	(1,751		)	—			(1,751		)
Foreign currency translation adjustments	695			—			695
Distributions to non-controlling interest holder	—			(143		)	(143		)
Net loss	(58,323		)	(21		)	(58,344		)
Balance as of June 30, 2014	$	1,361,666		$	1,060		$	1,362,726

Balance as of December 31, 2012	$	1,345,616		$	630		$	1,346,246
Stock-based compensation	18,224			—			18,224
Purchase of treasury shares	(25,685		)	—			(25,685		)
Foreign currency translation adjustments	(2,596		)	—			(2,596		)
Distributions to non-controlling interest holder	—			(45		)	(45		)
Net income	27,830			532			28,362
Balance as of June 30, 2013	$	1,363,389		$	1,117		$	1,364,506

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


13.	Stock-Based Compensation

The Company recognizes compensation costs for equity awards granted to its employees based on each award's grant-date fair value. Most of the Company's equity awards contain vesting conditions dependent upon the completion of specified service periods or achievement of established sets of performance criteria. Compensation cost for service-based equity awards is recognized ratably over the requisite service period. Compensation cost for certain performance-based awards is recognized using a graded expense-attribution method. The Company has granted performance-based awards where the value of the award upon vesting will vary depending on the level of performance ultimately achieved (for example, during the year ended December 31, 2013, the Company granted awards that vest only if the Company achieves positive earnings before interest and taxes for the year ending December 31, 2014). The Company recognizes compensation cost for these awards based on the level of performance expected to be achieved. The Company will recognize the impact of any change in estimate in the period of the change.

Generally, equity awards are forfeited by employees who terminate prior to vesting. However, certain employment contracts for certain executive officers provide for the acceleration of vesting in the event of a change in control or specified termination events. The Company currently satisfies exercises of stock options and stock appreciation rights, the vesting of restricted stock and the delivery of shares upon the vesting of restricted stock units with the issuance of new shares.

The impact of stock options (including stock appreciation rights) and restricted stock awards on net income (excluding amounts capitalized) for the three- and six-month periods ended June 30, 2014 and 2013, respectively, were as follows (in thousands):



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014			2013
Total stock-based compensation	$	3,112	$	5,762		$	8,421		$	9,837
Tax impact⁽¹⁾	187		(1,844		)	(2,341		)	(2,853		)
Reduction in net income, net of tax	$	3,299	$	3,918		$	6,080		$	6,984

____________________


⁽¹⁾	Tax impact is determined at the Company's combined effective tax rate, which includes the income statement line item "Decrease/increase in income tax benefit payable to former stockholder" (see Note 11).

Stock-based compensation cost capitalized as a part of film costs was $3.7 million and $4.0 million for the three-month periods ended June 30, 2014 and 2013, respectively, and $7.3 million and $8.3 million for the six-month periods ended June 30, 2014 and 2013, respectively.

The following table sets forth the number and weighted average grant-date fair value of equity awards granted during the three- and six-month periods ended June 30, 2014 and 2013:



	Three Months Ended			Six Months Ended
	June 30,			June 30,
	Number Granted	Weighted Average Grant-Date Fair Value		Number Granted	Weighted Average Grant-Date Fair Value
	(in thousands)
2014
Restricted stock and restricted stock units	235	$	25.21	459	$	27.50
2013
Restricted stock and restricted stock units	166	$	21.49	427	$	18.67

As of June 30, 2014, the total compensation cost related to unvested equity awards granted to employees (excluding equity awards with performance objectives not probable of achievement) but not yet recognized was approximately $71.9 million and will be amortized on a straight-line basis over a weighted average period of 1.8 years.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


14.	Reportable Segments

During the three months ended September 30, 2013, the Company reorganized its internal management structure to align with changes in how it operates the business and evaluates financial performance of individual business units. As a result, there were changes to its operating segments and the Company has revised its segment information for prior periods to conform to the current presentation. The Company's current reportable segments are the following: Feature Films, Television Series and Specials and Consumer Products. Feature Films consists of the development, production and exploitation of feature films in the theatrical, television, home entertainment and digital markets. Television Series and Specials consists of the development, production and exploitation of television, direct-to-video and other non-theatrical content in the television, home entertainment and digital markets. Consumer Products consists of the Company's merchandising and licensing activities related to the exploitation of its intellectual property rights. Operating segments that are not separately reportable are categorized in "All Other" and include ATV and live performances.

Segment performance is evaluated based on revenues and gross profit. The Company does not allocate assets to each of its operating segments, nor does the Company's chief operating decision maker evaluate operating segments using discrete asset information. Information on the reportable segments and a reconciliation of total segment revenues and gross profit to consolidated financial statements are presented below (in thousands):



		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2014		2013		2014			2013
Revenues
	Feature Films	$	69,686	$	172,921	$	179,722		$	251,446
	Television Series and Specials	19,950		21,131		37,919			40,499
	Consumer Products	18,533		15,609		30,661			43,113
	All Other	14,108		3,775		21,216			13,026
Total revenues		$	122,277	$	213,436	$	269,518		$	348,084

Gross profit⁽¹⁾
	Feature Films	$	23,902	$	68,052	$	(1,526	)	$	93,983
	Television Series and Specials	1,220		6,762		6,979			11,679
	Consumer Products	7,308		5,046		13,351			23,494
	All Other	2,315		300		2,493			131
Total gross profit		$	34,745	$	80,160	$	21,297		$	129,287

____________________


⁽¹⁾	The Company defines segment profit as segment revenues less segment costs of revenues ("segment gross profit"). The Company's segment gross profit is equivalent to total gross profit (or loss) as presented on the consolidated statements of operations, which includes a reconciliation to consolidated (loss) income before income taxes.

The following table presents goodwill for each of the Company's reportable segments (in thousands):



	Feature Films		Television Series and Specials		Consumer Products		All Other			Total
Balance as of December 31, 2013	$	43,995	$	6,111	$	10,999	$	118,617		$	179,722
Measurement period adjustments related to the acquisition of ATV	—		—		—		(428		)	(428		)
Acquisitions	—		—		1,300		9,073			10,373
Balance as of June 30, 2014	$	43,995	$	6,111	$	12,299	$	127,262		$	189,667

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


15.	Related Party Transactions

Transactions with ODW

During the six months ended June 30, 2014, the Company had various transactions with a related party, ODW. See Note 7 for further discussion related to these transactions.

Transactions with Universal Music Group

One of the Company's directors, Lucian Grainge, is the chief executive officer of Universal Music Group ("UMG"). From time to time, the Company and UMG (including its subsidiaries) make payments to each other in connection with the licensing of music that is owned by the other company. In addition, UMG serves as the Company's music publisher. Finally, UMG and ATV (which the Company acquired in May 2013) have formed joint ventures related to the music business. As it relates to these arrangements, for the three and six months ended June 30, 2014 and 2013, revenues recognized and expenses incurred (which were recorded as film inventory costs) were not material. As of June 30, 2014, the Company's deferred revenue and other advances (see Note 9) included a cash advance received in the amount of $5.0 million related to music licensing revenues.

Fuhu, Inc.

The Company holds an equity investment in Fuhu, Inc. (“Fuhu”) representing approximately 3% of Fuhu’s outstanding equity securities. The Company's chief financial officer’s son currently serves as the chief financial officer of Fuhu. The Company has entered into various agreements with Fuhu, involving, among other things, the licensing of certain of the Company’s characters and other intellectual property for use by Fuhu in connection with Fuhu’s tablet computers and the provision of marketing and other services to Fuhu. During the six months ended June 30, 2014, revenues earned from Fuhu were immaterial.


16.	Concentrations of Credit Risk

A substantial portion of the Company's revenue is derived directly from the Company's third-party distributors, Paramount and Fox. Paramount represented approximately 27% and 47% of total revenue for the three-month periods ended June 30, 2014 and 2013, respectively, and 27% and 51% for the six-month periods ended June 30, 2014 and 2013, respectively. Fox represented approximately 30% and 28% of total revenue for the three-month periods ended June 30, 2014 and 2013, respectively, and 21% and 18% for the six-month periods ended June 30, 2014 and 2013, respectively .

As of June 30, 2014 and December 31, 2013, approximately 58% and 49%, respectively, of the Company's trade accounts receivable balance consisted of long-term receivables related to licensing arrangements with Netflix, Inc.

17.Commitments and Contingencies

Legal Proceedings. From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business, typically intellectual property litigation and infringement claims related to the Company's feature films and other commercial activities, which could cause the Company to incur significant expenses or prevent the Company from releasing a film or other properties. The Company also has been the subject of patent and copyright claims relating to technology and ideas that it may use or feature in connection with the production, marketing or exploitation of the Company's feature films and other properties, which may affect the Company's ability to continue to do so. Furthermore, from time to time the Company may introduce new products or services, including in areas where it currently does not operate, which could increase its exposure to litigation and claims by competitors, consumers or other intellectual property owners. Defending intellectual property litigation is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. While the resolution of these matters cannot be predicted with certainty, the Company does not believe, based on current knowledge, that any existing legal proceedings or claims are likely to have a material effect on its financial position, results of operations or cash flows.

Contributions to ODW. The Company has committed to making certain contributions in connection with the formation of ODW. Refer to Note 7 for further discussion related to these commitments.

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contingent Consideration. As a result of the Company's acquisition of ATV, the Company may be obligated to make additional contingent cash payments as part of the purchase price. Refer to Note 3 for further discussion.


18.	Earnings Per Share Data

The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except per share amounts):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Numerator:
Net (loss) income attributable to DreamWorks Animation SKG, Inc.	$	(15,387	)	$	22,253		$	(58,323	)	$	27,830
Denominator:
Weighted average common shares and denominator for basic calculation:
Weighted average common shares outstanding	84,658			83,634			84,624			84,204
Less: Unvested restricted stock	(104		)	(110		)	(104		)	(110		)
Denominator for basic calculation	84,554			83,524			84,520			84,094
Weighted average effects of dilutive stock-based compensation awards:
Restricted stock awards	—			1,009			—			804
Denominator for diluted calculation	84,554			84,533			84,520			84,898
Net (loss) income per share—basic	$	(0.18	)	$	0.27		$	(0.69	)	$	0.33
Net (loss) income per share—diluted	$	(0.18	)	$	0.26		$	(0.69	)	$	0.33

The following table sets forth (in thousands) the weighted average number of options to purchase shares of common stock, stock appreciation rights, restricted stock awards and equity awards subject to performance conditions which were not included in the calculation of diluted per share amounts (for periods where the Company had net income) because the effects would be anti-dilutive:



	Three Months Ended	Six Months Ended
	June 30, 2013	June 30, 2013
Options to purchase shares of common stock and restricted stock awards	1,714	3,180
Stock appreciation rights	5,112	5,172
Total	6,826	8,352

The following table sets forth (in thousands) the number of equity awards that are contingently issuable which were not included in the calculation of diluted shares (for periods where the Company had net income) as the required performance conditions had not been met as of June 30, 2013:



	Three Months Ended	Six Months Ended
	June 30, 2013	June 30, 2013
Options to purchase shares of common stock and restricted stock awards	716	716

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DREAMWORKS ANIMATION SKG, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


19.	Restructuring Charges

During the three months ended December 31, 2012, the Company made a strategic business decision to change the production and release slates for some of its animated feature films. In connection with this decision, the Company committed to a restructuring plan to align its production and operating infrastructure. During the three months ended March 31, 2013, the Company implemented a restructuring plan to lower the cost structure, which resulted in a commitment to further reduce its workforce. As a result, the Company incurred restructuring charges attributable to employee-related costs (primarily related to severance and benefits) totaling $0.4 million for 12 employees, and $2.9 million for 59 employees for the three- and six-month periods ended June 30, 2013, respectively. Restructuring charges were not material for the six months ended June 30, 2014. These charges were recorded in costs of revenues and selling, general and administrative expenses in the Company's consolidated statements of operations. Payments made during the three months ended June 30, 2014 and 2013 totaled $0.7 million and $2.5 million, respectively, and during the six months ended June 30, 2014 and 2013 totaled $1.7 million and $4.5 million, respectively, related to these restructuring plans. As of June 30, 2014 and December 31, 2013, $0.2 million and $1.7 million, respectively, remained accrued as a liability. As of June 30, 2014, the Company's restructuring plans were substantially complete. The Company's restructuring plans are primarily attributable to its Feature Films reportable segment.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section and other parts of this Quarterly Report on Form 10-Q (the "Quarterly Report") contain forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. You should read the following discussion and analysis in conjunction with our unaudited consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report, and our audited consolidated financial statements and related notes thereto, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the "Risk Factors" section included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Form 10-K"). We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (the "SEC"), including our 2013 Form 10-K and Current Reports on Form 8-K, before deciding to purchase, hold or sell our common stock.

Management Overview

The discussion of our revenues and costs of revenues for the three and six months ended June 30, 2014 and 2013 reflects our new segment categories. Refer to Note 14 of our unaudited consolidated financial statements contained elsewhere in this Quarterly Report for further information, including a description of each of our segments.

The following is a summary of the significant items that affected our financial results for the three and six months ended June 30, 2014:


•	During the three and six months ended June 30, 2014, we incurred a net loss (excluding net loss/income attributable to non-controlling interests) of $15.4 million, or a loss of $0.18 per share, and $58.3 million, or a loss of $0.69 per share, respectively. A detailed discussion of our financial results is provided in the section entitled "—Overview of Financial Results."


•	During the three months ended June 30, 2014, we released our feature film How to Train Your Dragon 2. A discussion of the revenues generated from this film is provided in the section entitled "—Overview of Financial Results —Revenues—Feature Films— Current year theatrical releases."

•

In May 2013, we completed the acquisition of AwesomenessTV ("ATV"). During the three and six months ended June 30, 2014, our operating results included $9.2 million and $13.3 million, respectively, of revenues and, for each of the three- and six-month periods ended June 30, 2014, $2.3 million of gross profit attributable to ATV. Further discussion is provided in the section entitled "—Overview of Financial Results."

•

As of June 30, 2014, we updated our estimate of the fair value of the contingent consideration liability related to the acquisition of ATV. As a result, during the three and six months ended June 30, 2014, we recorded a gain of $7.2 million and $4.7 million, respectively, to reflect the change in fair value of the liability. Further discussion is provided in the section entitled "—Overview of Financial Results."

Our Business

Our business is primarily devoted to developing, producing and exploiting animated feature films and their associated characters in the worldwide theatrical, home entertainment, digital, television, merchandising and licensing and other markets. In addition, we continue to build upon the value of our intellectual property by creating high-quality entertainment through the development and production of non-theatrical content such as television series and specials and live performances based on characters from our feature films.

For further information on our business, refer to Note 1 of our unaudited consolidated financial statements in "Part I—Item 1." For further details of our primary distribution and servicing arrangements, see "Part I—Item 1—Business—Distribution and Servicing Arrangements" of our 2013 Form 10-K. In addition, on June 30, 2014, we reacquired certain distribution rights from Paramount and, as a result, Paramount only retains television distribution rights (which includes subscription and free video-on-demand formats) for titles covered by the Paramount Agreements. The reacquired rights are now subject to the Fox Distribution Agreement.

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Our Revenues and Costs

Our Revenues

Feature Films

Our feature films are currently the source of a significant portion of our revenues. We derive revenue from our distributors' worldwide exploitation of our feature films in theaters and in post-theatrical markets such as home entertainment, digital, pay and free broadcast television, as well as other ancillary markets. Pursuant to the distribution arrangements with each of our theatrical distributors, prior to reporting any revenue for one of our feature films to us, each of our distributors is entitled to (i) retain a distribution fee, which is based on a percentage of gross revenues (without deduction for distribution and marketing costs and third-party distribution fees and sales agent fees) and (ii) recoup all of its permissible distribution and marketing costs with respect to the exploitation of our films on a film-by-film basis.

As such, under the various distributor agreements, each film’s total exploitation expenses and distribution fees are offset against that film’s revenues on a worldwide basis across all markets, and our distributors report no revenue to the Company until the first period in which an individual film’s cumulative worldwide gross revenues exceed its cumulative worldwide gross distribution fee and exploitation costs, which may be several quarters after a film’s initial theatrical release. Additionally, as the cumulative revenues and cumulative costs for each individual film are commingled between all markets and geographical territories and our distributors only report additional revenue to us for a film in those reporting periods in which that film’s cumulative worldwide gross revenues continue to exceed its cumulative worldwide gross costs, our reported revenues in any period are often a result of gross revenues with respect to an individual film generated in one or several territories being offset by the gross costs of both related and unrelated territories, as well as markets, for such film.

Our films are distributed in foreign countries and, in recent years, we have derived on average 71% of our worldwide box office receipts and 59% of our feature film revenue from foreign countries (sequel films generally have higher percentages than our original films). A significant amount of our transactions in foreign countries is conducted in the local currencies and, as a result, fluctuations in foreign currency exchange rates can affect our business, results of operations and cash flow. For a detailed discussion of our foreign currency risk, please see "Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Market and Exchange Rate Risk—Foreign Currency Risk" of our 2013 Form 10-K.

Television Series and Specials

Our business activities also include the development, production and exploitation of television, direct-to-video and other non-theatrical content. We have certain rights in our distribution and servicing arrangements (described above) to engage our distributors to distribute non-feature film product for us. However, our revenue and cost activities related to our television series/specials and direct-to-video product are generally not subject to our distribution agreements and, accordingly, we receive payment and record revenues directly from third parties. In June 2013, we announced that we had entered into separate, long-term agreements with Netflix and the German television network SuperRTL regarding the production and distribution of existing and future episodic series. The agreement with Netflix provides for the Company to deliver over 300 hours of newly created series based on DreamWorks Animation and Classic Media properties. Under both agreements, we will receive a per-episode license fee. We will also be entitled to retain all revenues from the exploitation of the series in other countries and derived from all media not expressly licensed to Netflix or SuperRTL.

Direct-to-video sales are conducted through distribution agreements with various third parties. Revenues from direct-to-video sales are primarily generated in the U.S., Canada and the United Kingdom. Although the majority of direct-to-video sales are conducted through third parties, we bear the inventory risk and cash collection risk, have discretion in supplier selection and are significantly involved in the marketing of the products. Consequently, we are considered the principal in the transactions and recognize direct-to-video revenue and the related distribution, marketing and placement fees on a gross basis.

Consumer Products

Our Consumer Products segment includes all merchandising and licensing activities related to our intellectual properties. We generate royalty-based revenues from the licensing of our characters, film elements and other intellectual property rights to consumer product companies, retailers, live entertainment companies, music publishers, theme parks, cruise ships and hotels worldwide.

Due to the significant expansion of our merchandising and licensing activities, we have made a strategic shift in our business such that some of our consumer product programs are becoming perennial rather than focused on specific events, such as film or DVD releases. Consumer product revenues derived from our franchise properties (e.g., Shrek and Madagascar) are

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allocated to individual titles based on the time period surrounding a title's initial release. Consumer product revenues earned in periods significantly after initial release are attributed to the franchise's brand and not an individual title.

All Other

The primary revenue streams generated by our other segments are related to ATV (which we acquired in May 2013) and live performances. ATV generates revenues primarily from online advertising sales and distribution of content through media channels such as theatrical, home entertainment and television. Historically, the revenue activities related to our live performances have been minor relative to the size of our animated feature film business. We receive payment and record revenues directly from third parties. Subsequent to final performances of our live shows during the initial engagement, we generally continue to earn revenues through license arrangements of these productions that we enter into directly with third parties.

Our Costs

Costs of Revenues

Feature Films. Costs of revenues related to our Feature Films segment primarily include the amortization of capitalized costs, participation and residual costs and write-offs of amounts previously capitalized for titles not expected to be released or released titles not expected to recoup their capitalized costs. While the amortization of capitalized costs is based on the amount of revenues earned from all markets (including consumer products revenue), the amount of amortization reflected in the Feature Films segment is only that attributable to revenues reported in this segment.

Generally, given the structure of our distribution arrangements, our costs of revenues do not include distribution and marketing costs or third-party distribution and fulfillment services fees associated with our feature films. Distribution and marketing costs associated with the exploitation of our feature films would be included in our costs of revenues to the extent that we caused our distributors to make additional expenditures in excess of mutually agreed amounts.

Television Series and Specials. Similar to our Feature Films segment, costs of revenues related to our Television Series and Specials segment primarily include the amortization of capitalized costs, participation and residual costs and write-offs of amounts previously capitalized. In addition, costs of revenues include amortization of intangible assets (which consists of certain character rights). Our television series and specials are typically not subject to the same distribution agreements as our feature films, and accordingly, costs of revenues includes distribution and marketing costs directly incurred by us. We also use a third-party, ANConnect (formerly, Anderson Merchandisors) ("Anderson"), to distribute certain home entertainment product in the U.S. and Canada, and as a result of our arrangement with Anderson, costs of revenues also include costs related to physical inventory sales and associated distribution fees.

Consumer Products. Costs of revenues associated with our Consumer Products segment are primarily related to the portion of amortization of capitalized costs of our film, television series/specials and live performances, as well as amortization of certain intangible assets, associated with consumer product and licensing revenues. Costs of revenues also include participation costs, direct costs for sales commissions to outside third parties for the licensing and merchandising of our characters and certain marketing and promotion costs.

All Other. All Other costs of revenues primarily include those attributable to ATV and our live performance business. Costs of revenues associated with our live performance business include the amortization of capitalized costs (excluding the portion attributable to consumer products revenue), marketing and other operating costs.

Capitalized Production Costs

Capitalized production costs represent the costs incurred to develop and produce our animated films and television series/specials, which primarily consist of compensation (including salaries, bonuses, stock-based compensation and fringe benefits) for animators, creative talent and voice talent (which, in the case of sequels, can be significant), equipment and other direct operating costs relating to the production (including production overhead). In addition, capitalized production costs may include interest expense to the extent that amounts were qualified to be capitalized.

Capitalized production costs and participations and residual costs are amortized and included in costs of revenues in the proportion that the revenue for each film or television series/special ("Current Revenue") during the period bears to its respective estimated remaining total revenue to be received from all sources ("Ultimate Revenue"). The amount of capitalized production costs that are amortized each period will therefore depend on the ratio of Current Revenue to Ultimate Revenue for

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each film or television series/special for such period. Because the profitability for each title varies depending upon its individual projection of Ultimate Revenues and its amount of capitalized costs incurred, total amortization may vary from period to period due to several factors, including: (i) changes in the mix of titles earning revenue, (ii) changes in any title’s Ultimate Revenue and capitalized costs and (iii) write-downs of capitalized production costs due to changes in the estimated fair value of unamortized capitalized production costs.

Unamortized capitalized production costs are evaluated for impairment each reporting period on a title-by-title basis. If estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that title, the unamortized capitalized production costs will be written down to fair value determined using a net present value calculation. For our feature films (which comprise the largest part of our business), the degree of uncertainty around the estimates of net cash flows is substantially reduced after a film’s initial theatrical release, and thus, to the extent that we record a material impairment charge, it generally occurs in the quarter of a film's initial theatrical release. For example, in the quarter ended December 31, 2012, we recorded an impairment charge of $86.9 million with respect to our film Rise of the Guardians, which was initially released in November 2012. In the quarter ended March 31, 2014, we recorded an impairment charge of $57.1 million with respect to our film Mr. Peabody and Sherman, which was released in March 2014. We may also from time to time observe indicators of impairment subsequent to a film’s initial worldwide theatrical release, such as lower-than-expected performance in home entertainment and other post-theatrical markets, which result in a reduction in our estimate of a film’s Ultimate Revenues and may result in an impairment of the film in periods following its initial theatrical release. For example, Turbo was initially released in July 2013 in the domestic theatrical market and we recorded an impairment charge on the film during the quarter ended December 31, 2013.

As it relates to titles that have been impaired, additional impairments may be recorded subsequently if the uncertain components of our future revenues do not materialize as expected. For example, we may experience a further impairment of Turbo's remaining carrying costs if the uncertain components of our future revenues (e.g., those related to home entertainment sales and some consumer products licensing activity) do not materialize as currently expected. A reduction of 10% in our estimated future revenues attributable to Turbo would result in an additional impairment charge of approximately $4 million to $8 million. We may also experience a further impairment of Mr. Peabody and Sherman's remaining carrying costs if the uncertain components of our future revenues (e.g., those related to home entertainment sales) do not materialize as currently expected. A reduction of 10% in our estimated future revenues attributable to Mr. Peabody and Sherman would result in an additional impairment charge of approximately $5 million to $10 million.

For a discussion of write-downs of capitalized production costs recorded during the six months ended June 30, 2014, see "—Overview of Financial Results—Costs of Revenues."

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of employee compensation (including salaries, bonuses, stock-based compensation and employee benefits), rent, insurance and fees for professional services. In addition, selling, general and administrative expenses include advertising and marketing costs that are not directly attributable to our feature films, television series/specials or live performances. In addition, as a result of our restructuring plans (as described in Note 19 of the unaudited consolidated financial statements contained in Item 1 of this Quarterly Report), our selling, general and administrative expenses also include restructuring charges.

Other Operating Income

Operating-related income or gains that are not considered revenues are classified as other operating income in our consolidated statements of operations. Other operating income largely consists of income recognized in connection with our contributions to ODW in the form of consulting and training services and the license of technology. Refer to the section entitled "—Overview of Financial Results—Other Operating Income" for further details of amounts recognized as other operating income during the three and six months ended June 30, 2014.

For a detailed description of our revenues and operating expenses, please see "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Revenues and Costs" of our 2013 Form 10-K.

Seasonality

The timing of revenue reporting and receipt of cash remittances to us, related to our feature films, from our distributors fluctuates based upon the timing of our films’ theatrical and home entertainment releases and, with respect to certain of our distributors, the recoupment position of our distributors on a film-by-film basis, which varies depending upon a film’s overall

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performance. From time-to-time, we may enter into license arrangements directly with third-parties to distribute our titles through digital media formats. The timing of revenues earned under these license arrangements fluctuates depending on when each title is made available. Furthermore, the timing of revenues related to our television specials may fluctuate if the title is holiday-themed. The licensing of our character and film elements are influenced by seasonal consumer purchasing behavior and the timing of our animated feature film theatrical releases and television series/specials broadcasts. We expect that revenues generated from our Classic Media properties will tend to be higher during the fourth quarter of each calendar year due to the holiday-themed content offered through television distribution rights as well as home entertainment products geared towards the holiday season. As a result, our annual or quarterly operating results, as well as our cash on hand, for any period are not necessarily indicative of results to be expected for future periods.

Results of Operations

Overview of Financial Results

The following table sets forth, for the periods presented, certain data from our unaudited consolidated statements of operations. This information should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report.



	Three Months Ended June 30,											Six Months Ended June 30,
	2014			2013			$ Change			% Change		2014⁽¹⁾			2013			$ Change			% Change
	(in millions, except percentages and per share data)
Revenues	$	122.3		$	213.4		$	(91.1	)	(42.7	)%	$	269.5		$	348.0		$	(78.5	)	(22.6	)%
Costs of revenues	87.5			133.3			(45.8		)	(34.4	)%	248.2			218.8			29.4			13.4	%
Gross profit	34.8			80.1			(45.3		)	(56.6	)%	21.3			129.2			(107.9		)	(83.5	)%
Product development	0.6			1.1			(0.5		)	(45.5	)%	1.2			2.0			(0.8		)	(40.0	)%
Selling, general and administrative expenses	54.6			49.7			4.9			9.9	%	101.8			92.5			9.3			10.1	%
Change in fair value of contingent consideration	(7.2		)	—			(7.2		)	(100.0	)%	(4.7		)	—			(4.7		)	(100.0	)%
Other operating income	(2.3		)	(2.9		)	(0.6		)	(20.7	)%	(4.0		)	(2.9		)	1.1			37.9	%
Operating (loss) income	(10.9		)	32.2			(43.1		)	NM		(73.0		)	37.6			(110.6		)	NM

Non-operating income (expense):
Interest (expense) income, net	(2.5		)	0.8			(3.3		)	NM		(4.2		)	1.6			(5.8		)	NM
Other income, net	1.8			1.0			0.8			80.0	%	3.1			2.0			1.1			55.0	%
Decrease (increase) in income tax benefit payable to former stockholder	1.7			(0.4		)	2.1			NM		2.6			(1.1		)	3.7			NM
(Loss) income before loss from equity method investees and income taxes	(9.9		)	33.6			(43.5		)	NM		(71.5		)	40.1			(111.6		)	NM

Loss from equity method investees	3.4			1.3			2.1			161.5	%	6.7			1.3			5.4			415.4	%
(Loss) income before income taxes	(13.3		)	32.3			(45.6		)	NM		(78.2		)	38.8			(117.0		)	NM
Provision (benefit) for income taxes	2.6			10.1			(7.5		)	(74.3	)%	(19.9		)	10.5			(30.4		)	NM
Net (loss) income	(15.9		)	22.2			(38.1		)	NM		(58.3		)	28.3			(86.6		)	NM
Less: Net (loss) income attributable to non-controlling interests	(0.5		)	—			(0.5		)	100.0	%	—			0.5			(0.5		)	(100.0	)%
Net (loss) income attributable to DreamWorks Animation SKG, Inc.	$	(15.4	)	$	22.2		$	(37.6	)	NM		$	(58.3	)	$	27.8		$	(86.1	)	NM

Diluted net (loss) income per share attributable to DreamWorks Animation SKG, Inc.	$	(0.18	)	$	0.26		$	(0.44	)	NM		$	(0.69	)	$	0.33		$	(1.02	)	NM
Shares used in computing diluted net (loss) income per share	84.6			84.5						0.1	%	84.5			84.9						(0.5	)%

____________________

NM: Not Meaningful.

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⁽¹⁾	Our results for the six months ended June 30, 2014 included a write-down of film costs totaling $57.1 million. See "—Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013—Costs of Revenues" for further details.

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

The following chart sets forth (in millions), for the periods presented, our revenues by segment. This information should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report.

________________

⁽¹⁾

For each period shown, "Feature Films" consists of revenues attributable to the development, production and exploitation of feature films in the theatrical, television, home entertainment and digital markets. "Television Series and Specials" consists of revenues attributable to the development, production and exploitation of television, direct-to-video and other non-theatrical content. "Consumer Products" consists of revenues attributable to our merchandising and licensing activities related to the exploitation of our intellectual property rights. "All Other" consists of revenues not attributable to the reportable segments (primarily ATV and live performances).

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Revenues. For the three months ended June 30, 2014, our revenues were $122.3 million, a decrease of $91.1 million, or 42.7%, as compared to $213.4 million for the three months ended June 30, 2013.

Feature Films

The following chart sets forth the revenues generated by our Feature Films segment, by category, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 (in millions):

_________

⁽¹⁾

For each period shown, "Current year theatrical releases" consists of revenues attributable to films released during the current year, "Prior year theatrical releases" consists of revenues attributable to films released during the immediately prior year, and "Preceding year theatrical releases" consists of revenues attributable to films released during all previous periods that are not yet part of our library. Titles are added to the "Library" category starting with the quarter of a title's second anniversary of the initial domestic theatrical release.

Current year theatrical releases. Revenues generated by our "Current year theatrical releases" category decreased $67.4 million, or 94.3%, during the three months ended June 30, 2014 when compared to the three months ended June 30, 2013. The Croods (March 2013 release) was a stronger-performing title than Mr. Peabody and Sherman (March 2014 release). During the three months ended June 30, 2013, The Croods contributed $71.5 million, or 33.5%, of consolidated revenues, earned in the worldwide theatrical markets, while, during the three months ended June 30, 2014, Mr. Peabody and Sherman contributed $1.5 million, or 1.2%, of revenues, primarily earned in the international theatrical market. Although Fox has not yet recouped their marketing and distribution costs, we currently anticipate that they will recoup their costs from their future on-going distribution of Mr. Peabody and Sherman in the post-theatrical (e.g., home entertainment and television) markets.

Additionally, during the three months ended June 2014, we released How to Train Your Dragon 2 (June 2014 release) which contributed $2.6 million, or 2.1%, of consolidated revenues earned in the ancillary markets. We did not release a film during a similar time frame during the three months ended June 30, 2013. As is somewhat typical for many of our new

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theatrical releases, our primary distributor did not report any theatrical revenue to us during the three months ended June 30, 2014 for How to Train Your Dragon 2 as Fox is entitled to recover its marketing and distribution costs before it is required to report to us any revenue generated from the exploitation of this film. We currently anticipate that Fox will recoup their marketing and distribution costs during the three months ending September 30, 2014 from their on-going distribution of How to Train Your Dragon 2 in the international theatrical markets.

Prior year theatrical releases. Revenues generated by our "Prior year theatrical releases" category decreased $27.5 million, or 43.0%, to $36.5 million during the three months ended June 30, 2014 when compared to $64.0 million of revenues earned during the three months ended June 30, 2013. This decrease was primarily due to the timing of Madagascar 3 (June 2012 release) becoming available for distribution in the domestic pay television window during the three months ended June 30, 2013. 2014's "Prior year theatrical release" titles became available in the domestic pay television market (which includes SVOD distribution) during the three months ended March 31, 2014.

For the three months ended June 30, 2014, "Prior year theatrical release" revenues consisted of those generated by Turbo (July 2013 release) and The Croods (March 2013 release). During the three months ended June 30, 2013, Turbo contributed $11.0 million, or 9.0%, of revenues, primarily earned in the worldwide home entertainment markets. During the three months ended June 30, 2014, The Croods contributed $25.5 million, or 20.9%, of revenues, primarily earned in the international pay television market.

For the three months ended June 30, 2013, "Prior year theatrical release" revenues consisted of those generated by Rise of the Guardians (November 2012 release) and Madagascar 3 (June 2012 release). During the three months ended June 30, 2013, Rise of the Guardians contributed $16.6 million, or 7.8%, of revenues primarily earned in the worldwide home entertainment and television markets. During the three months ended June 30, 2013, Madagascar 3 contributed $47.4 million, or 22.2%, of revenues, primarily earned in the worldwide television markets.

Preceding year theatrical releases. Revenues generated by our "Preceding year theatrical releases" category consist of revenues attributable to films released during all previous periods that are not yet part of our library. Revenues generated by our "Preceding year theatrical releases" category increased $0.7 million, or 53.8%, to $2.0 million during the three months ended June 30, 2014 when compared to $1.3 million of revenues earned during the three months ended June 30, 2013. During the three months ended June 30, 2014, Rise of the Guardians (an original title released in November 2012) contributed $2.0 million, or 1.6%, of consolidated revenues, primarily earned in the worldwide home entertainment market. During the three months ended June 30, 2013, Puss in Boots (a sequel title released in October 2011) contributed $1.3 million, or 0.6% of revenues, primarily earned in the international home entertainment market.

Library. Titles are added to the "Library" category starting with the quarter of a title's second anniversary of the initial domestic theatrical release. Revenue from our "Library" category decreased $9.0 million, or 24.9%, to $27.1 million during the three months ended June 30, 2014 when compared to $36.1 million of revenue earned during the three months ended June 30, 2013. During the three months ended June 30, 2013, our "Library" category benefited from the timing of a larger number of titles becoming available for release in the international free television market which resulted in higher revenues for this period when compared to the three months ended June 30, 2014. Our feature film titles are generally released into the international free television market two to three years after the title's initial domestic theatrical release. Thus, revenues earned from the international free television market are impacted by the timing and quantity of feature films released during each of the recent years.

Non-Feature Film Revenues

The following table sets forth the revenues generated by our segments, other than Feature Films, for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 (in millions, except percentages):



	Three Months Ended June 30,				Increase (Decrease)
Segment	2014		2013		$			%
Television Series and Specials	$	20.0	$	21.1	$	(1.1	)	(5.2	)%
Consumer Products	18.5		15.6		2.9			18.6	%
All Other⁽¹⁾	14.1		3.8		10.3			271.1	%
Total Non-Feature Film revenues	$	52.6	$	40.5	$	12.1		29.9	%
⁽¹⁾"All Other" consists of revenues not attributable to the other segments.

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Television Series and Specials. As illustrated in the table above, revenues generated from our Television Series and Specials segment slightly decreased by $1.1 million, or 5.2%, to $20.0 million during the three months ended June 30, 2014 when compared to $21.1 million of revenues earned during the three months ended June 30, 2013. This decrease was primarily attributable to a decline in revenues generated by our Classic Media properties due to higher than expected returns of seasonal and newly-released home entertainment product and certain sales incentives offered during the three months ended June 30, 2014 when compared to the same period of the prior year. This decrease was partially offset by revenues generated by our DreamWorks Animation properties as our new episodic series Turbo F.A.S.T. debuted in December 2013 and was a main revenue contributor to this segment during the three months ended June 30, 2014.

Consumer Products. As illustrated in the table above, revenues generated from our Consumer Products segment increased by $2.9 million to $18.5 million during the three months ended June 30, 2014 when compared to $15.6 million of revenues earned during the three months ended June 30, 2013. During the three months ended June 30, 2014, our Consumer Products segment revenues was driven by merchandising and licensing activities related to How to Train Your Dragon 2. During the three months ended June 30, 2013, our Consumer Products segment revenues was driven by intellectual property licenses that we granted in exchange for our equity interest in ODW. As a result, we recognized revenues in the amount of $7.8 million, which represents the portion of the license value attributable to the equity interests of ODW held by our Chinese Joint Venture partners.

All Other. Revenues generated by our All Other segment increased $10.3 million to $14.1 million during the three months ended June 30, 2014 when compared to $3.8 million earned during the three months ended June 30, 2013, primarily due to revenues generated by ATV (which we acquired in May 2013). Revenues attributable to ATV increased because the three months ended June 30, 2014 include a full three-month period compared to only two months in the same period of the prior year. In addition, when comparing the three months ended June 30, 2014 to the same period of the prior year, ATV generated higher advertising revenues as a result of increased viewership and higher content licensing fees attributable to a newly released title.

Costs of Revenues. Costs of revenues for the three months ended June 30, 2014 totaled $87.5 million, a decrease of $45.8 million, or 34.4%, compared to $133.3 million for the three months ended June 30, 2013. Costs of revenues as a percentage of revenues were 71.6% for the three months ended June 30, 2014 and 62.4% for the three months ended June 30, 2013. The following is a discussion of our costs of revenues by segment:

Feature Films. The primary component of our costs of revenues is film amortization costs. Costs of revenues as a percentage of revenues for our Feature Films segment were 65.7% during the three months ended June 30, 2014 compared to 60.6% for the three months ended June 30, 2013. The increase in costs of revenues as a percentage of revenues was partially attributable to our "Prior year theatrical releases" category as 2014's "Prior year theatrical releases" had an overall higher amortization rate compared to 2013's "Prior year theatrical releases." 2014's "Prior year theatrical releases" category included Turbo, which has a higher rate of amortization due to its lower projected Ultimate Revenues. In addition, our costs of revenues include write-offs of capitalized costs of films that are in development. During the three month-periods ended June 30, 2014 and 2013, we incurred similar development costs; however, as our development costs do not have a direct correlation with revenues earned, our costs of revenues as a percentage of revenues for the three months ended June 30, 2014 were higher as a result.

Consumer Products. Costs of revenues as a percentage of revenues for our Consumer Products segment during the three months ended June 30, 2014 decreased to 60.6% compared to 67.7% for the three months ended June 30, 2013. During the three months ended June 30, 2014, costs of revenues as a percentage of revenues decreased as a result of the mix of our Classic Media-related properties and products that contributed to our revenues during the three months ended June 30, 2014, which had lower associated costs, when compared to the three months ended June 30, 2013.

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All Other. During the three months ended June 30, 2014 and 2013, costs of revenues related to our All Other segment were $11.8 million and $3.5 million, respectively, which primarily consisted of those related to ATV. Costs of revenues increased because the three months ended June 30, 2014 include a full three-month period compared to only two months in the same period of the prior year. In addition, costs of revenues are impacted by the straight-line amortization of intangible assets, and as a result, such amortization does not directly correlate with revenues generated during the period.

Product Development. Product development costs slightly decreased to $0.6 million during the three months ended June 30, 2014 when compared to $1.1 million during the three months ended June 30, 2013. Product development costs primarily represent research and development costs related to our technology initiatives.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased $4.9 million to $54.6 million (including $2.9 million of stock-based compensation expense) for the three months ended June 30, 2014 from $49.7 million (including $5.6 million of stock-based compensation expense) for the three months ended June 30, 2013. This 9.9% aggregate increase was primarily attributable to an increase of $3.9 million as a result of our recent acquisitions, higher salaries and benefits of $4.2 million (excluding the effect of our recent acquisitions) due to increased headcount to support our brand and business diversification and expansion efforts, as well as $5.4 million of increased professional fees and facility expenses to support such expansion. These increases were partially offset by a decrease of $8.8 million attributable to lower incentive compensation expense (including stock-based compensation) related to performance-based compensation, which varies with changes in forecasts of the related performance metrics that will be achieved.

Change in Fair Value of Contingent Consideration. As of June 30, 2014, we updated our estimate of the fair value of the contingent consideration liability related to the acquisition of ATV. As a result of a decline in forecasted earnings for each of 2014 and 2015, we recorded a decrease to our contingent consideration liability and, accordingly, recorded a gain of $7.2 million during the three months ended June 30, 2014 to reflect the change in fair value of the liability. For further information, refer to Note 3 of our unaudited consolidated financial statements contained elsewhere in this Quarterly Report.

Other Operating Income. During the three months ended June 30, 2014 and 2013, we made certain non-cash contributions to ODW which resulted in the recognition of income associated with these contributions. During the three months ended June 30, 2014 and 2013, other operating income totaled $2.3 million and $2.9 million, respectively, and related to consulting and training services provided, as well as a portion of the value of the technology license granted.

Operating (Loss) Income. Operating loss for the three months ended June 30, 2014 was $10.9 million compared to operating income of $32.2 million for the three months ended June 30, 2013. The decrease in operating income when comparing the three months ended June 30, 2014 to the three months ended June 30, 2013 was largely due to the decrease in our gross profit, which was driven by lower revenues earned and increased costs of revenues relative to those revenues (as previously described).

Interest Expense/Income, Net. For the three months ended June 30, 2014 and 2013, we recorded net interest expense (net of amounts capitalized) of $2.5 million and net interest income of $0.8 million, respectively. Interest expense (net) during the three months ended June 30, 2014 increased when compared to the three months ended June 30, 2013 primarily due to interest expense incurred on our senior unsecured notes issued in August 2013.

Other Income, Net. For the three months ended June 30, 2014 and 2013, total other income (net of other expenses) was $1.8 million and $1.0 million, respectively. Other income in both years consisted mainly of income recognized in connection with preferred vendor arrangements with certain of our strategic alliance relationships. In addition, the change in other income (net) is also due to gains on foreign currency exchange transactions that we recorded during the three months ended June 30, 2014 in the amount of $0.4 million as compared to a loss of $0.5 million during the same period of the prior year.

Decrease (Increase) in Income Tax Benefit Payable to Former Stockholder. As a result of a partial increase in the tax basis of our tangible and intangible assets attributable to transactions entered into by affiliates controlled by a former stockholder at the time of our 2004 initial public offering (“Tax Basis Increase"), we may pay reduced tax amounts to the extent we generate sufficient taxable income in the future. As a result of the Tax Basis Increase, we are obligated to remit to such affiliates 85% of any cash savings in U.S. Federal income tax, California franchise tax and certain other related tax benefits, subject to repayment if it is determined that these savings should not have been available to us.

For the three months ended June 30, 2014, we recorded $1.7 million as a decrease in income tax benefit payable to former stockholder in our statements of operations as a result of our ability to claim certain federal tax deductions. For the three

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months ended June 30, 2013 we recorded $0.4 million as an increase in income tax benefit payable to former stockholder in our statements of operations as a result of imputed interest on our payable to former stockholder.

Loss from Equity Method Investees. We use the equity method of accounting for investments in companies in which we own 50% or less and can exercise significant influence, but do not control. During the three months ended June 30, 2014 and 2013, our portion of the losses incurred by equity method investees was $3.4 million and $1.3 million, respectively, which were primarily attributable to our shares of losses incurred by ODW.

Provision for Income Taxes. For the three months ended June 30, 2014, we recorded a provision for income taxes of $2.6 million, or an effective tax rate of (17.3)%. For the three months ended June 30, 2013, we recorded a provision for income taxes of $10.1 million, or an effective tax rate of 30.9%. However, when our provision for income taxes is combined with the amounts associated with the Decrease (Increase) in Income Tax Benefit Payable to Former Stockholder (see above), the combined effective tax rates for the three months ended June 30, 2014 and 2013 were (6.0)% and 32.0%, respectively. As a result of our loss before income taxes during the three months ended June 30, 2014, our effective tax rate and combined effective tax rate were different from the 35% statutory federal rate primarily due to nondeductible executive compensation and nondeductible losses from an equity method investee. In addition, although we recognized a pre-tax loss for the three months ended June 30, 2014, our effective tax rate and combined effective tax rate were negative due to limitations on our ability to recognize a portion of our state tax benefit during the quarter. For the three months ended June 30, 2013, our effective tax rate and combined effective tax rate was lower than the 35% statutory federal rate due to research and development credits and other federal tax incentives.

Refer to "—Critical Accounting Policies and Estimates—Provision for Income Taxes" for a discussion of our valuation allowance.

Net Loss Attributable to Non-controlling Interests. As a result of our acquisition of Classic Media, we hold a 50% equity interest in a joint venture operated through Bullwinkle Studios, LLC ("Bullwinkle Studios"). We consolidate the results of this joint venture because we retain control over the operations. Net loss attributable to non-controlling interests represents the joint venture partner's share of the net loss (or income) generated by Bullwinkle Studios. For the three months ended June 30, 2014, net loss attributable to non-controlling interests was $0.5 million. For the three months ended June 30, 2013, net loss attributable to non-controlling interests had an immaterial impact on our consolidated financial statements.

Net (Loss) Income Attributable to DreamWorks Animation SKG, Inc. Net loss (excluding net loss attributable to non-controlling interests) for the three months ended June 30, 2014 was $15.4 million, or a loss of $0.18 per share, as compared to net income of $22.2 million, or $0.26 per diluted share, during the three months ended June 30, 2013.

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Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

____________________

⁽¹⁾

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Revenues. For the six months ended June 30, 2014, our revenues were $269.5 million, a decrease of $78.5 million, or 22.6%, as compared to $348.0 million for the six months ended June 30, 2013.

Feature Films

The following chart sets forth the revenues generated by our Feature Films segment, by category, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 (in millions):

____________________

⁽¹⁾

Current year theatrical releases. Revenues generated by our "Current year theatrical releases" category decreased $66.9 million, or 90.4%, during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013. The Croods (March 2013 release) was a stronger-performing title than Mr. Peabody and Sherman (March 2014 release) (refer to "Costs of Revenues" below for further discussion). During the six months ended June 30, 2013, The Croods contributed $74.0 million, or 21.3%, of consolidated revenues, earned in the worldwide theatrical markets, while during the six months ended June 30, 2014, Mr. Peabody and Sherman contributed $4.5 million, or 1.7%, of revenues, primarily earned in the international theatrical and ancillary markets. Although Fox has not yet recouped their marketing and distribution costs, we currently anticipate that they will recoup their costs from their future on-going distribution of Mr. Peabody and Sherman in the post-theatrical (e.g., home entertainment and television) markets.

Additionally, during the six months ended June 2014, we released How to Train Your Dragon 2 (June 2014 release) which contributed $2.6 million, or 1.0%, of consolidated revenues earned in the ancillary markets. We did not release a film

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during a similar time frame during the six months ended June 30, 2013. As is somewhat typical for many of our new theatrical releases, our primary distributor did not report any theatrical revenue to us during the six months ended June 30, 2014 for How to Train Your Dragon 2 as Fox is entitled to recover its marketing and distribution costs before it is required to report to us any revenue generated from the exploitation of this film. We currently anticipate that Fox will recoup their marketing and distribution costs during the three months ending September 30, 2014 from their on-going distribution of How to Train Your Dragon 2 in the international theatrical markets.

Prior year theatrical releases. Revenues generated by our "Prior year theatrical releases" category increased $5.9 million, or 6.2%, to $100.5 million during the six months ended June 30, 2014 when compared to $94.6 million of revenues earned during the six months ended June 30, 2013. Our revenues during the six months ended June 30, 2014 benefited from having two titles becoming available for distribution in the domestic pay television window (which includes SVOD distribution) compared to one during the six months ended June 30, 2013.

For the six months ended June 30, 2014, "Prior year theatrical release" revenues consisted of those generated by Turbo (July 2013 release) and The Croods (March 2013 release) which contributed $33.3 million (or 12.4%) and $67.2 million (or 24.9%) of revenues, respectively, primarily related to each title's SVOD distribution, as well as revenues earned in the worldwide home entertainment market.

For the six months ended June 30, 2013, "Prior year theatrical release" revenues consisted of those generated by Rise of the Guardians (November 2012 release) and Madagascar 3 (June 2012 release). During the six months ended June 30, 2013, Rise of the Guardians contributed $26.0 million, or 7.5%, of revenues primarily earned in the worldwide home entertainment markets. During the six months ended June 30, 2013, Madagascar 3 contributed $68.6 million, or 19.7%, of revenues, primarily earned in the worldwide television and international home entertainment markets.

Preceding year theatrical releases. Revenues generated by our "Preceding year theatrical releases" category consist of revenues attributable to films released during all previous periods that are not yet part of our library. Revenues generated by our "Preceding year theatrical releases" category decreased $1.6 million, or 18.0%, to $7.3 million during the six months ended June 30, 2014 when compared to $8.9 million earned during the six months ended June 30, 2013. "Preceding year theatrical release" revenues for the six months ended June 30, 2014 were comprised of Rise of the Guardians and Madagascar 3, which contributed an aggregate of $7.3 million, or 2.7%, of consolidated revenues, primarily earned in the worldwide home entertainment market. "Preceding year theatrical release" revenues for the six months ended June 30, 2013 were comprised of Puss in Boots and Kung Fu Panda 2, which contributed an aggregate of $8.9 million, or 2.6%, of consolidated revenues, primarily earned in the worldwide home entertainment and international pay television markets.

Library. Titles are added to the "Library" category starting with the quarter of a title's second anniversary of the initial domestic theatrical release. Revenue from our "Library" category decreased $9.1 million, or 12.3%, to $64.8 million during the six months ended June 30, 2014 when compared to $73.9 million during the six months ended June 30, 2013. Revenues generated by our "Library" category were largely driven by those earned in the international free television market by Puss in Boots (our fourth quarter 2011 release) during the six months ended June 30, 2014 and Megamind (our fourth quarter 2010 release) during the six months ended June 30, 2013. During the six months ended June 30, 2013, our "Library" category benefited from the timing of a larger number of titles becoming available for release in the international free television market which resulted in higher revenues for this period when compared to the six months ended June 30, 2014. Our feature film titles are generally released into the international free television market two to three years after the title's initial domestic theatrical release. Thus, revenues earned from the international free television market are impacted by the timing and quantity of feature films released during each of the recent years.

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Non-Feature Film Revenues

The following table sets forth the revenues generated by our segments, other than Feature Films, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 (in millions, except percentages):



	Six Months Ended June 30,				Increase (Decrease)
Segment	2014		2013		$			%
Television Series and Specials	$	37.9	$	40.5	$	(2.6	)	(6.4	)%
Consumer Products	30.7		43.1		(12.4		)	(28.8	)%
All Other⁽¹⁾	21.2		13.0		8.2			63.1	%
Total Non-Feature Film revenues	$	89.8	$	96.6	$	(6.8	)	(7.0	)%
⁽¹⁾"All Other" consists of revenues not attributable to the other segments.

Television Series and Specials. As illustrated in the table above, revenues generated from our Television Series and Specials segment decreased $2.6 million, or 6.4%, to $37.9 million during the six months ended June 30, 2014 when compared to $40.5 million during the six months ended June 30, 2013. This decrease was primarily attributable to a decline in revenues generated by our Classic Media properties due to higher than expected returns of seasonal and newly-released home entertainment product and certain sales incentives offered during the six months ended June 30, 2014 when compared to the same period of the prior year. In addition, the timing of product availability resulted in higher revenues earned during the six months ended June 30, 2013 when compared to the six months ended June 30, 2014. This decrease was partially offset by an increase in revenues generated by our DreamWorks Animation properties as our new episodic series Turbo F.A.S.T. debuted in December 2013 and was a main revenue contributor to this segment during the six months ended June 30, 2014.

Consumer Products. As illustrated in the table above, revenues generated from our Consumer Products segment decreased $12.4 million, or 28.8%, to $30.7 million during the six months ended June 30, 2014 when compared to $43.1 million of revenues earned during the six months ended June 30, 2013. Revenues generated during the six months ended June 30, 2013 were higher than the six months ended June 30, 2014 as the 2013 period included revenues earned from the sale of our share of rights in the 1960s live-action Batman television series. Additionally, during the six months ended June 30, 2013, our Consumer Products segment revenues benefited from intellectual property licenses that we granted in exchange for our equity interest in ODW. As a result, we recognized revenues in the amount of $7.8 million, which represents the portion of the license value attributable to the equity interests of ODW held by our Chinese Joint Venture partners.

All Other. Revenues generated by our All Other segment increased $8.2 million, or 63.1%, to $21.2 million during the six months ended June 30, 2014 when compared to $13.0 million earned during the six months ended June 30, 2013, primarily due to revenues generated by ATV (which we acquired in May 2013). Revenues attributable to ATV increased because the six months ended June 30, 2014 include a full six-month period compared to only two months in the same period of the prior year. In addition, when comparing the six months ended June 30, 2014 to the same period of the prior year, ATV generated higher advertising revenues as a result of increased viewership and higher content licensing fees attributable to a newly released title.

Costs of Revenues. Costs of revenues for the six months ended June 30, 2014 totaled $248.2 million, an increase of $29.4 million, or 13.4%, compared to $218.8 million for the six months ended June 30, 2013. Costs of revenues as a percentage of revenues were 92.1% for the six months ended June 30, 2014 and 62.9% for the six months ended June 30, 2013. The following is a discussion of our costs of revenues by segment:

Feature Films. The primary component of our costs of revenues is film amortization costs and, as it relates to the six months ended June 30, 2014, impairment charges. Costs of revenues as a percentage of revenues for our Feature Films segment were 100.8% during the six months ended June 30, 2014 compared to 62.6% for the six months ended June 30, 2013. The following were the primary contributors of our costs of revenues during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013:

•

Costs of revenues for the six-month period ended June 30, 2014 included an impairment charge of $57.1 million (exclusive of the impairment allocated to the Consumer Products segment, which was immaterial) on our theatrical release Mr. Peabody and Sherman (released domestically in March 2014). Due to Mr. Peabody and Sherman's weaker-than-expected worldwide theatrical performance during March 2014, we re-assessed

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the film's Ultimate Revenue projections (including our estimates of the film's revenues in post-theatrical markets (e.g., home entertainment and television, which have not yet been released)), which resulted in the film's estimated fair value (calculated using a net present value model) being less than the film’s unamortized capitalized production costs at the end of the first quarter of 2014 (refer to Note 5 of our unaudited consolidated financial statements and "—Our Revenues and Costs—Our Costs—Capitalized Production Costs" contained elsewhere in this Quarterly Report for further information);


•	Excluding the impairment charge described above, costs of revenues as a percentage of revenues increased during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013; and


•	2014's "Prior year theatrical releases" had an overall higher amortization rate compared to 2013's "Prior year theatrical releases." 2014's "Prior year theatrical releases" category included Turbo, which has a higher rate of amortization due to its lower projected Ultimate Revenues.

Television Series and Specials. Costs of revenues, the primary component of which is inventory amortization costs, as a percentage of revenues for our Television Series and Specials segment were 81.6% during the six months ended June 30, 2014 compared to 71.2% for the six months ended June 30, 2013. The increase in costs of revenues as a percentage of revenues was primarily due to higher than expected returns of seasonal and newly-released home entertainment product, as well as increased selling costs, related to our Classic Media properties. This increase was partially offset by an overall lower amortization rate attributable to content based on DreamWorks Animation properties as the main titles contributing revenues for the six months ended June 30, 2014 had higher estimates of Ultimate Revenues when compared to the main contributors during the same period of the prior year.

Consumer Products. Costs of revenues as a percentage of revenues for our Consumer Products segment during the six months ended June 30, 2014 were 56.5% compared to 45.5% for the six months ended June 30, 2013. Costs of revenues during the six months ended June 30, 2013 benefited from intellectual property licenses granted to ODW with no associated costs (for a description of this arrangement, refer to the previous discussion of revenues generated by the Consumer Products segment).

All Other. During the six months ended June 30, 2014 and 2013, costs of revenues related to our All Other segment were $18.7 million and $12.9 million, respectively, which primarily consisted of those related to ATV. Costs of revenues increased because the six months ended June 30, 2014 include a full six-month period compared to only two months in the same period of the prior year. In addition, costs of revenues is impacted by the straight-line amortization of intangible assets, and as a result, such amortization does not directly correlate with revenues generated during the period.

Product Development. Product development costs decreased to $1.2 million during the six months ended June 30, 2014 when compared to $2.0 million during the six months ended June 30, 2013. Product development costs primarily represent research and development costs related to our technology initiatives. The decrease is primarily due to a decline in development activity associated with a technology project that we are no longer pursuing.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased $9.3 million to $101.8 million (including $8.0 million of stock-based compensation expense) for the six months ended June 30, 2014 from $92.5 million (including $9.4 million of stock-based compensation expense) for the six months ended June 30, 2013. This 10.1% aggregate increase was primarily attributable to an increase of $6.2 million related to our recent acquisitions, higher salaries and benefits of $6.7 million (excluding the effect of our recent acquisitions) due to increased headcount to support our brand and business diversification and expansion efforts, as well as $8.6 million of increased professional fees and facility expenses to support such expansion. These increases were partially offset by a decrease of $13.6 million attributable to lower incentive compensation expense (including stock-based compensation) related to performance-based compensation, which varies with changes in forecasts of the related performance metrics that will be achieved. In addition, restructuring charges decreased by $1.8 million, which primarily consisted of severance and benefits. The remaining increases related to other selling, general and administrative expenses, none of which were individually material.

Change in Fair Value of Contingent Consideration. As of June 30, 2014, we updated our estimate of the fair value of the contingent consideration liability related to the acquisition of ATV. As a result of a decline in forecasted earnings for each of 2014 and 2015, we recorded a decrease to our contingent consideration liability and, accordingly, recorded a gain of $4.7 million during the six months ended June 30, 2014 to reflect the change in fair value of the liability. For further information, refer to Note 3 of our unaudited consolidated financial statements contained elsewhere in this Quarterly Report.

Other Operating Income. During the six months ended June 30, 2014 and 2013, we made certain non-cash contributions to ODW which resulted in the recognition of income associated with these contributions. During the six months

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ended June 30, 2014 and 2013, other operating income totaled $4.0 million and $2.9 million, respectively, and related to consulting and training services provided, as well as a portion of the value of the technology license granted.

Operating (Loss) Income. Operating loss for the six months ended June 30, 2014 was $73.0 million compared to operating income of $37.6 million for the six months ended June 30, 2013. The decrease in operating income when comparing the six months ended June 30, 2014 to the six months ended June 30, 2013 was largely due to the impairment of Mr. Peabody and Sherman's capitalized film costs (as previously described).

Interest Expense/Income, Net. For the six months ended June 30, 2014 and 2013, we recorded net interest expense (net of amounts capitalized) of $4.2 million and net interest income of $1.6 million, respectively. Interest expense (net) during the six months ended June 30, 2014 increased when compared to the six months ended June 30, 2013 primarily due to interest expense incurred on our senior unsecured notes issued in August 2013.

Other Income, Net. For the six months ended June 30, 2014 and 2013, total other income (net of other expenses) was $3.1 million and $2.0 million, respectively. Other income in both years consisted mainly of income recognized in connection with preferred vendor arrangements with certain of our strategic alliance partners. In addition, the change in other income (net) is also due to gains on foreign currency exchange transactions that we recorded during the six months ended June 30, 2014 in the amount of $0.3 million as compared to a loss of $0.9 million during the same period of the prior year.

Decrease (Increase) in Income Tax Benefit Payable to Former Stockholder. As a result of the Tax Basis Increase, we are obligated to remit to the stockholder's affiliate 85% of any cash savings in U.S. Federal income tax, California franchise tax and certain other related tax benefits, subject to repayment if it is determined that these savings should not have been available to us. For the six months ended June 30, 2014, we recorded $2.6 million as a decrease in income tax benefit payable to former stockholder in our statements of operations as a result of our ability to claim certain federal tax deductions. For the six months ended June 30, 2013, our payable to the former stockholder was impacted by our ability to retroactively apply research and development credits and other federal tax incentives as a result of extensions granted under the Act. As the Act was not enacted until January 2, 2013, we were not able to apply certain federal tax incentives until the first quarter of 2013 (which was the period of enactment). As a result of the Act, for the six months ended June 30, 2013, we recorded $1.1 million as an increase in income tax benefit payable to the former stockholder in our statements of operations.

Loss from Equity Method Investees. We use the equity method of accounting for investments in companies in which we own 50% or less and can exercise significant influence, but do not control. During the six months ended June 30, 2014 and 2013, our portion of the losses incurred by equity method investees was $6.7 million and $1.3 million, respectively, which were primarily attributable to our shares of losses incurred by ODW.

Benefit/Provision for Income Taxes. Our loss before income taxes during the six months ended June 30, 2014 is expected to result in a decrease in our tax liability in future periods. Accordingly, for the six months ended June 30, 2014, we recorded a benefit for income taxes of $19.9 million, or an effective tax rate of 24.6%. For the six months ended June 30, 2013, we recorded a provision for income taxes of $10.5 million, or an effective tax rate of 26.4%. However, when our benefit/provision for income taxes is combined with the amounts associated with the Decrease (Increase) in Income Tax Benefit Payable to Former Stockholder (see above), the combined effective tax rates for the six months ended June 30, 2014 and 2013 were 27.8% and 29.0%, respectively. As a result of our loss before income taxes, during the six months ended June 30, 2014, our effective tax rate and our combined effective tax rate were different from the 35% statutory federal rate primarily due to nondeductible executive compensation and nondeductible losses from an equity method investee. Our effective tax rate and our combined effective tax rate for the six months ended June 30, 2013 were lower than the 35% statutory federal rate as a result of the retrospective application of certain research and development credits and other federal tax incentives.

Refer to "—Critical Accounting Policies and Estimates—Provision for Income Taxes" for a discussion of our valuation allowance.

Net Income Attributable to Non-controlling Interests. As a result of our acquisition of Classic Media, we hold a 50% equity interest in a joint venture operated through Bullwinkle Studios, LLC ("Bullwinkle Studios"). We consolidate the results of this joint venture because we retain control over the operations. Net income attributable to non-controlling interests represents the joint venture partner's share of the income generated by Bullwinkle Studios. For the six months ended June 30, 2014, net income attributable to non-controlling interests was immaterial. For the six months ended June 30, 2013, net income attributable to non-controlling interests was $0.5 million.

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Net (Loss) Income Attributable to DreamWorks Animation SKG, Inc. Net loss (excluding net income attributable to non-controlling interests) for the six months ended June 30, 2014 was $58.3 million, or $0.69 per share, as compared to net income of $27.8 million, or $0.33 per diluted share, during the six months ended June 30, 2013.

Financing Arrangements

There were no material changes during the period covered by this Quarterly Report, outside of the ordinary course of business, to the financing arrangements specified in the section "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our 2013 Form 10-K.

As of June 30, 2014, we were in compliance with all applicable financial debt covenants.

For a more detailed description of our various financing arrangements, please see Note 10 to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our 2013 Form 10-K.

Liquidity and Capital Resources

Current Financial Condition

Cash generated from our operating activities, borrowings from our revolving credit facility and cash on hand during the six months ended June 30, 2014 were adequate to meet our operating cash needs. For the next 12 months, we expect that cash on hand, cash from operations and funds available under our revolving credit facility will be sufficient to satisfy our anticipated cash needs for working capital (e.g., selling, general and administrative costs, participation and residual payments, production and development costs related to film and non-film initiatives and new business investments), capital expenditures and debt service payments.

As of June 30, 2014, we had cash and cash equivalents totaling $32.2 million. Our cash and cash equivalents consist of cash on deposit and short-term money market investments, principally U.S. government securities, that are rated AAA and with maturities of three months or less when purchased. Our cash and cash equivalents balance at June 30, 2014 decreased by $63.3 million from $95.5 million at December 31, 2013. Components of this change in cash for the six months ended June 30, 2014, as well as for the six months ended June 30, 2013, are provided below in more detail.

As previously described, our feature films are now being distributed in China by ODW. China imposes cross-border currency regulations that restrict inflows and outflows of cash. As a result, we may experience a delay in receiving cash remittances from ODW for revenues generated in China. Based on the current amounts of revenue generated through our distribution arrangement with ODW, we do not currently believe that a delay in cash remittances from China will affect our liquidity and capital resource needs. As of June 30, 2014, the amount of outstanding receivables from ODW for distribution of our films was $3.6 million.

Operating Activities

Net cash (used in) provided by operating activities for the six months ended June 30, 2014 and 2013 was as follows (in thousands):



	2014			2013
Net cash (used in) provided by operating activities	$	(66,435	)	$	19,696

During the six months ended June 30, 2014, our main source of cash from operating activities was the collection of revenue. The main sources of cash during this period were The Croods' international theatrical and worldwide home entertainment revenues, Rise of the Guardians' worldwide home entertainment and international television revenues, Madagascar 3's international theatrical and television revenues, Puss in Boots' international television revenues, and to a lesser extent, the collection of worldwide television and home entertainment revenues from our other films. Cash used in operating activities for the six months ended June 30, 2014 included $32.2 million paid related to incentive compensation payments, which increased $25.0 million when compared to the amount paid during the six months ended June 30, 2013 as these cash payments fluctuate based on our financial results. The cash from operating activities was also partially offset by production spending for our films and television series, as well as participation and residual payments. In recent years, cash used in operating activities has increased due to a greater number of projects in production as we are currently planning on releasing three films in each of 2014 and 2015, as well as our expansion of our episodic series productions. In addition, our cash

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collections have been lower due to the performance of our feature films, which, in the past year, has not been as strong as we have historically experienced.

During the six months ended June 30, 2013, our main source of cash from operating activities was the collection of revenue from Paramount related to Madagascar 3's domestic television, international theatrical and worldwide home entertainment revenues, Puss in Boots' international television revenues, and to a lesser extent, the collection of worldwide television and home entertainment revenues from our other films. Cash used in operating activities for the first six months of 2013 included $7.2 million paid related to incentive compensation payments, as well as $16.0 million (net of a refund received) paid to an affiliate of a former stockholder related to tax benefits realized in 2013 from the Tax Basis Increase. The cash from operating activities was also partially offset by production spending for our films and television specials/series, as well as participation and residual payments.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2014 and 2013 was as follows (in thousands):



	2014			2013
Net cash used in investing activities	$	(94,623	)	$	(59,671	)

Net cash used in investing activities for the six months ended June 30, 2014 was largely attributable to a variety of acquisitions, including the acquisition of certain character and distribution rights as well as a company that operates an Internet-based multi-channel network. Net cash used in investing activities for the six months ended June 30, 2013 was primarily attributable to the acquisition of ATV. In addition, during the six months ended June 30, 2014 and 2013, we made cash contributions in connection with investments in various unconsolidated entities. For further information of our investments in unconsolidated entities, refer to Note 7 of our unaudited consolidated financial statements contained elsewhere in this Quarterly Report.

Lastly, net cash used in investing activities for the six months ended June 30, 2014 and 2013 was partially attributable to the investment in property, plant and equipment.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2014 and 2013 was as follows (in thousands):



	2014		2013
Net cash provided by financing activities	$	98,305	$	9,146

Net cash provided by financing activities for the six months ended June 30, 2014 and 2013 was primarily comprised of $110.0 million and $45.0 million, respectively, in borrowings under our revolving credit facility, which was partially offset by $10.0 million in repayments of borrowings during each of those six-month periods. The increase in borrowings was due to cash needs, including cash needed to fund our episodic series production costs, as well as the acquisitions described above under "—Investing Activities."

Net cash used in financing activities for the six months ended June 30, 2014 and 2013 was also comprised of repurchases of our Class A common stock, including repurchases in order to satisfy tax obligations resulting from the vesting of restricted stock awards. During the six months ended June 30, 2014, we did not repurchase any of our common stock other than those related to repurchases in order to satisfy tax obligations related to the vesting of restricted stock awards. During the six months ended June 30, 2013, we repurchased 1.3 million shares of our Class A common stock for $25.0 million under our stock repurchase program (refer to Note 12 of our unaudited consolidated financial statements contained elsewhere in this Quarterly Report).

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Contractual Obligations

Contributions to Oriental DreamWorks

Pursuant to the Transaction and Contribution Agreement with ODW (see Note 7 to our unaudited consolidated financial statements), we have committed to make certain cash and non-cash contributions in connection with the formation of ODW. As of June 30, 2014, our remaining contribution commitments consisted of the following: (i) $43.4 million in cash (which is expected to be funded over the next three years), (ii) two film projects developed by us, (iii) remaining delivery requirements under the licenses of technology and certain other intellectual property of ours and (iv) approximately $7.0 million in consulting and training services. Some of these remaining commitments will require future cash outflows for which we are not currently able to estimate the timing of contributions as this will depend on, among other things, ODW's operations. For a more detailed description of our contribution commitments, please see Note 7 of the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

Contingent Consideration

As a result of our acquisition of ATV, we may be obligated to make additional contingent cash payments as part of the purchase price. The amount of contingent consideration to be paid is dependent on whether certain earnings targets are met in 2014 and 2015. The maximum amount of potential contingent consideration payable is $117.0 million. As of June 30, 2014, our estimate of the total fair value of the future cash consideration to be paid was $91.8 million. We anticipate that any expected cash payments will be made in 2015 and 2016 once ATV's operating results for 2014 and 2015 are available.

Non-Cancelable Talent Commitments

As of June 30, 2014, we had non-cancelable talent commitments totaling approximately $35.9 million that we expect to be payable over the next five years.

There have been no other material changes during the period covered by this Quarterly Report, outside of the ordinary course of business, to the contractual obligations specified in the table of contractual obligations included in the section "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our 2013 Form 10-K.

Critical Accounting Policies and Estimates

Our significant accounting policies are outlined in Note 2 to the audited consolidated financial statements contained in our 2013 Form 10-K. We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities including:


•	ultimate revenues and ultimate costs of film, television product and live performance productions;


•	relative selling price of the Company's products for purposes of revenue allocation in multi-property licenses and other multiple deliverable arrangements;


•	determination of fair value of assets and liabilities for the allocation of the purchase price in an acquisition;


•	determination of the fair value of reporting units for purposes of testing goodwill for impairment;


•	determination of fair value of non-cash contributions to investments in unconsolidated entities;


•	useful lives of intangible assets;


•	product sales that will be returned and the amount of receivables that ultimately will be collected;


•	the potential outcome of future tax consequences of events that have been recognized in the Company's financial statements;


•	loss contingencies and contingent consideration arrangements; and


•	assumptions used in the determination of the fair value of equity-based awards for stock-based compensation or their probability of vesting.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used,

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or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Other than as disclosed below, management believes there have been no material changes during the period covered by this Quarterly Report to the items that we disclosed as our critical accounting policies and estimates in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Goodwill

As of June 30, 2014 and December 31, 2013, we had goodwill totaling $189.7 million and $179.7 million, respectively. We perform an annual impairment test of goodwill, or sooner if indicators of impairment are identified. In connection with the goodwill impairment test for each of our reporting units, we first perform a qualitative assessment to determine whether it is more likely than not that the reporting unit’s fair value is less than its carrying value. This qualitative assessment (commonly referred to as Step 0) includes reviewing factors such as changes since the most recently performed valuation of key assumptions used, market capitalization attributable to the reporting unit, profit and margin trends, forecasts, macro-economic conditions, industry conditions and analyst reports. In addition, the Company performs a sensitivity analysis of any financial data that is included in this assessment to evaluate to what degree a change in financial assumption could change the conclusion of the qualitative assessment. As of October 1, 2013 (the date of our most recent annual goodwill impairment assessment), we concluded that the goodwill assigned to our feature film, television series/specials and consumer products reporting units was not at risk of failing the Step 0 analysis.

As of June 30, 2014, $118.2 million of our total goodwill was attributable to our ATV reporting unit (“ATV Goodwill”). ATV Goodwill represented the excess of the purchase price over the identifiable acquired net assets as of the time of the acquisition of ATV. A large portion of ATV’s purchase price was derived from the fair value of the contingent consideration arrangement entered into in connection with ATV’s acquisition. Under ATV’s contingent consideration arrangement, we may be required to pay additional cash to the sellers if ATV achieves certain adjusted EBITDA (earnings before interest, taxes and depreciation and amortization) performance thresholds during 2014 and 2015 (refer to our Current Report on Form 8-K filed on May 7, 2013 for a full description of the performance thresholds). As a result of these adjusted EBITDA thresholds, the cash flow assumptions used for purposes of the goodwill impairment assessment are closely aligned with those used to determine the fair value of the contingent consideration. Due to ATV’s limited operating history, there is significant uncertainty in the underlying estimates of ATV’s forecasted 2014 and 2015 adjusted EBITDA. As of June 30, 2014, ATV's forecasted adjusted EBITDA was reduced from that used for the March 31, 2014 fair value assessment, which caused a reduction to our estimate of the fair value of the contingent consideration liability from $99.0 million as of March 31, 2014 to $91.8 million as of June 30, 2014. The decline in forecasted adjusted EBITDA for 2014 and 2015 led us to perform a Step 0 assessment of the ATV Goodwill (for further description of this analysis, refer to Note 1 of the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report). As a result of this assessment, we concluded that it was more likely than not that the fair value of the ATV reporting unit was less than the reporting unit's carrying value as of June 30, 2014. Accordingly, we proceeded with determining whether the reporting unit's fair value was greater than its carrying value (referred to as Step 1). Upon completion of this analysis, we determined that the fair value of the ATV reporting unit exceeded its carrying value by approximately 12% as of June 30, 2014, and accordingly, no goodwill impairment was recorded.

However, since we used the income approach to determine fair value, this conclusion was significantly dependent on the level and timing of the reporting unit's forecasted earnings. Significant underperformance during the remainder of 2014 (specifically during the fourth quarter due to certain licensing and distribution agreements we currently expect will materialize) could lead to further significant revisions of estimated adjusted EBITDA and a further decrease in estimated contingent consideration. This could potentially lead us to conduct another interim ATV goodwill impairment test and, ultimately, a significant goodwill impairment charge. Any such impact on our results of operations and financial position would potentially be partially mitigated by a corresponding reduction to our estimate of the contingent consideration liability (which would be recorded as a gain in our statements of operations).

Provision for Income Taxes

As disclosed in our 2013 Form 10-K, we record a valuation allowance to reduce our deferred income tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including our operating results, ongoing prudent and feasible tax-planning strategies and forecasts of future taxable income. In evaluating our forecasts, we also consider whether we will be able to generate future taxable income at sufficient levels to realize our deferred tax assets. We also consider the number of years remaining prior to the expiration of the Company's existing net operating loss carryforwards. In the quarter ended December 31, 2010, we released $348.1 million of our valuation allowance because we had determined that it was more likely

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than not that we will be able to generate sufficient levels of future profitability to realize substantially all of our deferred tax assets.

However, the Company's adjusted book income (pre-tax income adjusted for permanent items) for the three-year period ended June 30, 2014 was minimal. A cumulative loss over a three-year period is a significant negative factor when assessing whether future taxable income is sufficient to support an assertion that a deferred income tax asset is more likely than not to be realized. We currently expect to remain in a positive cumulative adjusted book income position for the three-year period ending December 31, 2014 and are forecasting continued, future profitability. As a result, we continue to believe that there will be sufficient levels of future profitability to support the realization of the deferred tax assets. However, there can be no assurances that we will experience future levels of profitability as currently expected. We are monitoring whether an additional valuation allowance should be recorded against all or part of our deferred tax assets. In the event that we determine that all or part of our deferred tax assets are not more likely than not to be realized, we may record an additional valuation allowance in future periods. Such impact would likely be material to our results of operations and financial position in the period of the change, although the impact would potentially be partially mitigated by a corresponding reduction to our payable to former stockholder. Refer to our 2013 Form 10-K for a more detailed description of our arrangement with a former stockholder.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to provide companies with a single model for use in accounting for revenue from contracts with customers. Once it becomes effective, the new guidance will replace most existing revenue recognition guidance in U.S. GAAP, including industry-specific guidance. We are required to adopt the guidance on January 1, 2017. Early adoption is not permitted. Companies are permitted to either apply the guidance retrospectively to all prior periods presented or, alternatively, apply the guidance in the year of adoption with the cumulative effect recognized at the date of initial application (referred to as the modified retrospective approach). We are currently in the process of determining the method of adoption, as well as evaluating the impact that the new standard will have on our consolidated financial statements.

For further details, as well as a discussion of other recent accounting pronouncements, please see Note 2 of the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

Non-GAAP Measures

Adjusted EBITDA Reconciliation

In connection with our issuance of the 6.875% Senior Notes due 2020 (the “Notes”) on August 14, 2013, we began to use Adjusted EBITDA to provide investors with a measure of our ability to make our interest payments on the Notes. We define Adjusted EBITDA as net income before provision for income taxes, loss from equity method investees, increase/decrease in income tax benefit payable to former stockholder, other income, net, interest income, net, other non-cash operating income, depreciation and amortization, stock-based compensation expense, impairments and other charges and certain components of amortization of film and other inventory costs (refer to the reconciliation below). Although the indenture governing the Notes does not include covenants based on Adjusted EBITDA, we believe our investors and noteholders use Adjusted EBITDA as one indicator of our ability to comply with our debt covenants as it is similar to the consolidated cash flow measure described in the indenture (refer to our Current Report on Form 8-K filed on August 14, 2013). Although consolidated cash flow is not a financial covenant under the indenture, it is a measure that is used to determine our ability to make certain restricted payments and incur additional indebtedness in accordance with the terms of the indenture.

Adjusted EBITDA is not prepared in accordance with U.S. GAAP. We believe the use of this non-GAAP measure on a consolidated basis assists investors in comparing our ongoing operating performance between periods. Adjusted EBITDA provides a supplemental presentation of our operating performance and generally includes adjustments for unusual or non-operational activities. We may not determine Adjusted EBITDA in a manner consistent with the methodologies used by other companies. Adjusted EBITDA (a) does not represent our operating income or cash flows from operating activities as defined by U.S. GAAP; (b) does not include all of the adjustments used to compute consolidated cash flow for purposes of the covenants applicable to the Notes; (c) is not necessarily indicative of cash available to fund our cash flow needs; and (d) should not be considered as an alternative to net income, operating income, cash provided by operating activities or our other financial information as determined under U.S. GAAP. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or nonrecurring items. We believe that net income is the most directly comparable U.S. GAAP measure to Adjusted EBITDA. Accordingly, the following table presents a reconciliation of net income (or loss) to Adjusted EBITDA (in thousands):

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	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014
Net loss	$	(15,928	)	$	(58,344	)
Provision (benefit) for income taxes	2,601			(19,866		)
Loss from equity method investees	3,467			6,727
Decrease in income tax benefit payable to former stockholder	(1,695		)	(2,622		)
Other income, net	(1,853		)	(3,071		)
Interest expense, net	2,484			4,257
Operating loss	(10,924		)	(72,919		)
Income related to investment contributions	(2,317		)	(3,989		)
Amounts included in amortization of film and other inventory costs⁽¹⁾	5,245			14,066
Film impairment	—			57,074
Depreciation and amortization⁽²⁾	4,450			8,685
Stock-based compensation expense	3,112			8,421
Adjusted EBITDA	$	(434	)	$	11,338

____________________

⁽¹⁾

Amortization of film and other inventory costs in any period includes depreciation and amortization, interest expense and stock-based compensation expense that were capitalized as part of film and other inventory costs in the period that those charges were incurred. Refer to our accounting policies in our 2013 Form 10-K. For purposes of Adjusted EBITDA, we add back the portion of amortization of film and other inventory costs that represents amounts previously capitalized as depreciation and amortization, interest expense and stock-based compensation expense.


⁽²⁾	Includes those amounts pertaining to the amortization of intangible assets that are classified within costs of revenues.

In addition, as Adjusted EBITDA is also used as a liquidity measure, the following table presents a reconciliation of Adjusted EBITDA to cash flow used in operating activities (in thousands):



	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014
Adjusted EBITDA	$	(434	)	$	11,338
Amortization and write-off of film and other inventory costs⁽¹⁾	55,836			135,353
Revenue earned against deferred revenue and other advances	(16,396		)	(32,584		)
Change in fair value of contingent consideration	(7,220		)	(4,720		)
Other income, net	1,853			3,071
Interest expense, net	(2,484		)	(4,257		)
Net refund from income taxes and stockholder payable	1,101			2,599
Changes in certain operating asset and liability accounts	(86,204		)	(177,235		)
Cash used in operating activities	$	(53,948	)	$	(66,435	)

____________________


⁽¹⁾	Represents the remaining portion of amortization and write-off of film and other inventory costs not already included in Adjusted EBITDA (refer to reconciliation of net loss to Adjusted EBITDA).


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market and Exchange Rate Risk

For quantitative and qualitative disclosures about our interest rate, foreign currency and credit risks, please see "Part II—Item 7A—Quantitative and Qualitative Disclosures About Market Risk," of our 2013 Form 10-K. Our exposure to interest rate, foreign currency and credit risks has not changed materially since December 31, 2013.

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ITEM 4.	CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accurately recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal controls over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

See discussion of Legal Proceedings in Note 17 to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

In May 2014, the Company learned that the Division of Enforcement of the U.S. Securities and Exchange Commission ("SEC") is conducting an investigation into the writedown of film inventory relating to Turbo and related matters. The Company is cooperating with the SEC in this matter.


ITEM 1A.	RISK FACTORS

Information concerning certain risks and uncertainties appears in "Part I—Item 1A—Risk Factors" of the Company’s 2013 Form 10-K. You should carefully consider these risks and uncertainties before making an investment decision with respect to shares of our Class A common stock. Such risks and uncertainties could materially adversely affect our business, financial condition or operating results.

Other than those disclosed below, during the period covered by this Quarterly Report, there have been no material changes from the risk factors previously disclosed in the Company's 2013 Form 10-K or filings subsequently made with the SEC.

Changes in effective tax rates, adverse outcomes resulting from examination of our income tax returns or deferred tax asset valuation allowances could adversely affect our results.

Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Internal Revenue Service is currently auditing our tax returns for the years ended December 31, 2007 through 2009. Our California state tax returns for years subsequent to 2007 are open to audit. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. While we believe that we have adequately provided for our tax liabilities, including the outcome of these examinations, it is possible that the amount paid upon resolution of issues raised may differ from the amount provided. There can be no assurance that the outcomes from these examinations will not have an adverse effect on our financial condition or results of operations.

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As of December 31, 2010, we concluded that it was more likely than not that our deferred tax assets were realizable and that substantially all of the related valuation allowance previously established was no longer needed. This conclusion was based upon our expectation of sufficient future taxable income to fully utilize these assets. A cumulative loss over a three-year period is a significant negative factor when assessing whether future taxable income is sufficient to support an assertion that a deferred tax asset is more likely than not to be realized. The Company’s adjusted book income (pre-tax income adjusted for permanent items) for the three-year period ended June 30, 2014 was minimal, although we currently expect to remain in a positive cumulative adjusted book income position for the three-year period ending December 31, 2014. In the event that we determine that all or part of our deferred tax assets are not more likely than not be realized, we may record an additional valuation allowance in future periods. Such impact would likely be material to our results of operations and financial position in the period of the change, although the impact would potentially be partially mitigated by a corresponding reduction to our payable to former stockholder.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table shows Company repurchases of its Class A common stock for the three months ended June 30, 2014.



	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program⁽¹⁾	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan or Program⁽¹⁾
April 1–April 30, 2014	—	$	—	—	$	100,000,000
May 1–May 31, 2014	—	$	—	—	$	100,000,000
June 1–June 30, 2014	—	$	—	—	$	100,000,000
Total	—	$	—	—

____________________


⁽¹⁾	In July 2010, the Company’s Board of Directors terminated the then-existing stock repurchase program and authorized a new stock repurchase program pursuant to which the Company may repurchase up to an aggregate of $150 million of its outstanding stock.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Exhibit 10.1	Letter dated April 30, 2014 from M&JK Dream, LLC to the Company (incorporated by reference from Exhibit 99.1 to the Company's Current Report on Form 8-K filed on May 6, 2014)

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in eXtensible Business Reporting Language: (i) Unaudited Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (ii) Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) Unaudited Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2014 and 2013; (iv) Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (v) Notes to the Unaudited Consolidated Financial Statements

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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 thereunto duly authorized.



	DREAMWORKS ANIMATION SKG, INC.

Date: July 30, 2014	By:		/S/ LEWIS W. COLEMAN
	Name:		Lewis W. Coleman
	Title:	President, Chief Financial Officer and Acting Chief Accounting Officer
			(Principal Financial Officer and Duly Authorized Officer)

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EXHIBIT INDEX



Exhibit Number	Description

10.1	Letter dated April 30, 2014 from M&JK Dream, LLC to the Company (incorporated by reference from Exhibit 99.1 to the Company's Current Report on Form 8-K filed on May 6, 2014)

31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in eXtensible Business Reporting Language: (i) Unaudited Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (ii) Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) Unaudited Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2014 and 2013; (iv) Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (v) Notes to the Unaudited Consolidated Financial Statements

DWA EX 31.1 6.30.14

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13A – 14(A) OR 15D – 14(A),

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Katzenberg, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of DreamWorks Animation SKG, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: July 30, 2014	/S/ JEFFREY KATZENBERG
	Jeffrey Katzenberg, Chief Executive Officer (Principal Executive Officer)

DWA EX 31.2 6.30.14

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13A – 14(A) OR 15D – 14(A),

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lewis W. Coleman, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of DreamWorks Animation SKG, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: July 30, 2014	/S/ LEWIS W. COLEMAN
	Lewis W. Coleman, President, Chief Financial Officer and Acting Chief Accounting Officer (Principal Financial Officer)

DWA EX 32.1 6.30.14

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of DreamWorks Animation SKG, Inc., a Delaware corporation (the “Company”), for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:


1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: July 30, 2014	/S/ JEFFREY KATZENBERG
	Jeffrey Katzenberg Chief Executive Officer

Date: July 30, 2014	/S/ LEWIS W. COLEMAN
	Lewis W. Coleman President, Chief Financial Officer and Acting Chief Accounting Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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