Shrek the Third was once again the largest driver of the quarter, contributing approximately $92.1 million in revenue, primarily from its significant international box-office receipts in the period. To date, the film has reached approximately $793 million in box office on a worldwide basis, making it the third highest-grossing animated film of all time.
DreamWorks Animation CEO Jeffrey Katzenberg stated, “We are extremely pleased with the theatrical results of Shrek the Third – especially with its performance overseas, where it has nearly equaled the box office success of Shrek 2. Shrek the Third is now one of the most successful animated films of all time and demonstrates that our franchise is one of the strongest in movie history.”
DreamWorks Animation’s 2006 summer release, Over the Hedge, contributed approximately $17.8 million of revenue, driven largely from the start of its release in international pay television as well as its continued performance in the home video market. Through the third quarter of 2007, Over the Hedge has reached an estimated 14.2 million units shipped, net of actual returns and estimated future returns. Flushed Away, the company’s second release of 2006, delivered $17.3 million in revenue, driven largely by its release in domestic pay television as well as its continued performance in the home video market. Flushed Away has reached approximately 5.7 million home video units shipped, net of actual returns and estimated future returns, by the end of the third quarter. The company’s 2005 releases, Wallace and Gromit: Curse of the Were- Rabbit and
Cost of revenue for the third quarter of 2007 equaled $70.0 million while SG&A totaled $23.8 million, including $6.3 million of stock compensation expense. The year over year increase in SG&A is primarily related to higher employee-related costs, including the company-wide incentive bonus plan and increased stock compensation expense, both of which were impacted by the better performance of our 2007 films, as well as professional fees.
Results for the quarter also included a tax benefit related to the company’s tax sharing agreement with a stockholder of approximately $25.8 million, which resulted in a lower effective tax rate. This benefit was partially offset by a $22.0 million increase in the income tax benefit payable to the stockholder as per the agreement, resulting in an overall net increase to net income of $3.9 million or approximately $0.04 per share on a fully diluted basis.
Looking ahead, the company reiterated its expectation that revenue for the fourth quarter will be primarily driven by the home video performance of Shrek the Third, which will be released domestically on 13 November 2007.
DreamWorks Animation’s next theatrical release, Bee Movie, opens domestically on 2 November. As is typical for most of its films’ theatrical releases, the company does not anticipate generating significant revenue in the fourth quarter from this title, as its distributor will likely not have recouped the upfront marketing and distribution costs.
Also in the fourth quarter, the company’s first-ever televised holiday special, Shrek the Halls, will debut on ABC on 28 November. The company expressed that this additional product will not have a material financial impact on the fourth quarter.
