Dreamworks Animation SKG Inc DWA
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/26/2013

Operator: Ladies and gentlemen, thank you for standing by and welcome to the DreamWorks Animation Quarter Four 2012 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for questions.

As a reminder, this conference is being recorded. You may access the AT&T Executive Replay Service at any time after 4.30 this afternoon and it will running through March 13 at midnight and you may access the replay service at any time by dialing 1-800-475-6701 and entering the access code of 279175. International participants may dial 320-365-3844 using. Those numbers again are 800-475-6701, International participants dial 1-320-365-3844. Please enter the access code 279175.

At this time, I would like to turn the conference over to our host from Dreamworks Animation, Mr. Rich Sullivan. Please go ahead.

Rich Sullivan - Deputy CFO: Thank you, and good afternoon, everybody. Welcome to DreamWorks Animation fourth quarter and full year 2012 earnings conference call. With me today is our Chief Executive Officer, Jeffrey Katzenberg; and our President and Chief Financial Officer, Lew Coleman. This call will begin with a brief discussion of the quarterly financials disclosed in today's press release, followed by an opportunity for you to ask questions. I'd like to remind everyone that the press release is available on our website at web address, www.dreamworksanimation.com.

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

With that, I'd like to now turn the call over to DreamWorks Animation's Chief Executive Officer, Jeffrey Katzenberg. Jeffrey?

Jeffrey Katzenberg - CEO and Director: Thanks, Rich. Good afternoon everyone and thank you for joining our call. Dreamworks Animation reported a loss of $83 million in the fourth quarter of 2012 and $36 million in the full year. This is primarily driven by several charges we took in the quarter, including an impairment of Rise of the Guardians and the number of write-offs associated with changes to our future release slate.

Lew will discuss the details of these changes and charges in a few minutes. Rise of the Guardians was released on November 21, 2012, it has grossed over $100 million at the domestic box office and over $300 million on a worldwide basis. With an unprecedented number of profitable Dreamworks branded CG films to have Guardians as a financial loss to the Company is certainly a disappointment. This is particularly true because of how proud we are of the movie itself.

The audience response to the film was strong, which is demonstrated by the fact that it delivered 4.2 times multiple off of its opening weekend and also garnered and A cinema score rating. Still Guardians did not reach the box office levels required of our films.

Fortunately, earlier in 2012, we also saw one of the greatest successes for the Company, our summer film, Madagascar 3. It grossed nearly $750 million to become the eighth biggest movie of the year on a worldwide basis and our best performing international film ever. We released it on DVD and Blu-ray on October 16th and it joined Puss in Boots among the top 10 best performing titles of the year domestically.

In an overall home video market that showed signs of stability in 2012 after eight consecutive years of decline DreamWorks Animation’s domestic home video tie ratios improved year-over-year in 2012 even as overall animation ratios fell by 15%.

So, clearly, we saw a number of positives in 2012 within our core business. However, one of the new challenges we face is heightened competition for family audiences, not from other CG animated films but actually from broad four quadrant movies. This increased competition makes the need for quality release dates critically important.

While finding optimal windows for our films is not a new strategy for us, today it is more challenging. Going forward, we are very focused on dating our pictures in a way that gives each one the best possible opportunity for success at the box office. This is reflected in the recent changes we made to our slates.

At the strong recommendation of Fox, our distributor we announced that Mr. Peabody & Sherman has a new release date of March 7, 2014. Our partners at Fox loved what they saw of the film late last year and believe releasing that this November would be a mistake, based on the especially crowded release schedule.

Fox is particularly high on the early March release date, where they have had huge success with their Ice Age franchise. We are both confident that its new date best positions Mr. Peabody & Sherman for success at the box office.

We also decided to remove Me and My Shadow from our 2014 slate and give it more time in development. This is one of the most exciting and ambitious ideas we have had and its challenges are reflective of its creative and technical aspirations. Despite having a great creative concept, Me and My Shadow is not where it needs to be at this stage of production and as you heard me say in the past, we'll not release the movie before it's time.

Our 2014 slate is now set for all three tiles, Mr. Peabody & Sherman on March 7, How to Train Your Dragon on June 20th, and Happy Smekday! on November 26th. Beyond 2014, we have a lot of great choices for our future film line up and we will keep you posted on our slate in the coming months.

One of our primary goals over the coming months will be to meaningfully reduce our overall cost structure so that our business can perform at the best possible margins even when our output level fluctuates as it is doing in 2013. This means that many valuable members of the DreamWorks Animation family will be leaving the company within the year. While the majority of the headcount reductions will occur within our production groups, our support and overhead departments will also be impacted. I believe these changes will make DreamWorks Animation a stronger and more efficient enterprise going forward.

With that, I will turn it over to Lew for the financial results and I will be back with a wrap up before we take your questions.

Lew Coleman - President and CFO: Thanks, Jeffrey. For the fourth quarter DreamWorks Animation reported total revenue of $265 million and a net loss of $83 million or $0.98 per share. For the full year, revenue was $750 million with the net loss of $36 million or $0.43 per share. The Company's fourth quarter and full year results included a charge of approximately $165 million, which has four components. The first is an $87 million charge related to the write-down of the film cost for Rise of the Guardians. Additionally Guardians incurred an amortization charge of $13 million in the quarter. The film contributed $6 million of revenue to the quarter and remains in an unrecouped position with our distributor.

The second charge totaling $54 million related to our previously announced decision to return Me & My Shadow back to development. Third, our development write-offs of $20 million. The fourth and final component is a restructuring charge of $4.6 million, which represents a portion of the cost for approximately 350 people who will leave DreamWorks Animation over the course of the year. While the majority of these people will come from our production groups, we are also adjusting the size of our support and overhead departments. We expect to incur additional restructuring charges of several million dollars in 2013 as we continue to assess our cost structure.

Turning to the primary drivers of revenue for the fourth quarter; our summer 2012 release, Madagascar 3, contributed revenue of $95 million to the quarter, primarily from home video and international box office. It had reached an estimated 6 million net home entertainment units sold worldwide through the end of the quarter. Our library, which now includes Megamind contributed revenue of $63 million to the quarter, including worldwide free TV sales of Shrek Forever After and How to Train Your Dragon.

The other category contributed $53 million of revenue to the quarter. The two biggest items included here are our holiday TV specials and our live theatrical properties. Classic Media contributed revenue of $32 million to the quarter, primarily from the sale of the Christmas Classic titles on TV and in home video.

Moving on to the remainder of the income statement; cost of revenues for the quarter, which include the previous discussed charges, were $354 million, resulting in an operating loss of $126.9 million. Selling, general and administrative expenses totaled $36.5 million including $3.1 million of stock compensation.

Approximately $8 million of the fourth quarter SG&A expense is attributable to Classic Media. We expect our SG&A expense over the next several quarters to be in line with our fourth quarter levels as we work to put in place the cost initiatives as discussed today.

As a reminder an overwhelming majority of Classic Media’s full year 2012 operating income was contributed in the fourth quarter of this year. Turning to taxes the Company's income tax benefit in the fourth quarter was approximately $42 million.

Our combined effective tax rate, which was a benefit due to our losses is our actual tax rate coupled with the effect of our tax sharing agreement with the former stockholder. This rate was 34.3% in the fourth quarter.

Moving on to the balance sheet, the Company ended the fourth quarter with $59 million of cash and a $165 million drawn on our credit lines. Our weighted average share count for the year was 84.2 million shares and our remaining share repurchase authorization is $125 million.

I would like to take a moment to address the production cost of our future films. Our 2013 and 2014 pictures will bear an increased overhead charge due to the dropping of one film during the period.

We now expect an average production cost of our 2013 pictures to be approximately $135 million.

Additionally, we expect the average production cost of our first two films in 2014 to be approximately $145 million as a result of the fleet changes we discussed. However, the adjustments we are making to our operating infrastructure today, together with the full deployment of our new animation and lighting technology toolsets, will reduce our product cost to approximately $120 million per film starting with Happy Smekday! and going forward.

As a reminder, these product cost targets exclude incentive based compensation cost, including performance bonuses, residuals, stock compensation, which can run approximately 5% of worldwide box office, as well as our upfront talent cost on sequels. Looking ahead, the next event for the company is the home video release of Rise of the Guardians on March 12. We expect the film to remain un-recouped until the second half of 2013. Even after it has been recouped, its future revenues are expected to be offset by Rise of the Guardians remaining costs, which means that the film is not expected to have a material impact on earnings going forward.

In addition, we do not expect a material contribution from television until Madagascar 3 hits the domestic pay-TV window in the second quarter. As a result, this year's profit will be dependent on success of our next two films; Recruits, which will be released late in the first quarter; and Turbo, which will be released in the third quarter. As is typically with our original films, the majority of the movies contribution occurs after it has been released into home video market. This means that the majority of these films profits will not occur until the second half of the year, specifically in the fourth quarter.

With that, I'll turn the call back over to Jeffrey.

Jeffrey Katzenberg - CEO and Director: Thanks, Lew. Looking back at 2012 and we saw a number of positive industry wide developments that give us continued confidence in our business. These include strength in the Animation segment at the box office, record-setting attendance levels domestically, continued significant expansion of international markets, increased consumer activity levels in home entertainment and growth in digital. We are entering 2013 as a better-positioned global family entertainment company, and I believe DreamWorks Animation is poised to capitalize on a number of new opportunities that have come with having a recognized quality brand name.

Our growing relationship with Netflix will begin to add value to the company this year. In addition to the new and more lucrative output deal for our feature film titles in the Pay TV window, we're also producing their first ever original kids TV series. Turbo Fast Action Stunt Team will begin streaming on Netflix in December in 40 countries around the globe.

Also related to Turbo, we've developed a robust consumer products program in support of the film, and we're particularly excited about Mattel's fantastic line of racing toys. Later this fall, on the consumer products front, Spin Master has a great line of Dragon toys coming out in conjunction with our hit DreamWorks' Dragon TV series playing on Cartoon Network.

As you know, we are acquired Classic Media in 2012 and our fourth quarter results demonstrate that this acquisition contributed meaningful value to DreamWorks Animation during the year. We've identified opportunities to leverage their library of titles in even bigger ways starting this year.

Two weeks ago, we announced an exciting licensing agreement in Russia to develop Europe's 3 largest indoor theme parks. Together with the progress we're making in China with Oriental DreamWorks, we believe these location-based entertainment deals are strong opportunities to continue to drive value for DreamWorks Animation around the world.

Last year, we announced the addition of Michael Francis to our executive team as Chief Brand Officer, a role that was created specifically for his expertise in growing and monetizing brands on a global scale. He will be responsible for adding value to our consumer products, television and international growth initiative among other areas.

Turning to our core business, as Lew mentioned, we look forward to fully deploying our next-generation animation and lighting tools in the coming year. This technology will not only increase the creative possibilities of our artists, but also maximize our flexibility, reduce the length of our overall production cycle and meaningfully bring down the cost of film production.

And 2013 marks the beginning of our new distribution agreement with Twentieth Century Fox. Simply said, we couldn't be more thrilled to be in partnership with them. Our collaboration is off to a strong start on The Croods, which stars Nic Cage, Emma Stone and Ryan Reynolds. Together we premier the film at the International Film Festival, Berlin International Film Festival on February 15th and we’re now looking forward to its domestic release on March 22nd.

With that, we’ll be happy to take your questions.

Transcript Call Date 02/26/2013

Operator: Barton Crockett, Lazard Capital Markets.

Barton Crockett - Lazard Capital Markets: I guess, one question is, just noticing on the balance sheet that your cash and equivalents at the end of the year were $59.2 million, and I think they were about $130 million in the third quarter, so there was a bit of a decline there. I was just wondering, obviously, there is lot of lumpiness in receivables. How should we think about your cash flows over the next couple of quarters, as we go through this kind of a drive our period with earnings and your liquidity?

Lew Coleman - President and CFO: Bart, you did point out that cash is a bit volatile and you are very right. You can also – if you look at the balance sheet see that our receivables were up quite a bit, most of which were our normal receivables from Paramount at the time. In terms of looking at cash other than sort of the underlying lumpiness, we would expect over the next couple of quarters for cash to remain about where it is. If we get over performance on crews, that may improve a bit, but I think over the next couple of quarters it is going to remain about where it is. From a liquidity standpoint, we've only drawn $165 million out of our $400 million line of credit and I think we feel fairly comfortable here in terms of our liquidity position.

Barton Crockett - Lazard Capital Markets: So that Paramount receivable now that the distribution deal with them is wrapped up, I mean over what period of time does that cash actually come to you?

Rich Sullivan - Deputy CFO: That receivable is essentially representing the Mad 3 home video release and that should come to us over the next 30 to 60 days. If you remember, they are going to continue to perform with own Mad 3 as a title for an extended period of time. Although we are switching distributors for our new release, Paramount will still be involved in all of the films that they released historically ending in 2012.

Barton Crockett - Lazard Capital Markets: On the call you said that Netflix would be driving incremental value for you this year. Now I know that they get rights, the pay-TV rights to your movies that are released this year, and I would assume that they’d go to Netflix closer to next year, given their release schedule and the normal delays and kind of the pay-TV window. So is the value that you're getting here really just the payment for the total series or is there something else that you are delivering to Netflix that we’ll notice on the P&L income statement?

Rich Sullivan - Deputy CFO: I think Barton, you are right. The titles that are released this year will be the primary driver for Netflix which we actually don’t receive payment until it’s delivered to Netflix, which will be in 2014. We also have that, as Jeffrey announced, a Turbo TV series that will be going on there and we’ve also announced TV specials that are currently on that books that we’ve derived value this year and some next year. So all of those combined, I think, what we were referring to on that call, but you are right, the majority of the value is on the new feature film deal that we have with Netflix which kicks in for 13 films delivering value in 2014.

Operator: Tony Wible, Janney.

Tony Wible - Janney: Just one thing, you can comment on China little bit. Will you be reducing any of the negative costs through using of China Oriental DreamWorks and is that part of the negative cost guidance you guys are currently providing?

Jeffrey Katzenberg - CEO and Director: No, it’s not. China is a separate production pipe that is for original films being produced in China. None of the work for our Western releases is being done there with the exception that Kung Fu Panda 3 maybe done as a co-production there, which in case some parts of that film will be done there. But it’s not part of our ongoing production enterprise here.

Tony Wible - Janney: Any update on your TV network ambition?

Jeffrey Katzenberg - CEO and Director: We still have it. So good conversations, and number of parties interested. One thing that we continue to see is the growing value of the DreamWorks' plan in a marketplace in which there is more and more platforms and more and more channel opportunities, having a worldwide recognized brand has tremendous value and we're seeing it in our conversations with potential partners on the channel side, but nothing to announce yet, but certainly, there is a lot of very promising activity on many fronts, both domestically and internationally.

Operator: James Marsh, Piper Jaffray & Co.

James Marsh - Piper Jaffray & Co: Couple quick questions here. First on the Turbo television show on Netflix, how is that structured? Is that like a standard kind of deficit financing television show and you guys retain the rights afterwards or are they just buying it kind of the outright (well) will have control over it? Secondly, just related to your workforce reduction initiatives, Can you just remind us what percentage of the workforce is unionized and maybe just discuss how that plays into trying to reduce labor costs?

Jeffrey Katzenberg - CEO and Director: So on the first one, the Turbo TV series is being sold around the world where DreamWorks is producing the show. We are making 56 11-minute episodes of it and it's not being produced at a deficit. So, I think that's on the Turbo front. Again, I wasn't quite sure, James, I think you asked something about China?

James Marsh - Piper Jaffray & Co: That was related to the workforce reductions and just complications related to the unionized workforce.

Jeffrey Katzenberg - CEO and Director: China has no impact on our workforce here in the…

Jeffrey Katzenberg - CEO and Director: Generally here. I think the question was whether or not our union workforce complicated our staff reduction?

Lew Coleman - President and CFO: No, no complication from that.

Operator: Vasily Karasyov, Susquehanna Financial Group.

Vasily Karasyov - Susquehanna Financial Group: After the restructuring is completed, can you give us an idea what would an original film look like in terms of production cost, P&A spend and maybe box office ranges where it will be profitable? What kind of ultimate you're shooting for through this process?

Jeffrey Katzenberg - CEO and Director: So, Vasily, I think we said to you that beginning with our November release next year, the production cost of our film will be $120 million. So if you look at that historically, we were in the $145 million to $150 million cost about 18 months or so ago. We will have brought that down to $120 million and that will be the go forward cost. In terms of marketing and P&A, as you know, we're just beginning our new relationship with our distributor at Fox. We are optimistic that there are some meaningful savings that will come there, but we're not ready to really put a figure around that until we've had a chance to get through at least a release or two with them, but we do expect to see those cost diminish also.

Operator: Chris Merwin, Barclays Capital.

Chris Merwin - Barclays Capital: So you mentioned the production deal with Netflix and that was sort of the first of its kind in many regards. I know it's early, but could you talk about the longer term opportunity for licensing shorter form content, SVOD platforms. Do you see your overall business mix shifting more towards shorter form content going forward, given the lower cost structure there?

Jeffrey Katzenberg - CEO and Director: No, Chris, I mean, I think there were opportunities in short form content, that's not what this is about. I think that the big opportunity for us that we are actively pursuing right now is that with the acquisition of Classic Media and the combination of their titles and their library and what is now a growing library from DWA, we actually have enough content and enough IT to actually have a pretty strong ongoing television presence in the kid marketplace. We have found a good deal of opportunity internationally and domestically to put together what would be a potentially sizable ongoing television business for us, bigger than the one that we're in today. So remember, today we have four TV series, three that are on the air, the fourth about to come on the air, Turbo will be our fifth and now with the Classic Media we see a chance to significantly increase that.

Chris Merwin - Barclays Capital: If I can sneak another one in. Would you mind us giving little bit more color on the $20 million write-off or other development projects, is there anything in particular you'd call out there?

Jeffrey Katzenberg - CEO and Director: No, it's a handful of projects in different stages of development. No, we don't really break those out individually in it, but just to seem like the – a very good important time for us to really get focused on our best stuff going forward here and clear the decks.

Operator: Richard Greenfield, BTIG.

Richard Greenfield - BTIG: The question kind of looks at Jeffrey's comments about the importance of release date. Clearly, the release dates are getting more important and its getting more crowded. You made the decision a while ago to partner rather than to create your own distribution company to control your release dates yourselves and I'm just wondering how you think about the balance. Fox obviously has an animation studio and has a lot of very important films of their own, where they have full economics versus partial economics on your films. How do you think about the ability to get the best release dates given the interplay with Fox?

Jeffrey Katzenberg - CEO and Director: Rich, good question. Actually, the Fox part of this is going extremely well and the – just to give the full color here on Peabody & Sherman, we knew when we were making a change from one distributor to another. We were actually going to have sort of to get ourselves aligned going forward. Suddenly, they were having these titles fall into place there and having to make accommodations. Going in, originally, Peabody & Sherman was dated to be in the Christmas release window. One other thing Fox was just right up-front with us about going in is, is that they already had two films that they were committed to in that release window. There is no distributor that can get off three movies in that ten day period of time on a fully distributed wide theatrical release. No distributor can get three full tracks in that window. So we actually made the decision to move the release date up into November. Last fall, when we made our new distribution deal with Fox, picking what seemed like the best date at the time and what was a very crowded November. We then showed Fox, Peabody & Sherman, they were frankly blown away by it and said this is too good a movie. It's too big an opportunity. This is not a good release window for this film or too many movies jammed up in there, and we really urge you guys to move this to a more opportunistic play. So that sort of the full story on, how we got to it. The thing that I'm referencing here is that, right now -- and I think these are cyclical things we've gone through this before. There is a lot more sort of big events for quadrant films. In the past, the only thing we actually ever had to really sort of duck and weave and find really good release dates were other CG animated movies. And that actually was something that we’ve always very successfully done. We've never competed head on against another CG animated films. Today it’s not as simple as that. We are looking at things like, Hobbit and Avengers and Oz and movies that are out there also competing for the entire audience. So there is in this next 18 months, two year, two and a half year period of time seems to be a bit of a jam up there. We just have to be much more flexible and more strategic in making sure that we’re finding great release dates.

Richard Greenfield - BTIG: Then if I could just follow up Jeffrey, when you look at the announcement about the restructuring of the company and reducing work staff, was that purely precipitated by the failure of Rise and the shift out of the film back into development? Or you’ve actually gone through and reduced costs anyway just looking at the overall environment? Just trying to understand like what drove the significant decisions in terms of reducing overall workforce?

Jeffrey Katzenberg - CEO and Director: Well, I think it is a combination of things. So I think Rahm Emanuel has that really great expression of you need to take full advantage of every crisis that you face. Guardians was the first movie of our and 17 in a row that didn’t work. When that happens, it really makes you rethink everything. So we have actually taken this as an opportunity to significantly right-size the whole enterprise here and to put it on what we believe is a much more profitable, better margin and what will be a long-term successful path going forward. So are these things that what have happened without the failure of Guardians, I don't know. I can say with it, it certainly made us take a look at everything that we were doing and at the same time that was going on. We have invested now four years in a revolutionary technology here that we’ve done in partnership with Intel. Invested very significantly in it and now at the same moment in time, it is delivering to us a chance to make our films in a way that creatively gives greater and better tool to our artists and at the same time is able to make the movies faster and cheaper. So again taking all these things kind of converging together at one time is really – we’ve done a reset and we’ve done it across the board, top to bottom including our development and everything else here. So I feel like we have going forward here a leaner and much more profitable business.

Operator: Ben Mogil, Stifel Nicolaus.

Benjamin Mogil - Stifel Nicolaus: Lew, do you know – and I am sure you do, what the film investment and film amortization was in the quarter. I don’t think the K was out yet. Can you disclose that for us?

Lew Coleman - President and CFO: Amort for the quarter.

Benjamin Mogil - Stifel Nicolaus: And the investment, sure.

Lew Coleman - President and CFO: Hang out for one second.

Benjamin Mogil - Stifel Nicolaus: Sure. Why don’t I ask my next question while we look? Jeffrey, when I was at Kung Fu Panda 2 and Puss in Boots, which were already like the third and fourth quarters of DVD distribution. They actually showed pretty good numbers in the fourth quarter even when you sort of factor in that Christmas was playing in the quarter. So talking about your comment that DVD seems to be stabilizing, can you talk about that and particularly for some of the titles that are already in the third and fourth quarter? You’ve seen that the tail being a little bit longer than we’ve seen lately?

Jeffrey Katzenberg - CEO and Director: Well, I think that what you see in that particular release window, which is why we like it so much is, is that we get a strong date there in October, November and then sort of get a whole another go round on Black Friday, which then sort of propels you into the holiday window and so it is why the fourth quarter has always been a strong release window for us, and we saw a very good performance from our films there.

Benjamin Mogil - Stifel Nicolaus: I guess more even for titles that were already like in their third and fourth quarters of DVD distribution. They sort of almost accelerated again. Is there…

Jeffrey Katzenberg - CEO and Director: Yes, there is because as part of that, we end up putting out a program of library product around our new release. So we take advantage of the fixturing that we're able to get into stores to push our current library, as well as our catalog.

Benjamin Mogil - Stifel Nicolaus: What do you think is driving the better tie ratios at your films and sort of your overall comments to how you're seeing the (indiscernible) market, both physical and electronic, kind of steering right now?

Jeffrey Katzenberg - CEO and Director: I think more than anything else is our brand and the fact that the quality of the films themselves are high. When people love the movies instead of like the movie, your tie ratios go up. That's the math. So I think in terms of these last few titles, our audiences really appreciated them a lot, and they've performed exceptionally well. So, I think people have been scrambling to pull some numbers for you here. Does anybody have anything yet?

Rich Sullivan - Deputy CFO: Yes. I think your first part of the question was what was the amortization in the quarter? Obviously, amortization flows through cost of goods. The total cost of goods for the quarter is $365 million and included in that number was the charges that Lew identifies, which is about $165 million in total. In terms of what we do invest, obviously, showing up in terms of – from a cash perspective, is that what you’re asking?

Benjamin Mogil - Stifel Nicolaus: Yes, what would show up almost on the increase to the film number on the balance sheet if you will? Yeah, from a cash perspective, sure.

Jeffrey Katzenberg - CEO and Director: What you’re going to see is a change in that asset classes on inventory which is a combination of what we invested netted against the charges that we wrote off. What you're probably going to see is about a film inventory number, close to about $830 million in total at the end of the year. So there is a bunch of moving pieces in there. So you’ll see the net effect of the investments plus the write-offs getting to about $820 million, $830 million.

Lew Coleman - President and CFO: That was $82 million a year ago.

Benjamin Mogil - Stifel Nicolaus: Then just to make sure I heard a little correctly, the fourth quarter run rate for SG&A you think is a reasonable run rate for the first half of the year is that correct?

Lew Coleman - President and CFO: I think it's the reasonable run rate for the first and second quarter.

Benjamin Mogil - Stifel Nicolaus: Then in the second half some of the benefits of the cost restructuring would be more evident is that a fair analysis?

Lew Coleman - President and CFO: I think it's a fair analysis. I think what you’ll see is the beginning of the cost program appearing in the third quarter and much more obvious in the fourth quarter.

Operator: Tuna Amobi, S&P Capital IQ.

Tuna Amobi - S&P Capital IQ: So, Jeffrey, I was wondering if you can update us on the 3D how much of a runway that you see on a 3D front. We haven't heard that for a while. I know the domestic exhibitors are getting closer to full rollout and in international, I know there are some trends in some international markets are starting to, I don't know, if peak is the right word, so I'm just going to trying to get a sense of how you see 3D trends unfolding both on the screen side, as well as any potential comments on the premium taking in kind of gaps relative to 2D. For Lew or Rich, with regard to the charge on Me and My Shadow, I don't remember the last time that you've taken such a major charge to kind of put a film back in development, if you can kind of enlighten us a little bit on the thinking there and why you've decided to take the hit now as opposed to the future as part of perhaps film amortization expense, that would be helpful?

Jeffrey Katzenberg - CEO and Director: On the first one, our domestic 3D has been now very stable over the three, four of our releases that ranges between 35% and 40% and same on the international 60%, even if the box office has grown. Certainly, last year domestically grew and international continues to grow and so that percentages stay consistent even as the box office has grown. So 3D has stayed as a very, very solid business for us. It's still is extremely strong return on investment, particularly because of the incremental cost for us in producing in 3D is negligible. So we continue to produce some 3D and we continue to see, particularly in the international markets, greater opportunity for it. Just the second part is, is that, there is a growing premium of movie going market place, every major exhibitor pretty much around the world is pursuing this and so to be able to deliver a premium 3D experience for those exhibitors is an opportunity and is a growth opportunity for us. In terms of on Me and My Shadow, this is unusual, we have not done this before, once again, really a convergence of a number of different things happening at the same time. The most important thing is to know that this is one our better, if not best ideas. It is enormously complex movie to do. I would sort of say it is analogous to a film that I was involved in 25 years ago, Roger Rabbit, in which we are putting together a 3D CG world and 2D hand-drawn world. The result of which is really dazzling. It's a unique and extraordinary film experience. It's a challenge to do it, it has difficulties, we've been set back on some of those. Feel like we've come through now and really do have a good path forward. We did have a change up on the director of the movie this past year. So, it really is a time in which we really need to reset the film, put it back on to a development path that will allow it to be very best version itself which we are confident that we will have. So, remains a very ambitious and high-priority for us.

Tuna Amobi - S&P Capital IQ: Any comment Lew on the accounting (flux) of that charge as to now versus future?

Lew Coleman - President and CFO: Not really Tuna. We really only have one or two choices. We could have completed the film and put it completed, but not released or we could have gone in and decide that it really needed a little more change and we obviously decided the latter, but we really only have one or two choices, either going into development, or going ahead and completing it, but not releasing it and we thought this was much better way to handle the film.

Operator: I'll now turn the conference back over to you for closing remarks.

Rich Sullivan - Deputy CFO: Great. Thanks. That concludes today's fourth quarter earnings conference call. I would like to remind everyone that a replay of this call will be available shortly on our website. That web address again www.dreamworksanimation.com. If you have any additional questions, please feel free to contact DreamWorks Animation Investor Relations. Thank you again for participating and have a great evening.

Operator: Ladies and gentlemen. That does conclude our conference for today. Thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.