DREAMWORKS ANIMATION SKG, INC. FORM 10-K (Annual Report) Filed 03/02/15 for the Period Ending 12/31/14 Address GRANDVIEW BUILDING 1000 FLOWER STREET GLENDALE, CA 91201 Telephone (818) 695-5000 CIK 0001297401 Symbol DWA SIC Code 7812 - Motion Picture and Video Tape Production Industry Motion Pictures Sector Services Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________ FORM 10-K _________________________________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . 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.) Campanile Building 1000 Flower Street Glendale, California 91201 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (818) 695-5000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Class A Common Stock, par value $0.01 per share Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No . Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No . 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 No . 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 No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10 -K. . Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No . The aggregate market value of Class A common stock held by non-affiliates as of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1,042,542,577 using the closing price of $23.26 as reported by the Nasdaq Global Select Market as of such date. As of such date, non-affiliates held no shares of Class B common stock. There is no active market for the Class B common stock. Shares of Class A common stock held by all executive officers and directors of the registrant and all persons holding more than 10% of the registrant’s Class A or Class B common stock have been deemed, solely for the purpose of the foregoing calculations, to be held by “affiliates” of the registrant as of June 30, 2014. As of February 13, 2015, there were 77,847,773 shares of Class A common stock and 7,838,731 shares of Class B common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s definitive proxy statement (the “ Proxy Statement ”) to be filed pursuant to Regulation 14A with respect to the registrant’s 2015 annual meeting of stockholders. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Proxy Statement is not deemed to be filed as part hereof. DreamWorks Animation SKG, Inc. Form 10-K For the Year Ended December 31, 2014 Page PART I Item 1. Business 1 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 24 Item 3. Legal Proceedings 24 Item 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Selected Financial Data 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 69 Item 8. Financial Statements and Supplementary Data 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 69 Item 9A. Controls and Procedures 69 Item 9B. Other Information 70 PART III Item 10. Directors, Executive Officers and Corporate Governance 70 Item 11. Executive Compensation 70 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70 Item 13. Certain Relationships and Related Transactions, and Director Independence 70 Item 14. Principal Accountant Fees and Services 70 PART IV Item 15. Exhibits and Financial Statement Schedules 71 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"). PART I Item 1. Business Overview DreamWorks Animation creates and exploits branded family entertainment, including animated feature films, television series and specials, live entertainment properties and related consumer products. We have released a total of 30 animated feature films, including the franchise properties Shrek , Madagascar , Kung Fu Panda and How to Train Your Dragon . We currently have operations in four business segments: Feature Films, Television Series and Specials, Consumer Products and New Media. For a discussion of the Company’s business segments and geographic information about the Company’s revenues, please see the Company’s consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. Our current business plan generally contemplates releasing two animated feature films per year. We may release one or more additional films in a particular year if we determine that there is an attractive release date and that other relevant factors support such decision. We are currently producing seven feature films, of which we expect to release one in 2015 and two in each of 2016 through 2018, and are using a third- party production company to produce another feature film that is expected to be released in 2017. We have a substantial number of projects in creative and story development and production that are expected to fill the release schedule in 2019 and beyond. Our feature films are currently the source of a substantial portion of our revenue. We derive revenue from our distributors’ worldwide exploitation of our feature films in theaters and in post-theatrical markets such as home entertainment, digital transactions and pay and free broadcast television. In addition, we earn revenue from the licensing and merchandising of our films and characters in markets around the world. Twentieth Century Fox Film Corporation and Twentieth Century Fox Home Entertainment, LLC (collectively, "Fox"), pursuant to our distribution and fulfillment services agreement (the "Fox Distribution Agreement"), distribute and service our films initially theatrically released after December 31, 2012. As of July 1, 2014, we reacquired from Paramount Pictures Corporation and its affiliates and related entities (collectively "Paramount") the right to distribute and exploit the Company’s feature films theatrically released prior to January 1, 2013 in theatrical, non-theatrical, home entertainment and transactional digital media, which reacquired rights were then licensed to Fox. The rights licensed to, and serviced by, Fox will generally terminate on the date that is one year after the initial home video release date in the United States of the last film theatrically released by Fox during such five-year period, subject to any sublicense agreements approved by the Company that extend beyond such date. In addition, we will continue to receive revenues derived from the exploitation of television and non-transactional digital rights in and to our feature films released prior to January 1, 2013 pursuant to a distribution agreement and a fulfillment services agreement. Paramount will continue to exploit and render fulfillment services in television and related media for feature films released prior to January 1, 2013 until the date that is 16 years after the theatrical release of any such film, and will continue to exploit and service certain other agreements with Paramount’s sublicensees that remain in place after July 1, 2014.