DreamWorks Wakes To SEC, Legal Nightmare

The makers of Shrek expect a loss in the second quarter, despite the success of $180 million USD grosses for animated film Madagascar’.

Animation studio DreamWorks says it will lose 7 to 9 cents per share for the second quarter of 2005, and has changed its guidance on full year earnings. Instead of $1.00 to $1.25 per share, DreamWorks says earnings will be in the range of 80 to 90 cents per share.

“This adjustment was primarily driven by an increase in return reserves for its 2004 titles,” the company said in a statement. Those reserves were likely driven by poor demand for DVD titles like Shrek 2.

In its earnings guidance, DreamWorks notes the filing of six class-action lawsuits against it for violations of federal securities laws. Compounding the bad news is an informal request from the Securities and Exchange Commission for more information regarding its May 2005 financial results disclosure.

The SEC notes that the informal request does not mean any violations of law have occurred. DreamWorks intends to cooperate fully with the investigation; it also claims the lawsuits are without merit and will vigorously defend itself against them.

DreamWorks principal shareholder, Vulcan Capital, will not move forward with the previously announced plan to offer $500 million in shares of Class A common stock. They may do so at a later date.

David Utter is a staff writer for Murdok covering technology and business. Email him here.