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Author: esxokm Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 49824  
Subject: Re: DreamWorks Animation Layoffs Date: 3/2/2013 2:21 AM
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I own DWA. For the most part, I believe events like this are simply the cost of growing a studio.

DWA needs to simply bring down the costs of movie production if it is to survive. The company may also want to experiment with lower-budget features that aren't expected to be the next Shrek might turn out to surprise (e.g., Hotel Transylvania).

To bring the costs of production down, one of the things the company needs to do is not offer profit participation on its films. Pay simple flate fees. Just use up-and-coming talent that will accept this.

I'm surprised the company is laying off workers. If I were Katzenberg, I would either have them help on current projects or create new projects. How about another TV show?

W.D., I posted this on the SA DWA board but am not sure anyone will be able to answer the question I pose. You're pretty good at understanding stuff like this. See what you might make of my question.

--I was reading over the quarter results and noticed the liability listed on the balance sheet pertaining to monies owed to a former stockholder. I believe that person is Paul Allen.

I checked out the notes on this in last year's annual report. Didn't understand them fully, but if I understand any of it, it seems we are on the hook for paying his taxes involved in his cashing out from DWA for several years to come (I do not know if that interpretation is correct, I am not a tax expert, so don't quote me on that; if anyone would like to educate me on this liability, I would really appreciate it). Or, perhaps he holds a percentage of tax benefits DWA may acquire in later years as a way to offset his taxes? I really don't know.

But an idea occurred to me. The amount payable to Allen is nearly $280 million as of the latest quarterly report (which gave full-year numbers as well, since it was the Q4 report). If I understand last year's 10K notes, and I may not, this liability may expand over time depending on the company's tax-status evolution. I also believe that the company has stated that it still has $125 million of repurchases authorized but not executed.

Thought: what if the repurchase plan was cancelled, and the money, along with a secondary offering, was used to eliminate this debt? Then again, reading those notes, I'm not certain the debt can be eliminated? If it could be, what do shareholders think about the dilution factor such a scheme would cause? In my mind, it might not be such a bad idea to get rid of the debt with a secondary offering, see the stock go down, then buy it back with future cash flow. Or, if this was the intent by management, would it not be legal?

One other question. We have accrued liabilities of nearly $124 million as of December 31, 2012. Are these liabilities related to deferred profit participation monies due to talent, agents, etc.?--

Thanks.
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