Insurance: Property insurance premiums were historically allocated to us based on our insurable asset values as a proportion of DreamWorks Studios’ total insurable asset values, based on the asset’s fair market or replacement value as determined at the time of premium renewal. The insurance premiums for policies such as errors and omissions, directors and officers, travel, and excess liability, were historically allocated to us based on (1) our headcount as a percentage of the consolidated headcount of DreamWorks Studios in a given year and (2) the number of films we have released as a percentage of all DreamWorks Studios’ films released in a given year. After the Separation, we began directly incurring all insurance costs. Information Technology: DreamWorks Studios historically allocated to us the costs of network infrastructure and administrative desktop computer support. This allocation was based on our headcount as a percentage of total DreamWorks Studios’ headcount, in each case excluding the headcount of our Redwood City facility, as the costs related to Redwood City were directly incurred by us. As a result of the Separation, DreamWorks Studios provides network infrastructure and administrative desktop support services to us, and we reimburse DreamWorks Studios for these services pursuant to the Services Agreement. For telecommunications, wewerehistorically allocated a fixed fee for every telephone user, which includes the costs of the equipment and related maintenance and support costs. We were charged for actual local and long distance usage. Other Allocations: Wewere historically allocated certain other costs, including (1) costs to track, deliver and store various film and film related content (for example, film elements, photos and artwork); (2) costs to oversee dubbing of our films and (3) costs to oversee the placement of musical content in our films. As a result of the Separation we directly incur some of these costs, such as the placement of musical content in our films. DreamWorks Studios provides some of these services to us, such as the dubbing of our films, as set forth in the Distribution Agreement. Other of these services, such as the costs of storing various film and film related content, are provided to us, and we reimburse DreamWorks Studios pursuant to the Services Agreement. Debt, Interest and Other Expense Allocations: DreamWorks Studios historically allocated to us debt and interest expense associated with its debt, and other income and expense associated with its interest rate swap agreements. This allocation was based on the proportion of capital invested in our films in production as a percentage of total capital invested by DreamWorks Studios in all films in production. A portion of this allocated interest expense was capitalized to film inventory. In connection with the Separation, we did not assume any obligations with respect to any of DreamWorks Studios’ interest rate swap agreements. In the future, to the extent we incur debt and interest expense, we will do so directly. Critical Accounting Policies RevenueRecognition Both historically and under the Distribution Agreement, we have recognized and will recognize revenue from the distribution of our animated feature films when earned, as reasonably determinable in accordance with the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants Statement of Position 00-2, “Accounting by Producers or Distributors of Films” (the “SOP”). The following are the conditions that must be met in order to recognize revenue in accordance with the SOP: (i) persuasive evidence of a sale or licensing arrangement with a customer exists; (ii) the film is complete and has been delivered or is available for immediate and unconditional delivery; (iii) the license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale; (iv) the arrangement fee is fixed or determinable and (v) collection of the arrangement fee is reasonably assured. Revenue from the theatrical distribution of films is recognized at the later of (i) when films are exhibited in theaters or (ii) when theatrical revenues are reported to us by third parties, such as third party distributors. Revenue from the sale of home video units is recognized at the later of (i) when product is made available for retail sale or (ii) when video sales to customers are reported to us by third parties, such as fulfillment service providers or distributors. We follow the practice of providing for future returns of home video product at the time the products are sold. We calculate an estimate of future returns of product by analyzing a combination of 52