Item 7. Management’sDiscussion andAnalysis of Financial Condition and Results of Operations. This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Item 1—Business—Forward- Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with our audited consolidated financial statements, the notes to our audited consolidated financial statements, our unaudited pro forma consolidated statement of operations and the notes to our unaudited pro forma statement of operations included elsewhere in this report. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under “Item 1—Business—Risk Factors” and included in other portions of this report. Overview Our business (the “Animation Business”) includes the development, production and exploitation of animated films in the domestic and international theatrical, home video, television and other markets, as well as consumer products activities. Prior to the Separation Date, we were a division of DreamWorks Studios and our operations were conducted through DreamWorks Studios. DreamWorks Studios is a limited liability company formed in 1994 that, prior to October 27, 2004, engaged primarily in the businesses of developing, producing and distributing live action and animated feature films. As a result of the Separation, the assets and liabilities that comprised the Animation Business were transferred to DreamWorks Animation SKG, Inc., the entity through which we now conduct our business. Prior to the Separation, our assets, liabilities and operating results were included in DreamWorks Studios’ financial statements. We have theatrically released a total of nine animated feature films, including Antz, Shrek, Shrek 2 and Shark Tale. We have a substantial number of projects in development that are expected to fill our release schedule through 2007 and beyond. The table below lists our next six films and their anticipated release schedule. • Madagascar (release on May 27, 2005) • Wallace and Gromit: Curse of the Were Rabbit (release on October 7, 2005) • Over the Hedge (release on May 19, 2006) • Flushed Away (release in fall 2006) • Shrek 3 (release in May 2007) • Bees (release in fall 2007) Release dates are tentative. Due to the uncertainties involved in the development and production of animated feature films, the date of their completion can be significantly delayed. Our audited consolidated financial statements, which are discussed below, reflect the historical financial position, results of operations and cash flows of the Animation Business transferred to us on October 27, 2004 and thereafter operated by us as a stand-alone company. The financial information, however, does not reflect what our financial position, results of operations and cash flows will be in the future or what our financial position, results of operations and cash flows would have been in the past had we been a separate, stand-alone companyprior to October 27, 2004. Sources of Revenue Ourfeature films are the source of substantially all of our revenue, which is derived through their worldwide exploitation in sequential domestic and international distribution channels, typically beginning with domestic theatrical exhibition. Historically, we have released an average of one film per year. In 2004, we released two films—Shrek 2 and Shark Tale—and we expect to continue theatrically releasing an average of two CG animated 47