DREAMWORKSANIMATIONSKG,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS—(Continued) in films in production as a percentage of total capital invested by DreamWorks Studios in all films in production. For the years ended December 31, 2002, 2003 and 2004, interest allocated to the Company amounted to $15.3 million, $20.5 million and $15.2 million, respectively. Of these amounts, interest capitalized to Film Inventories in accordance with FAS 34 “Capitalization of Interest Cost”, totaled $10.2 million, $6.9 million and $7.1 million for the years ended December 31, 2002, 2003 and 2004, respectively. In connection with the Separation, the Company assumed $325 million of debt that DreamWorks Studios had borrowed under its credit facility. In November2004,theCompanyfullyrepaid this debt. DreamWorks Studios utilizes interest rate swap agreements to hedge the interest rate sensitivity of its indebtedness. These agreements do not qualify for special hedge accounting and, as a result, changes in the fair value of such agreements have been charged to operations. The impact of these agreements has been historically allocated to the Company in a manner similar to the allocation of debt. Accordingly, the net change in the fair value of these contracts has been charged to Other Income (Expense), and the allocated fair value of these contracts has been reflected in Accrued Liabilities. For the years ended December 31, 2002 and 2003, the Company recorded other expense of $19.9 million and $0.6 million, respectively, and for the year ended December 31, 2004, recorded other income of $7.0 million related to the allocated changes in the fair value of these instruments. DreamWorks Studios has entered into interest rate swap agreements and has allocated to the Company agreements with aggregate notional principal amounts of $73.0 million for the years ended December 31, 2002 and 2003. These contracts serve as a hedge against the interest rate fluctuations associated with the Company’s animation campus indebtedness. Pursuant to these agreements, DreamWorks Studios paid and allocated to the Company fixed rates of interest ranging from 6.06% to 6.20% in 2002 and 2003 (weighted average of 6.16%) and received and allocated to the Company floating LIBOR-based rates of interest (weighted average of 1.51% at December31,2002and1.18%atDecember31,2003). At December 31, 2003, the Company estimated it would have been required to pay approximately $31.8 million to terminate all the aforementioned swap agreements. These amounts have been recorded in Accrued Liabilities in the accompanying consolidated financial statements as of December 31, 2003. Upon the Separation, DreamWorks Studios retained all of these interest rate swap agreements which represented an obligation of $24.2 million as of the Separation Date. Accordingly, changes in market value were recorded by the Company only through the Separation Date. (b) Animation Campus Financing. In May 1996, DreamWorks Animation entered into an agreement with a financial institution for the construction of an animation campus in Glendale, California, and the subsequent lease of the facility upon its completion in early 1998. The lease on the property, which was acquired and financed by the financial institution for $76.5 million, qualified as an operating lease for the Company. In March 2002, the Company renegotiated the lease through the creation of a special-purpose entity that acquired the property from the financial institution for $73.0 million and the special-purpose entity leased the facility to the Company for a five-year term. This transaction was structured to qualify as an operating lease and obligated the Company to provide a residual value guarantee of approximately $61 million. The entire amount of the obligation, $70.1 million at December 31, 2004, is due and is payable in March 2007. In connection with the adoption of Interpretation 46, the special-purpose entity has been consolidated by the Company as of December 31, 2003 (see Note 5). (c) Production Financing. In October 2003, the Company entered into an agreement to acquire an animated film currently in production. Pursuant to the acquisition agreement, the Company will pay approximately $45.0 million to acquire substantially all distribution rights to the film. Of this amount $14.6 million and $34.9 had been paid as of December 31, 2003 and 2004, respectively. In connection with the acquisition, DreamWorks Studios entered into loan agreements for the financing of the production costs of up to 84