Acquisitions

For each business acquisition, the Company follows the acquisition method of accounting. Pursuant to the acquisition method, the Company allocates the purchase price (defined as the total consideration transferred) to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values, which were determined primarily by management with assistance from third-party appraisals. The excess of the purchase price over those fair values is recorded as goodwill. The fair values of the acquired assets and assumed liabilities are subject to adjustment if additional information is obtained during the measurement period (a period of up to one year from the transaction's closing date) of the transaction that would change the fair value allocation as of the acquisition date.

AwesomenessTV

On May 3, 2013 (the “ATV Closing Date”), a newly formed subsidiary of the Company merged with and into ATV, with the Company acquiring all the outstanding interests of ATV. With this transaction, the Company acquired a next-generation media company, which through its multi-channel network presence on the internet, allows the Company to gain access to new content distribution methods, as well as a broader audience. The goodwill acquired represents the potential synergies between ATV's filmed content, character portfolio and the Company's cross-platform expansion plans. The goodwill is allocated to a reporting unit that is not part of a reportable segment. The Company's total consideration for this transaction totaled $129.0 million, including an accrual for estimated contingent consideration of $95.5 million. The following table outlines the components of consideration for the transaction (in thousands):



	As of May 3, 2013
Cash payment	$	33,460
Estimated contingent consideration	95,500
Total consideration	$	128,960

The Merger Agreement for the transaction requires the Company to pay additional consideration to ATV's former shareholders if ATV increases its adjusted earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") over an adjusted EBITDA threshold, over a two-year period. Adjustments to EBITDA for purposes of determining the contingent consideration earned include, but are not limited to: ATV's employee bonus plan, non-cash gains and losses (such as those related to foreign currency accounting and reversals of prior year accruals) and changes in the fair value of contingent payment liabilities resulting from the acquisition of ATV. The estimated fair value of the contingent consideration arrangement at the acquisition date was $95.5 million. The Company estimated the fair value of the contingent consideration using the Monte-Carlo simulation model based on the estimated risk-adjusted cost of capital of ATV's adjusted EBITDA following integration into the Company. The key assumptions in applying the income approach were as follows: an 8.5% discount rate, volatility of 32.6% and a probability adjusted earnings measure for ATV of $25.0 million for 2014, and $41.0 million for 2015. Changes in one or more of the key assumptions could lead to a different fair value estimate of the contingent consideration. For example, using a discount rate of 15.0% or a volatility rate of 20.0% would change the estimated fair value of the contingent consideration to $91.5 million and $104.0 million, respectively. Under the Merger Agreement, the maximum contingent consideration that may be earned is $117.0 million. As of June 30, 2013, there were no significant changes in the range of outcomes for the contingent consideration recognized as a result of the acquisition of ATV and, as a result, the estimate of the fair value of the contingent consideration arrangement did not change between the ATV Closing Date and June 30, 2013.

The following table summarizes the preliminary allocation of the purchase price (in thousands):



	As of May 3, 2013

Cash and cash equivalents	$	1,340
Trade receivables⁽¹⁾	1,279
Prepaid and other assets	434
Productions costs	612
Property, plant and equipment	183
Intangible assets	12,900
Total identified assets acquired	16,748

Accounts payable	655
Deferred revenue	2,057
Deferred tax liabilities, net	4,193
Total liabilities assumed	6,905
Net identified assets acquired	9,843
Goodwill⁽²⁾	119,117
Total consideration	$	128,960

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⁽¹⁾	Gross contractual amounts due total $1.3 million, and of this amount, no amounts are deemed to be uncollectible.


⁽²⁾	The goodwill resulting from the acquisition of ATV is not deductible for tax purposes.

For the six months ended June 30, 2013, the Company incurred approximately $0.5 million of transaction costs for financial advisory, legal, accounting, tax and consulting services as part of the transaction. The transaction costs are included in selling, general and administrative expenses on the Company's consolidated statements of income and were recognized separately from the purchase price of the ATV transaction. The results of ATV's operations have been included in the Company's consolidated financial statements since the ATV Closing Date and had an immaterial impact on its consolidated statements of income for the three and six months ended June 30, 2013.

Pro Forma Financial Information

The following table presents (in thousands, except per share data) pro forma results of the Company, as though ATV and Classic Media had been acquired as of January 1, 2012 (the beginning of the comparable prior annual reporting period). These pro forma results do not necessarily represent what would have occurred if the ATV and Classic Media transactions had taken place on January 1, 2012, nor do they represent the results that may occur in the future. The pro forma amounts include the historical operating results of the Company and ATV and Classic Media prior to each of their acquisitions, with adjustments directly attributable to the acquisition. The pro forma results include increases to tax expense assuming ATV was part of the Company in the amount of $1.0 million for the three months ended June 30, 2012, and $1.4 million and $2.5 million for the six months ended June 30, 2013 and 2012, respectively. The pro forma results also include increases to amortization expense, related to the fair value of the intangible assets acquired, amounting to $1.0 million and $2.9 million for the three months ended June 30, 2013 and 2012, respectively, and $3.9 million and $5.9 million for the six months ended June 30, 2013 and 2012, respectively.



	Three months ended				Six months ended,
	June 30,				June 30,
	2013		2012		2013		2012
	(unaudited)				(unaudited)
Revenues	$	213,984	$	172,066	$	348,905	$	323,956
Net income attributable to DreamWorks Animation SKG, Inc.	$	22,443	$	9,878	$	26,340	$	14,813
Basic net income per share	$	0.27	$	0.12	$	0.31	$	0.18
Diluted net income per share	$	0.27	$	0.12	$	0.31	$	0.17

Classic Media

On August 29, 2012 (the "Classic Closing Date"), the Company acquired all of the outstanding shares of Classic Media by purchasing all of the stock of its parent holding company, Boomerang Media Holdings II LLC. The Company paid $157.6 million in net cash consideration for this transaction. The Company believes that the acquisition of Classic Media's extensive library revenue stream will support its ongoing diversification strategy.

The following table summarizes the preliminary allocation of the purchase price (in thousands):



	As of August 29, 2012⁽¹⁾

Cash and cash equivalents	$	22,607
Trade receivables⁽²⁾	21,883
Physical inventory	5,243
Content library and programs in development	5,603
Prepaid expenses	716
Intangible assets	136,600
Property, plant and equipment	1,325
Other assets	1,104
Total identified assets acquired	195,081

Accounts payable	918
Accrued liabilities	15,734
Deferred revenue	5,628
Deferred tax liabilities, net	20,586
Total liabilities assumed	42,866
Net identified assets acquired	152,215
Goodwill⁽³⁾	28,649
Net assets acquired	180,864
Less: Non-controlling interests	630
Total cash consideration transferred	$	180,234

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⁽¹⁾	Measurement period adjustments included a decrease to trade receivables assumed of $0.3 million, a decrease to accrued liabilities assumed of $0.3 million, a decrease to deferred tax liabilities of $8.2 million and other adjustments that were not material, resulting in a decrease of $8.3 million to goodwill.


⁽²⁾	Gross contractual amounts due total $22.5 million, and of this amount, no amounts are deemed to be uncollectible.


⁽³⁾	The goodwill resulting from the acquisition of Classic Media is not deductible for tax purposes.

As a result of the Classic Media acquisition, a non-controlling interest was recorded on the Company's consolidated balance sheet. Each of Classic Media and J Ward Production ("JWP") owns a 50% equity interest in a joint venture operated by Bullwinkle Studios, LLC ("Bullwinkle Studios"). JWP is unrelated to Classic Media and the Company. The Company is consolidating the results of this joint venture because the Company retains control over the operations of Bullwinkle Studios. The fair value of the non-controlling interest was determined based on JWP's interest in the present value of the estimated future cash flows of Bullwinkle Studios.

Summary of Changes in Goodwill

The changes in the carrying amount of goodwill during the six months ended June 30, 2013 were as follows (in thousands):



Balance as of December 31, 2012	$	71,406
Acquisition of ATV	119,117
Measurement period adjustments related to the acquisition of Classic Media	(8,540		)
Balance as of June 30, 2013	$	181,983