“Turbo” may have been about the world’s fastest snail, but the studio behind it couldn’t have been slower about taking a writedown on the animated feature.
The delay now has the studio, DreamWorks Animation SKG, in the crosshairs of the Securities and Exchange Commission and a handful of law firms seeking lead attorney status in a class action against the film factory.
Investors, meanwhile, have already been punished twice.
On Feb. 25, when DreamWorks finally announced a $13.5 million writedown on a film released seven months earlier, the market reacted by sending its stock down 12 percent.
And on July 29, when the studio disclosed the same writedown had prompted an SEC investigation, the market shaved its shares another 12 percent.
For Jeffrey Katzenberg, the studio’s CEO, the probe and class-action interest could prove tough to shake.
SEC filings show that, as part of a pre-existing vesting schedule of a prior stock award, 41,390 DreamWorks shares were withheld from Katzenberg on two occasions in October and November.
They “were not sales into the market at all,” a DreamWorks spokesperson said. “Rather, they were shares of stock that DreamWorks automatically withheld as part of its standard protocol, routinely followed by public companies, to cover executives’ tax obligations.”
Although the withheld shares weren’t sold into the market, they nonetheless commanded market prices — $27.84 apiece in the first instance, $32.17 in the second. And that was enough to trim Katzenberg’s tax bill by $1.24 million.
Moreover, as class-action seekers are certain to assert, the stock prices applied to the transactions look mighty appealing in comparison to the $20 that a DreamWorks share fetches today.
The transactions were also well-timed, coming three and four months after the release of “Turbo,” yet three and four months before the film’s write-down. That wouldn’t have been the case, however, had DreamWorks announced “Turbo’s” write-down within the usual time frame.
DreamWorks’ most recent box-office bomb, “Mr. Peabody and Sherman,” opened in March and received a $57 million write-down in April. “Rise of the Guardians,” which opened in November 2012, absorbed an $87 million write-off in February 2013.
The elapsed time before these two charges — one month in one case, three in the other — was swift compared to “Turbo’s” seven months. But it’s not so swift by industry standards, considering Disney bomb “John Carter” got hit with a $200 million write-down just ten days after opening in March 2012.
That “Turbo’s” write-down took so long allowed Katzenberg’s withheld shares – whether intentionally or not — to precede the film’s impairment charge and the 12 percent stock dive precipitated by its announcement.
This isn’t the first time Katzenberg has brushed against the SEC.
In 2005, when still getting his legs as the CEO of a company that had gone public only months earlier, he had to tone down overly rosy projections two times in as many months.
The snafu forced DreamWorks to cancel a secondary stock offering, attracted six class-action suits and triggered an SEC investigation.
“The market has really never gained faith in him,” said a former studio head.
“How complicated can DreamWorks Animation’s financials be? They make two films a year and have a very small library. I am shocked they have issues around controls and accounting.”