Two months after disappointing Wall Street with weak sales of the "Shrek 2" DVD, DreamWorks Animation said July 11 that the Securities and Exchange Commission has launched an informal inquiry into its


LOS ANGELES (The Hollywood Reporter) -- Two months after disappointing Wall Street with weak sales of the "Shrek 2" DVD, DreamWorks Animation said July 11 that the Securities and Exchange Commission has launched an informal inquiry into its financial results reported in May and into the trading of its shares.

The company also said that its planned $500 million secondary offering has been postponed and that investors should expect no meaningful revenue for the remainder of the year from its biggest movie to date.

DreamWorks shares fell 13.2% after the July 11 news to an all-time low $23.27, almost 17% below the company's initial public offering price. In trading the following day, shares stabilized to close at $23.22.

Following DWA's second earnings revision in eight weeks, Fulcrum Global Partners analyst Richard Greenfield on July 11 lowered his 2005-07 earnings estimates for the firm and cut his rating on the stock to "neutral." "We are troubled by the inability to properly forecast earnings," Greenfield said in a research note. "We are concerned that the revenue potential of individual films is coming down [due to weaker DVD sales] at the same time that DWA's cost structure is going up."

DreamWorks and the SEC wouldn't elaborate on the informal SEC investigation.

The company said that the secondary offering was postponed "based on the current valuation of our shares." Upon the request of DreamWorks CEO Jeffrey Katzenberg and David Geffen together, or investor Paul Allen's Vulcan Capital, the company will revisit the follow-on offering, though Katzenberg and Geffen can't actually sell shares until the initial public offering lock-up expires Oct. 27.

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