Is the dream still alive at DreamWorks Animation (NYSE:DWA)? The way you answer that question depends a lot on whether you believe in the long-term potential of the company's franchises.

As we go through the earnings report, keep in mind the vagaries inherent to this business (i.e., there wasn't a Shrek phenomenon this year). For the fourth quarter, net sales revenues declined 65% to $172.9 million. Operating income took a steep decline of 83%, coming in at $48.1 million. Net income decreased 67% to $63.2 million, or $0.61 per diluted share.

For the full year, net sales revenues decreased 57% to $462.3 million. Operating income declined 74% to $114.9 million, and net income dropped 69% to $104.6 million, or $1.01 per diluted share.

DreamWorks Animation may have observed a net-earnings challenge this fiscal year, but it did end the period on some positive notes. There were some tax benefits related to a couple of discontinued projects, and net cash from operations substantially increased to more than $370 million, compared with the consumption of better than $43 million the previous year. (Note the big receivable associated with a distribution agreement.) Since the animation concern isn't a heavy capital spender, a lot of that turned into free money. Total liabilities decreased to $364 million (compared with the previous $389 million), while cash and equivalents jumped to $404 million, much better than the $63 million reported last time around.

If only Wallace & Gromit: The Curse of the Were-Rabbit had done better at the box office, things would be different. You can't predict these things, of course, but thanks to the film's underperformance, a write-off related to that asset had to be charged against earnings. Remember, though, that DreamWorks Animation had its franchise-worthy Madagascar make its debut on video during the holiday season. The company cited this event as a strong driver for the quarter, as it made up the bulk of the revenues, equal to approximately $152 million.

Here's the story from where I sit: DreamWorks Animation is a strong brand in the computer-animation arena. It seems to be managing itself correctly, for the most part -- although I still have to wonder about that whole DVD-overproduction debacle last year. The key question you want to ask yourself takes us back to the beginning of this article -- how do you feel about the long-term ability of the company's franchises to deliver? If you're confident, then you might want to dig deeper into the story.

I believe that the company has a bright outlook ahead of it, since it should be able to cash in nicely on its future Shrek and Madagascar sequels. Plus, it's gearing up for more summer hoopla with its May feature Over the Hedge.

Now that Pixar (NASDAQ:PIXR) has comfortably taken up residence in the magic kingdom of Disney (NYSE:DIS), DreamWorks Animation has its work cut out for it. The marriage of Bob Iger and Steve Jobs' companies will arguably strengthen the brand position of Pixar's products and enhance their competitive prowess. Nevertheless, DreamWorks Animation should prosper over the years and prove to be an interesting investment idea -- not only from a shareholder-value standpoint, but also from the angle of a buyout play. If it can happen to Pixar, it can happen to Jeffrey Katzenberg's crew, too.

We have more Foolish articles about DreamWorks Animation:

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  • DreamWorks Animation is a stock investors love to own.
  • Check out W.D. Crotty's take on the company's previous earnings report.

You can discuss the animation company at its Foolish discussion board.

Pixar and DreamWorks Animation are both Motley Fool Stock Advisor recommendations. For more of Tom and David Gardner's picks, try out Stock Advisor free for 30 days.

Fool contributor Steven Mallas owns shares of Disney. The Motley Fool has a disclosure policy.