EXHIBIT 99.1
AT EQUITY MARKETING, INC.:
Lisa Mueller
Investor Relations
(323) 932-4034
FOR IMMEDIATE RELEASE
EQUITY MARKETING REPORTS RESULTS
FOR FIRST QUARTER OF 2004
LOS ANGELES, APRIL 29, 2004 - Equity Marketing, Inc. (Nasdaq: EMAK), a
leading marketing services firm, today announced its financial results for the
first quarter ended March 31, 2004.
Revenues were $51.8 million in the first quarter of 2004, an increase
of 8.9% over revenues of $47.6 million in the same period of the previous year.
Net loss in the first quarter of 2004 was $166,000, or $0.09 per
diluted share, compared with net income of $1.0 million, or $0.10 per diluted
share, in the same period of the previous year.
The Company's first quarter 2004 results include charges of
approximately $0.02 per diluted share related to the amortization of acquired
intangible assets, other purchase accounting adjustments and integration costs
from the acquisitions of Johnson Grossfield ("JGI") and SCI Promotion ("SCI"),
and stock-based compensation expense of approximately $0.01 per diluted share.
In addition, the Company incurred a loss of approximately $0.03 per diluted
share as a result of foreign currency transaction losses at its Logistix Kids
subsidiary primarily due to the strengthening of the Euro relative to the
British pound, compared with a foreign currency transaction gain of
approximately $0.01 per diluted share in first quarter of 2003.
"Overall business activity surpassed our expectations in the first
quarter, as we recorded the highest level of first quarter revenues in the
Company's history," said Equity Marketing Chairman and Chief Executive Officer
Don Kurz. "We saw good revenue growth at Logistix
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and in our Consumer Products business, and combined with the addition of our
recent acquisitions SCI and JGI, this more than offset the year-over-year
decline in volumes for Burger King promotional programs. In spite of a net loss
for the quarter, we reported positive operating income.
"Our bottom line results were negatively impacted by three cents per
diluted share during the quarter due to foreign currency transaction losses we
did not anticipate. The growth in the pan-European business at Logistix during
the quarter surpassed the currency hedges in place covering the British pound
against the Euro. We have adjusted our hedging practices to reflect the new
level of business being generated internationally by Logistix, and we believe
the impact of foreign currency fluctuations will be minimized in the future,"
said Mr. Kurz.
QUARTER ENDED MARCH 31, 2004 FINANCIAL HIGHLIGHTS
- Revenues were $51.8 million, compared with revenues of $47.6
million in the same period of the previous year.
- Net foreign currency translation impact contributed
approximately $1.4 million to revenues versus the prior year
period average exchange rates.
- Domestic revenues for the quarter were $35.4 million, or 68.4%
of revenues, and international revenues for the quarter were
$16.4 million, or 31.6% of revenues. In the prior year period,
domestic revenues were $36.6 million, or 76.9% of revenues,
and international revenues were $11.0 million, or 23.1% of
revenues.
- The SCI and JGI businesses generated a combined $4.8 million
in revenues in the first quarter of 2004.
- Marketing Services revenues for the quarter represented 89.7%
of total revenues, while Consumer Products revenues
represented 10.3% of total revenues. In the prior year period,
Marketing Services revenues represented 92.2% of total
revenues, while Consumer Products revenues represented 7.8% of
total revenues.
- Gross profit was 25.6% in the first quarter of 2004, as
compared to 25.8% in the same period in 2003. Gross profit was
24.9% in the Marketing Services business and 30.9% in the
Consumer Products business in the first quarter of 2004, as
compared to 24.9% and 36.7%, respectively, in the first
quarter of 2003.
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- Overall operating expenses were $13.2 million, or 25.5% of
revenues, compared with $10.9 million, or 22.9% of revenues,
in the prior year. Prior year operating expenses exclude SCI
and JGI.
- Earnings before interest, taxes, depreciation, amortization
and a charge for integration costs of $43,000 in 2004
("EBITDA") was $263,000, compared with $2.0 million in the
same period in 2003.
- Other expense in the first quarter 2004 totaled $292,000,
compared to other income of $102,000 in the same period last
year. Other income or expense is primarily composed of foreign
exchange gains or losses.
- Net loss was $166,000, or $0.09 per diluted share, compared
with net income of $1.0 million, or $0.10 per diluted share,
in the same period of the previous year.
- Results for the first quarter of 2003 do not include SCI
(acquired September 3, 2003) or JGI (acquired effective
January 31, 2004). Collectively, SCI and JGI were $0.07
dilutive per share in the first quarter of 2004. This is in
line with our expectations as the first half of the year is
seasonally SCI's lowest.
FINANCIAL CONDITION
At March 31, 2004, the Company had $14.2 million in cash, cash
equivalents and marketable securities, $24.8 million in working capital, a
current ratio of 1.7 and no debt. The decrease in cash, cash equivalents, and
marketable securities balance reflects the use of $4.5 million in cash for the
acquisition of JGI. The Company used $204,000 of cash from operations during the
quarter, compared with a use of cash of $7.8 million in the same period in 2003.
The Company has also extended the maturity of its $35 million credit
facility with Bank of America through June 30, 2005. Under terms of the
agreement, the credit facility may be used for working capital and acquisition
financing purposes.
SHARE COUNT UPDATE
In accordance with GAAP, based on the level of net income for the first
quarter of 2004, the calculation of diluted earnings per share excludes the
impact of the assumed conversion of preferred stock and includes the preferred
stock dividend. Accordingly, the number of diluted
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weighted average shares outstanding for purposes of computing earnings per share
was 5.7 million shares in the first quarter of 2004.
In subsequent periods, the Company expects its diluted weighted average
shares outstanding for purposes of computing earnings per share to be the
following (based on its current projections):
Second Quarter 2004: 6.2 million shares
Full Year 2004: 7.8 million shares
OUTLOOK
For the second quarter of 2004, Equity Marketing expects revenues to be
between $53 million and $58 million, and diluted earnings per share to range
from $0.02 to $0.08. For the full year, the Company continues to expect revenues
to range between $235 million and $260 million, and diluted earnings per share
to range between $1.25 and $1.45. The bulk of the Company's promotional programs
are scheduled for the second half of the year, which should result in
significant sales and earnings per share growth in the third and fourth quarters
of 2004.
The Company believes it has good visibility on the significant
year-over-year growth expected in the second half of the year due to the
following factors:
- While the unit volumes for the promotional programs currently
scheduled for Burger King are expected to be down
year-over-year, the decline will be to a lesser degree than
the programs produced in the first half of 2004
- Improved contribution from Upshot from six new clients added
since the beginning of the year
- Additional promotional programs have been won for Kellogg's(R)
worldwide
- A seasonally stronger second half for SCI due to its retail
department store client base
- JGI is planning to produce three more promotional programs for
Subway(R) to be in store this year
- Continuation of the growth trends in the Consumer Products
business including expanded distribution for the Disney's Kim
Possible(TM) line and the Crayola(R) branded
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bath toys, new sales of the Baby Einstein(TM) and Samurai
Jack(TM) lines and solid sales of the Scooby-Doo(TM) line
Mr. Kurz commented on the outlook for Equity Marketing: "While the year
is more back-end loaded than is typical, we have confidence in our ability to
meet our growth targets this year. On March 26, our backlog was $156 million,
which is approximately 10% higher than it was at a similar point last year, and
provides good visibility on our business activity for the remainder of 2004.
Through the growth in backlog for our other businesses, as well as the impact of
our recent acquisitions, we believe we will more than offset the decline in
Burger King-related revenues we will see this year.
"This backlog also includes consumer products that have already been
shipped to customers. As such, they typically represent a relatively small
portion of our backlog, and it is not indicative of the level of sales we expect
from this business in 2004. For the full year, we expect that sales of our
consumer products will see meaningful growth due to our expanded stable of
brands and the additional distribution outlets we have established.
"From a strategic standpoint, we are making the necessary investments
to drive top-line growth, including corporate branding and public relations
initiatives. With the economy strengthening, our new business pipeline is
picking up noticeably and we are adding sales staff for the effort. The broad
service portfolio and geographic presence we have built organically and through
acquisitions over the past three years have improved our ability to capitalize
on the increasing demand for non-advertising marketing services that we are
seeing. We believe we are in excellent position to improve our financial
performance in the second half of 2004, and continue that momentum in 2005 when
we anticipate that our Burger King-related revenues will stabilize or increase,"
said Mr. Kurz.
FIRST QUARTER CONFERENCE CALL
The Company will host a conference call today at 4:30 p.m. ET/1:30 p.m.
PT to discuss its first quarter financial results and operational highlights.
All interested parties may listen to the live call or access a replay of the
call via the Internet at www.equity-marketing.com. To listen to the live call,
visit the Investor Relations page of the Web site at least 15 minutes prior to
download any necessary software.
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Equity Marketing, Inc. is a leading global marketing services company
based in Los Angeles, with offices in Chicago, Minneapolis, New York, Ontario
(CA), London, Paris and Hong Kong. The Company focuses on the design and
execution of strategy-based marketing programs, with particular expertise in the
areas of: strategic planning and research, entertainment marketing, design and
manufacturing of custom promotional products, promotion, event marketing,
collaborative marketing, and environmental branding. The Company's clients
include Burger King Corporation, Diageo, Kellogg's, Kohl's, Macy's, Nordstrom,
Procter & Gamble, and Subway Restaurants, among others. The Company complements
its core marketing services business by developing and marketing distinctive
consumer products, based on emerging and evergreen licensed properties, which
are sold through specialty and mass-market retailers. More information about
Equity Marketing is available on the Company's web site at
www.equity-marketing.com.
NOTE: All trademarks and registered trademarks are property of their respective
owners.
Certain expectations and projections regarding the future performance of Equity
Marketing, Inc. discussed in this news release are forward-looking and are made
under the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. These expectations and projections are based on currently available
competitive, financial and economic data along with the Company's operating
plans and are subject to future events and uncertainties. Management cautions
the reader that the following factors, among others, could cause the Company's
actual consolidated results of operations and financial position in 2004 and
thereafter to differ significantly from those expressed in forward-looking
statements: the Company's dependence on a single customer; the significant
quarter-to-quarter variability in the Company's revenues and net income; the
Company's dependence on the popularity of licensed entertainment properties and
the ability to license, develop and market new products; the Company's
dependence on foreign manufacturers; the Company's need for additional working
capital; the negative results of litigation, governmental proceedings or
environmental matters; and the potential negative impact of past or future
acquisitions. The Company undertakes no obligation to publicly release the
results of any revisions to forward-looking statements, which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The risks highlighted herein should not be
assumed to be the only items that could affect the future performance of the
Company.
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EQUITY MARKETING, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
--------------------------
2004 2003
----------- -----------
Revenues $ 51,812 $ 47,567
Cost of sales 38,572 35,287
----------- -----------
Gross profit 13,240 12,280
Operating expenses:
Salaries, wages and benefits 7,277 5,861
Selling, general and administrative 5,896 5,025
Integration costs 43 -
----------- -----------
Total operating expenses 13,216 10,886
----------- -----------
Income from operations 24 1,394
Other income (expense) (292) 102
----------- -----------
Income (loss) before provision for income taxes (268) 1,496
Provision (benefit) for income taxes (102) 518
----------- -----------
Net income (loss) (166) 978
Preferred stock dividends 375 375
----------- -----------
Net income (loss) available to common stockholders $ (541) $ 603
=========== ===========
Basic income (loss) per share
Income (loss) per share $ (0.09) $ 0.11
=========== ===========
Weighted average shares outstanding 5,739,603 5,708,279
=========== ===========
Diluted income (loss) per share
Income (loss) per share $ (0.09) $ 0.10
=========== ===========
Weighted average shares outstanding 5,739,603 5,882,609
=========== ===========
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EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
MARCH 31,
2004 DECEMBER 31,
(UNAUDITED) 2003
----------- ------------
ASSETS
Cash and cash equivalents $ 12,852 $ 19,291
Marketable securities 1,300 -
Accounts receivable, net 30,708 36,765
Inventories 13,201 15,099
Prepaid expenses and other current assets 4,543 4,352
--------- ---------
CURRENT ASSETS 62,604 75,507
Fixed assets, net 4,023 3,809
Intangible assets, net 47,754 43,145
Other assets 6,569 5,869
--------- ---------
TOTAL ASSETS $ 120,950 $ 128,330
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt $ - $ -
Accounts payable 26,045 28,865
Accrued liabilities 11,725 17,195
--------- ---------
CURRENT LIABILITIES 37,770 46,060
Long-term liabilities 5,092 5,555
--------- ---------
TOTAL LIABILITIES 42,862 51,615
Mandatory redeemable preferred stock 22,518 23,049
Common stock - -
Additional paid-in capital 25,648 23,886
Retained earnings 44,597 45,138
Accumulated other comprehensive income 4,145 3,334
Less:
Treasury stock (17,458) (17,458)
Unearned compensation (1,362) (1,234)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 55,570 53,666
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 120,950 $ 128,330
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EQUITY MARKETING, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
--------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (166) $ 978
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 466 472
Provision for doubtful accounts 21 89
(Gain) loss on disposal of fixed assets (8) 3
Tax benefit from exercise of stock options 51 11
Amortization of restricted stock 86 41
Other - (1)
Changes in operating assets and liabilities-
Increase (decrease) in cash and cash equivalents:
Accounts receivable 8,226 18,472
Inventories 2,750 2,822
Prepaid expenses and other current assets (914) (370)
Other assets (682) (869)
Accounts payable (3,433) (20,765)
Accrued liabilities (6,138) (8,725)
Long-term liabilities (463) 40
-------- --------
Net cash used in operating activities (204) (7,802)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (591) (117)
Purchase of marketable securities, net (1,300) (3,500)
Proceeds from sale of fixed assets 9 16
Payment for purchase of JGI (4,508) -
-------- --------
Net cash used in investing activities (6,390) (3,601)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock dividends (375) (375)
Purchase of treasury stock - (333)
Proceeds from exercise of stock options 477 154
-------- --------
Net cash provided by (used in) financing activities 102 (554)
-------- --------
Net decrease in cash and cash equivalents (6,492) (11,957)
Effects of exchange rates on cash and cash equivalents 53 64
CASH AND CASH EQUIVALENTS, beginning of period 19,291 25,833
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,852 $ 13,940
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EQUITY MARKETING, INC.
EBITDA
(In thousands)
EBITDA, before charges, is calculated as follows:
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------
2004 2003
------- -------
Net Income (loss) $ (166) $ 978
Integration costs 43 -
Interest expense, net 22 4
Provision (benefit) for income taxes (102) 518
Depreciation 395 408
Amortization 71 64
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EBITDA, before charges $ 263 $ 1,972
======= =======
EBITDA is reconciled to cash flows used in operating activities, the most
comparable measure under generally accepted accounting principles, as follows:
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------
2004 2003
------- -------
EBITDA, before charges $ 263 $ 1,972
Integration costs (43) -
Interest expense, net (22) (4)
(Provision) benefit for income taxes 102 (518)
Changes in operating assets and liabilities (654) (9,395)
Other, net 150 143
------- -------
Net cash used in operating activities $ (204) $(7,802)
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