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EXHIBIT 99.1
AT EMAK WORLDWIDE, INC.:
MEDIA INQUIRIES: INVESTOR INQUIRIES:
Angela Pennington Lisa Mueller
Vice President, Corporate Communication Director, Investor Relations
(323) 932-4457 (323) 932-4034
FOR IMMEDIATE RELEASE
EMAK WORLDWIDE REPORTS RESULTS
FOR THIRD QUARTER OF 2004
LOS ANGELES, OCTOBER 28, 2004 - EMAK Worldwide (Nasdaq: EMAK), a
leading marketing services firm, today announced its financial results for the
third quarter ended September 30, 2004.
Revenues were $58.1 million in the third quarter of 2004, an increase
of 19% over revenues of $48.9 million in the same period of the previous year.
Net loss in the third quarter of 2004 was $893,000, or $0.22 per
diluted share, compared with net income of $1.3 million, or $0.12 per diluted
share, in the same period of the previous year. Earnings per share for the third
quarter of 2003 include a restatement pursuant to Emerging Issues Task Force
Issue No. 03-6 ("EITF 03-6"). Please see the footnote in the attached income
statement for further discussion of this accounting pronouncement.
"Consistent with the revised outlook we provided in September, our
third quarter results were negatively impacted by shortfalls in our Pop Rocket
and SCI Promotion divisions, two areas that typically generate higher margins,"
said EMAK Worldwide Chairman and Chief Executive Officer Don Kurz. "The weakness
in those divisions is offsetting the growth we are seeing in most of our other
divisions, as well as the contribution of our most recent acquisition, Johnson
Grossfield, which has performed slightly ahead of our expectations.
"The net loss for the quarter is almost entirely driven by
deterioration in the overall gross margin, with Pop Rocket in particular
experiencing significant margin compression due to severe pricing pressures in a
difficult retail environment and higher plastic costs stemming from rising oil
prices," said Mr. Kurz.
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QUARTER ENDED SEPTEMBER 30, 2004 FINANCIAL HIGHLIGHTS
- Revenues were $58.1 million, up 19% when compared with revenues of
$48.9 million in the same period of the previous year.
- Net foreign currency translation impact contributed approximately
$1.3 million to revenues versus the prior year period average
exchange rates.
- Domestic revenues for the quarter were $43.5 million, or 75% of
revenues, and international revenues for the quarter were $14.6
million, or 25% of revenues. In the prior year period, domestic
revenues were $39.0 million, or 80% of revenues, and international
revenues were $9.9 million, or 20% of revenues.
- The SCI Promotion and Johnson Grossfield divisions generated a
combined $6.9 million in revenues in the third quarter of 2004.
Results for the third quarter of 2003 include one month of revenues
for SCI Promotion (acquired September 3, 2003) and exclude Johnson
Grossfield (acquired effective January 31, 2004).
- Revenues for the Marketing Services segment represented 87.4% of
total revenues, while revenues for the Consumer Products segment
represented 12.6% of total revenues. In the prior year period,
Marketing Services revenues represented 86.1% of total revenues,
while Consumer Products revenues represented 13.9% of total
revenues.
- Gross profit was 21.4% in the third quarter of 2004, as compared to
27.4% in the same period in 2003. Gross profit was 21.8% in the
Marketing Services segment and 18.5% in the Consumer Products
segment in the third quarter of 2004, as compared to 25.9% and
36.8%, respectively, in the third quarter of 2003. Marketing
Services gross profit was lower due to the deferral of fee-based
services to the fourth quarter, as well as a rapid rise in raw
materials costs which could not be recaptured from clients due to
long order lead times. Gross profit in the Consumer Products segment
significantly decreased from the prior year due to a competitive
retail pricing environment, markdowns and price concessions, and
increased costs for plastic resin resulting from higher oil prices.
- Overall operating expenses were $14.0 million, or 24.2% of revenues,
compared with $11.7 million, or 23.9% of revenues, in the prior
year. Prior year operating expenses include one month of operating
expenses for SCI Promotion and exclude Johnson Grossfield.
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- Operating expenses in the third quarter of 2004 include
approximately $190,000 in non-cash expense related to grants of
restricted stock units, compared with approximately $62,000
recognized in the same period in 2003.
- Earnings (loss) before interest, taxes, depreciation, amortization
and charges ("EBITDA") in the third quarter of 2004 was ($918,000),
compared with $2.4 million in the same period in 2003.
- The Company used $7.5 million in cash flow from operations during
the quarter, compared with cash generated of $2.2 million in the
same period in 2003.
- Net loss was $893,000, or $0.22 per diluted share, compared with net
income of $1.3 million, or $0.12 per diluted share, in the same
period of the previous year.
FINANCIAL CONDITION
At September 30, 2004, the Company had $8.1 million in cash and cash
equivalents, $22.8 million in working capital and a current ratio of 1.5. The
quarterly decline in cash and cash equivalents represents a normal fluctuation
as the Company invests in working capital ahead of an anticipated seasonally
strong fourth quarter.
OUTLOOK
For the fourth quarter of 2004, EMAK Worldwide expects to generate
positive net income, before charges. For the full year 2004, EMAK expects
revenues at the low end or modestly below its previously stated range of $240
million to $250 million due to further weakness at Pop Rocket and additional
program deferrals at SCI Promotion. Given the above noted weakness and the
timing of certain December shipments, the Company will likely not be profitable
on a full year basis for 2004.
Mr. Kurz commented on the outlook for EMAK Worldwide: "The holiday
promotions of several of our largest customers should drive improved financial
results in the fourth quarter, although less robust than the guidance we
provided in September.
"While we have been very disappointed with our financial performance
for the first nine months of 2004, we have reasons to be optimistic. Heading
into 2005, our revenue stream has never been more diversified. Our largest
customer, Burger King Corporation, is experiencing positive business trends,
which leads us to believe that we should generate stable-to-increasing
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revenues from this relationship going forward for the first time in three years.
We are also having success in winning new business. Most notably, we are
finalizing an agreement with a Fortune 100 company that will utilize an array of
our services beginning in 2005.
"We are also in the process of evaluating the strategic direction for
Pop Rocket. As evidenced by recent earnings reports from the toy industry's
largest players, this business is becoming increasingly challenging for a
smaller participant like EMAK. While some product lines have disappointed this
year, others -- such as the Crayola(R)-branded bath toys and the Baby
Einstein((TM)) product line -- are generating good traction in the marketplace
and have good growth potential. Regardless of the direction we pursue for this
division, we believe that Pop Rocket will not negatively impact our financial
results next year," said Mr. Kurz.
THIRD QUARTER CONFERENCE CALL AND WEBCAST
The Company will host a conference call with investors and financial
analysts today at 5:00 p.m. ET/2:00 p.m. PT to discuss its third quarter
financial results and operational highlights. The call can be accessed live via
the Internet at www.emak.com. To listen to the live call, visit the Investor
Relations section (Events page) of the Web site at least 15 minutes prior to
download any necessary software. For those who cannot listen to the live
broadcast, an online replay will be available for 30 days at www.emak.com, or a
phone replay will be available through November 4, 2004, by dialing 800-405-2236
or 303-590-3000 (international) and entering the passcode 11012172#.
ABOUT EMAK WORLDWIDE, INC.
EMAK Worldwide, Inc. is a leading global marketing services company
based in Los Angeles, with offices in Chicago, Minneapolis, New York, Ontario
(CA), London, Paris, Hong Kong and Shanghai. 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, 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 EMAK
Worldwide is available on the Company's web site at www.emak.com.
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NOTE: All trademarks and registered trademarks are property of their respective
owners.
Certain expectations and projections regarding the future performance of EMAK
Worldwide, 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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EMAK WORLDWIDE, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Revenues $ 58,055 $ 48,948 $ 161,645 $ 153,468
Cost of sales 45,645 35,513 122,232 112,566
---------- ---------- ----------- -----------
Gross profit 12,410 13,435 39,413 40,902
Operating expenses:
Salaries, wages and benefits 7,986 6,141 23,163 17,539
Selling, general and administrative 6,087 5,546 18,143 17,056
Integration costs - - 136 -
Restructuring charge (gain) (25) - 80 -
Loss on Chicago lease - - 311 -
---------- ---------- ----------- -----------
Total operating expenses 14,048 11,687 41,833 34,595
---------- ---------- ----------- -----------
Income (loss) from operations (1,638) 1,748 (2,420) 6,307
Other income (expense) 179 188 (181) 495
---------- ---------- ----------- -----------
Income (loss) before provision for income taxes (1,459) 1,936 (2,601) 6,802
Provision (benefit) for income taxes (566) 609 (1,012) 2,357
---------- ---------- ----------- -----------
Net income (loss) (893) 1,327 (1,589) 4,445
Preferred stock dividends 375 375 1,125 1,125
Undistributed earnings allocated to participating preferred stock - 217 - 759
---------- ---------- ----------- -----------
Net income (loss) applicable to common stockholders $ (1,268) $ 735 $ (2,714) $ 2,561
========== ========== =========== ===========
Basic income (loss) per share*
Income (loss) per share to common stockholders $ (0.22) $ 0.13 $ (0.47) $ 0.45
========== ========== =========== ===========
Weighted average shares outstanding 5,758,888 5,750,736 5,752,287 5,719,677
Diluted income (loss) per share*
========== ========== =========== ===========
Income (loss) per share $ (0.22) $ 0.12 $ (0.47) $ 0.42
========== ========== =========== ===========
Weighted average shares outstanding 5,758,888 6,160,484 5,752,287 6,029,523
========== ========== =========== ===========
- ----------
* Per share amounts for 2003 have been restated to reflect the impact of
EITF 03-6 "Participating Securities and the Two-Class Method under FASB
Statement No. 128, Earnings per Share," which reduces basic and diluted
earnings per share $0.04 and $0.03, respectively, for the three months
ended September 30, 2003 and $0.13 and $0.13, respectively, for the nine
months ended September 30, 2003. EITF 03-6 had no impact on 2004 per share
amounts because of the net loss. EITF 03-6 requires that rights of
securities to participate in the earnings of an enterprise must be
reflected in the reporting of earnings per share. The Company's cumulative
participating mandatorily redeemable convertible preferred stock qualify
as "participating securities." The proportionate share of 2003 earnings
attributable to these securities is being excluded from the earnings
available to common stockholders. The Company has reached an agreement
with the holder of the preferred stock to exchange the shares for an equal
number of non-participating preferred shares, and beginning in 2005, EITF
03-6 will not have an impact.
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EMAK WORLDWIDE, INC.
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS SEPTEMBER 30, DECEMBER 31,
2004 2003
(UNAUDITED)
----------- -----------
Cash and cash equivalents $ 8,057 $ 19,291
Accounts receivable, net 36,691 36,765
Inventories 19,266 15,099
Prepaid expenses and other current assets 4,699 4,352
---------- ----------
CURRENT ASSETS 68,713 75,507
Fixed assets, net 3,621 3,809
Intangible assets, net 47,575 43,145
Other assets 6,431 5,869
---------- ----------
TOTAL ASSETS $ 126,340 $ 128,330
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Short-term debt* $ 1,489 $ 626
Accounts payable 29,332 28,239
Accrued liabilities 15,056 17,195
---------- ----------
CURRENT LIABILITIES 45,877 46,060
Long-term liabilities 4,797 5,555
---------- ----------
TOTAL LIABILITIES 50,674 51,615
Mandatorily redeemable preferred stock 22,518 23,049
Common stock - -
Additional paid-in capital 27,497 23,886
Retained earnings 42,424 45,138
Accumulated other comprehensive income 3,500 3,334
Less:
Treasury stock (17,669) (17,458)
Unearned compensation (2,604) (1,234)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 53,148 53,666
---------- ----------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY $ 126,340 $ 128,330
========== ==========
- ----------
* Short-term debt as of September 30, 2004 and December 31, 2003 represents
short-term advances by the Company's Logistix subsidiary under an
import/letter of credit facility with Hong Kong Shanghai Bank Corp.
("HSBC"). This facility provides Logistix with short-term financing of
product purchases from Asia. Under this facility, HSBC may pay Logistix's
vendors directly upon receipt of invoices and shipping documentation.
Logistix in turn is obligated to repay HSBC within 120 days. Advances
under this facility as of December 31, 2003 were originally recorded in
accounts payable and have been reclassified to conform to the current
period presentation.
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EMAK WORLDWIDE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
-------------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,589) $ 4,445
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 1,529 1,434
Provision for doubtful accounts 147 232
Gain on disposal of fixed assets - (19)
Tax benefit from exercise of stock options 65 75
Amortization of restricted stock 621 259
Other (13) -
Changes in operating assets and liabilities-
Increase (decrease) in cash and cash equivalents:
Accounts receivable 1,948 17,664
Inventories (3,408) (381)
Prepaid expenses and other current assets (1,195) 738
Other assets (556) (837)
Accounts payable 497 (15,160)
Accrued liabilities (2,926) (11,369)
Long-term liabilities (758) 85
-------- --------
Net cash used in operating activities (5,638) (2,834)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,080) (527)
Purchase of marketable securities, net - (1,500)
Proceeds from sale of fixed assets 20 74
Payment for purchase of SCI, net of cash acquired of $162 - (6,075)
Payment for purchase of JGI (4,614) -
-------- --------
Net cash used in investing activities (5,674) (8,028)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 863 -
Payment of preferred stock dividends (1,125) (1,125)
Purchase of treasury stock (211) (974)
Proceeds from exercise of stock options 538 935
-------- --------
Net cash provided by (used in) financing activities 65 (1,164)
-------- --------
Net decrease in cash and cash equivalents (11,247) (12,026)
Effects of exchange rates on cash and cash equivalents 13 (1)
CASH AND CASH EQUIVALENTS, beginning of period 19,291 25,833
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 8,057 $ 13,806
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EMAK WORLDWIDE, INC.
EBITDA
(In thousands)
EBITDA, before charges, is calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Net Income (loss) $ (893) $1,327 $ (1,589) $4,445
Integration costs - - 136 -
Restructuring charge (gain) (25) - 80 -
Loss on Chicago lease - - 311 -
Interest expense, net 24 14 71 30
Provision (benefit) for income taxes (566) 609 (1,012) 2,357
Depreciation 451 410 1,276 1,232
Amortization 91 88 253 202
------ ------ ------- ------
EBITDA, before charges $ (918) $2,448 $ (474) $8,266
======= ====== ======= ======
EBITDA is reconciled to cash flows provided by (used in) operating activities,
the most comparable measure under generally accepted accounting principles, as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
EBITDA, before charges $ (918) $2,448 $ (474) $8,266
Integration costs - - (136) -
Restructuring gain (charge) 25 - (80) -
Loss on Chicago lease - - (311) -
Interest expense, net (24) (14) (71) (30)
(Provision) benefit for income taxes 566 (609) 1,012 (2,357)
Changes in operating assets and liabilities (7,529) 267 (6,398) (9,259)
Other, net 342 71 820 546
-------- ------ -------- --------
Net cash provided by (used in) operating activities $ (7,538) $2,163 $ (5,638) $ (2,834)
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