AT EQUITY MARKETING, INC.: AT FRB | WEBER SHANDWICK:
Christine Noel Tony Rossi Tricia Ross
SVP, Corporate Communications Investor Relations Investor Relations
(323) 932-4436 (310) 407-6563 (310) 407-6540
FOR IMMEDIATE RELEASE
EQUITY MARKETING REPORTS INCREASE IN REVENUES AND EARNINGS
FOR SECOND QUARTER OF 2003
LOS ANGELES, JULY 24, 2003 - Equity Marketing, Inc. (Nasdaq: EMAK), a
leading marketing services firm, today announced its financial results for the
second quarter ended June 30, 2003.
Revenues were $57.0 million, a second quarter record and an increase of
20.8% over revenues of $47.2 million in the same period of the previous year.
Net income was $2.1 million, or $0.28 per diluted share, compared with
net income of $0.5 million, or $0.03 per diluted share, in the same period of
the previous year. Net income for the second quarter of 2002 included a pre-tax
charge for the forgiveness of a note receivable in the amount of $1.7 million.
Excluding this charge, net income was $1.6 million, or $0.21 per diluted share
in the 2002 period.
"Although general economic conditions remain challenging, each of our
businesses continued to perform well in the second quarter, resulting in 12%
organic revenue growth," said Equity Marketing Chairman and Chief Executive
Officer Don Kurz. "We executed several significant promotional programs for our
major Marketing Services clients, and we are also seeing more activity in the
area of strategic marketing consulting services, such as category marketing in
the retail marketplace.
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"We also had solid growth in the Consumer Products business, with sales
increasing by 41% over the previous year. This is particularly notable given the
difficult prior year comparison due to the strong sales of our Scooby-Doo(TM)
line when the Scooby-Doo feature film was released last Summer. The
year-over-year increase in 2003 was largely driven by the initial shipments of
our new line of Disney's Kim Possible(TM) merchandise, which is scheduled to
receive strong advertising and marketing support from both Disney and Wal-Mart
in the August through November period," said Mr. Kurz.
QUARTER ENDED JUNE 30, 2003 FINANCIAL HIGHLIGHTS
- Revenues were $57.0 million, a second quarter record and an increase
of 20.8% over revenues of $47.2 million in the same period of the
previous year.
- Organic revenue growth, which excludes the impact of the UPSHOT
acquisition, was 11.6%.
- The Logistix and UPSHOT businesses generated $11.5 million in
revenues in the second quarter of 2003.
- Marketing Services revenues for the quarter represented 79.8% of
total revenues, while Consumer Products revenues represented 20.2%
of total revenues. In the prior year period, Marketing Services
revenues represented 82.7% of total revenues, while Consumer
Products revenues represented 17.3% of total revenues.
- Gross profit was 26.7% in the second quarter of 2003, as compared to
22.5% in the same period in 2002. In 2002, gross profit before
charge for the forgiveness of note receivable ("charge") was 26.0%.
Gross profit was 24.0% in the Marketing Services business and 37.0%
in the Consumer Products business in the second quarter of 2003, as
compared to 26.2% and 25.1%, respectively, in the second quarter of
2002 before charge.
- Overall operating expenses were $12.0 million, or 21.1% of revenues,
compared with $9.7 million, or 20.6% of revenues, in the prior year.
Prior year operating expenses exclude UPSHOT.
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") was $3.8 million, an improvement of 29.6% from the $3.0
million recorded in the same period in 2002 before charge.
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- Net income was $2.1 million, or $0.28 per diluted share, compared
with net income of $0.5 million, or $0.03 per diluted share, in the
same period of the previous year. Net income before charge was $1.6
million, or $0.21 per diluted share in the 2002 period.
- Results for the second quarter of 2002 do not include UPSHOT
(acquired July 17, 2002).
SIX MONTHS ENDED JUNE 30, 2003 FINANCIAL HIGHLIGHTS
- Revenues were $104.5 million, an increase of 25.5% over the $83.3
million in the same period of 2002.
- Organic revenue growth, which excludes the impact of the UPSHOT
acquisition, was 14.1%.
- The Logistix and UPSHOT businesses generated $26.4 million in
revenues in the first six months of 2003.
- Marketing Services revenues for the first six months of 2003
represented 85.0% of total revenues, while Consumer Products
revenues represented 15.0% of total revenues. In the prior year
period, Marketing Services revenues represented 81.3% of total
revenues, while Consumer Products revenues represented 18.7% of
total revenues.
- Gross profit was 26.3% for the six months ended June 30, 2003, as
compared to 23.8% in the same period in 2002. Gross profit before
charge in 2002 was 25.8%. Gross profit was 24.2% in the Marketing
Services business and 38.0% in the Consumer Products business in the
first six months of 2003, as compared to 25.2% and 28.2%,
respectively, in the same period of the previous year before charge.
- Overall operating expenses were $22.9 million, or 21.9% of revenues,
compared with $18.0 million, or 21.7% of revenues, in the prior
year. Prior year operating expenses exclude UPSHOT.
- Earnings before interest, taxes, depreciation and amortization
("EBITDA") was $5.8 million, an improvement of 37.6% from the $4.2
million recorded in the same period in 2002 before charge.
- Net income was $3.1 million for the six months ended June 30, 2003,
or $0.40 per diluted share, compared with a net loss of $1.3
million, or $0.34 per diluted share, in the same period in 2002. Net
income before charge and cumulative effect of change in accounting
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principles (recorded in the first quarter of 2002) was $2.3 million,
or $0.26 per diluted share, for the six month period ended June 30,
2002.
- Results for the first six months of 2002 do not include UPSHOT
(acquired July 17, 2002).
FINANCIAL CONDITION
At June 30, 2003, the Company had $20.4 million in cash, cash
equivalents and marketable securities, $30.9 million in working capital, a
current ratio of 1.7 and no debt.
STOCK REPURCHASE PROGRAM
In July 2002, Equity's Board of Directors authorized the implementation
of a new $10 million stock repurchase program. Through June 30, 2003, the
Company had spent a total of $2.2 million from this program to purchase 168,700
shares at an average price of $12.96 per share, including commissions. Since
initiating its original buyback program on July 20, 2000, the Company has spent
a total of $14.2 million to purchase 1,147,009 shares at an average price of
$12.40 per share, including commissions.
SHARE COUNT UPDATE
In accordance with GAAP, based on the level of net income for the
second quarter of 2003, the calculation of diluted earnings per share includes
the impact of the assumed conversion of preferred stock and excludes the
preferred stock dividend. Accordingly, the number of diluted weighted average
shares outstanding for purposes of computing earnings per share was 7.8 million
shares.
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):
Third Quarter 2003: 6.1 million shares
Fourth Quarter 2003: 7.8 million shares
Full Year 2003: 7.8 million shares
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CHANGE IN STOCK-BASED COMPENSATION
Starting this year, Equity Marketing will reduce its use of stock
options as a means of stock-based compensation and will supplement them with
grants of restricted stock units generally vesting over a period of four years.
In accordance with GAAP, the expense of the restricted stock grants is reflected
in the Company's financial statements, starting with the second quarter of 2003.
"We want to incentivize our employees to make business decisions that
are in the long-term best interest of the Company, and we believe restricted
stock grants are a more effective tool in that regard," said Mr. Kurz. "In the
long term, the use of restricted stock grants will also reduce the dilutive
impact of stock-based compensation to our shareholders, and, we believe, allow
for a more accurate accounting of stock-based compensation for investors."
OUTLOOK
Equity Marketing expects third quarter 2003 revenues to range between
$45 million and $50 million, and diluted earnings per share to range between
$0.14 and $0.18. The Company also tightened its range of guidance for the full
year 2003. Revenues are now expected to range between $230 million and $245
million, and diluted earnings per share are now expected to range between $1.20
and $1.35. These numbers include the impact of expensing restricted stock and
the strategic investments discussed below. The Company's previous guidance had
been revenues of $230 million to $260 million, and diluted earnings per share of
$1.20 to $1.50.
As was the case in the first six months of the year, the Company
expects a reduction for the remainder of 2003 in gross margins in its
promotional programs for Burger King Corporation due to an increase in materials
cost, the provision of low margin logistical services and general pricing
pressure. However, this reduction is expected to be offset by improved margins
in the non-Burger King businesses, resulting in higher overall gross margins for
the Company for the full year 2003.
Mr. Kurz commented on the outlook for Equity Marketing: "We expect a
strong second half of 2003, although promotional programs and product shipments
will be more heavily skewed towards the fourth quarter than in recent years. We
continue to have a strong pipeline of projects in our Marketing Services
business, although the volume of custom promotional products in some programs
will be lower than our initial expectations. This reflects the continued
cautious approach clients are taking in the current economic environment. As a
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result, we believe it is prudent to reduce the top-end of our previous revenue
and earnings guidance.
"In addition, we are undertaking a number of strategic investments
this year that we believe will further position us for long-term growth, but
will increase our 2003 expense levels by approximately $1 million. These
investments include a branding initiative designed to enable the Company to
better leverage our three brand names (Equity Marketing, Logistix Kids and
UPSHOT) and our expertise and reputation in certain marketing services
disciplines. We have also initiated plans to expand the geographic presence of
certain areas of the Company that are performing well, which will allow us to
capitalize on their growing reputation within the industry. Finally, we have
increased the investment in new business development worldwide, yielding
significantly higher levels of new client prospect activity. We believe these
investments will ultimately yield a good return for our shareholders, although
they will have a negative impact of approximately $0.08 per diluted share this
year.
"From a long-term perspective, our major Marketing Services clients
continue to indicate that promotions will be an integral part of their marketing
strategies and we expect to see consistent business activity with companies such
as Burger King, Kellogg's and Procter & Gamble. This solid base of core clients
represents an excellent foundation upon which to grow and diversify the Company.
"We have made good progress in our diversification efforts, and we
expect our non-Burger King-related revenues to represent over 40% of total
revenues and earnings in 2003 - the highest percentage in our Company's history.
Given the new business opportunities at UPSHOT and Logistix and the additional
brands we are launching in our Consumer Products division, we expect that we
will continue to generate strong growth from these areas of the Company.
"We also intend to continue evaluating acquisition prospects that can
increase our exposure to the marketing services disciplines where we see more
resources being dedicated by companies. We have an excellent pipeline of
prospects and we are confident that M&A represents a meaningful, complementary
growth vehicle.
"Our strong financial position and consistent free cash flow enable the
Company to pursue a broad range of growth strategies - from expanding the
breadth of our marketing services offerings and investing in additional licenses
for our Consumer Products division to acquiring other companies. With the
opportunities available to us, we believe we can
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consistently generate 15% revenue growth, 20% EPS growth, and 20% return on
invested capital over the long-term," said Mr. Kurz.
SECOND 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 second quarter 2003 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.
To be added to Equity Marketing's investor e-mail lists, please contact
Tricia Ross via e-mail at tross@webershandwick.com or via phone at (310)
407-6540.
Equity Marketing, Inc. is a leading global marketing services company
based in Los Angeles, with offices in Chicago, New York, 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, CVS/pharmacy, Diageo, Dr Pepper/Seven Up, Kellogg's, and Procter &
Gamble, among others. The Company complements its core marketing services
business by developing and marketing distinctive consumer products, based on
trademarks it owns or classic 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 2003 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
(UNAUDITED) (UNAUDITED)
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues $ 56,953 $ 47,151 $ 104,520 $ 83,266
Cost of sales 41,766 34,877 77,053 61,781
Forgiveness of note receivable - 1,685 - 1,685
----------- ----------- ----------- -----------
Gross profit 15,187 10,589 27,467 19,800
Operating expenses:
Salaries, wages and benefits 5,537 4,648 11,398 8,925
Selling, general and administrative 6,485 5,043 11,510 9,120
----------- ----------- ----------- -----------
Total operating expenses 12,022 9,691 22,908 18,045
----------- ----------- ----------- -----------
Income from operations 3,165 898 4,559 1,755
Other income 205 22 307 70
----------- ----------- ----------- -----------
Income before provision for income taxes and cumulative
effect of change in accounting principles 3,370 920 4,866 1,825
Provision for income taxes 1,230 375 1,748 610
----------- ----------- ----------- -----------
Income before cumulative effect of change
in accounting principles 2,140 545 3,118 1,215
Cumulative effect of change in accounting principles, net of tax - - - (2,496)
----------- ----------- ----------- -----------
Net income (loss) 2,140 545 3,118 (1,281)
Preferred stock dividends 375 375 750 750
----------- ----------- ----------- -----------
Net income (loss) available to common stockholders $ 1,765 $ 170 $ 2,368 $ (2,031)
=========== =========== =========== ===========
Basic income (loss) per share
Income per share before cumulative effect of change in
accounting principles $ 0.31 $ 0.03 $ 0.42 $ 0.08
=========== =========== =========== ===========
Cumulative effect of change in accounting principles - - - (0.44)
=========== =========== =========== ===========
Income (loss) per share $ 0.31 $ 0.03 $ 0.42 $ (0.36)
=========== =========== =========== ===========
Weighted average shares outstanding 5,700,016 5,695,293 5,704,148 5,701,818
=========== =========== =========== ===========
Diluted income (loss) per share
Income per share before cumulative effect of change in
accounting principles $ 0.28 $ 0.03 $ 0.40 $ 0.08
=========== =========== =========== ===========
Cumulative effect of change in accounting principles - - - (0.42)
=========== =========== =========== ===========
Income (loss) per share $ 0.28 $ 0.03 $ 0.40 $ (0.34)
=========== =========== =========== ===========
Weighted average shares outstanding 7,752,716 5,928,828 5,970,205 5,918,665
=========== =========== =========== ===========
Note: The after-tax impact of the charge for forgiveness of note receivable for
the three months and six months ended June 30, 2002 is $1,051, or $0.18 per
diluted share.
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EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
JUNE 30,
2003 DECEMBER 31,
(UNAUDITED) 2002
----------- ------------
ASSETS
Cash and cash equivalents $ 17,938 $ 25,833
Marketable securities 2,500 1,000
Accounts receivable, net 35,269 43,817
Inventories 14,745 16,363
Prepaid expenses and other current assets 5,024 4,807
----------- ------------
CURRENT ASSETS 75,476 91,820
Fixed assets, net 3,814 4,185
Intangible assets, net 37,567 34,499
Other assets 5,585 2,750
----------- ------------
TOTAL ASSETS $ 122,442 $ 133,254
=========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt $ - $ -
Accounts payable 28,747 38,334
Accrued liabilities 15,835 24,329
----------- ------------
CURRENT LIABILITIES 44,582 62,663
Long-term liabilities 6,409 1,596
----------- ------------
TOTAL LIABILITIES 50,991 64,259
Mandatory redeemable preferred stock 23,049 23,049
Common stock - -
Additional paid-in capital 23,074 21,641
Retained earnings 41,057 38,689
Accumulated other comprehensive income 2,038 1,710
Less:
Treasury stock (16,351) (15,506)
Unearned compensation (1,416) (588)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 48,402 45,946
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 122,442 $ 133,254
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EQUITY MARKETING, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
SIX MONTHS ENDED
JUNE 30,
----------- -----------
2003 2002
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,118 $ (1,281)
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Cumulative effect of change in accounting principles, net of tax - 2,496
Depreciation and amortization 936 803
Provision for doubtful accounts 255 185
Gain on disposal of fixed assets - (13)
Tax benefit from exercise of stock options 60 12
Forgiveness of note receivable - 1,685
Amortization of restricted stock 156 -
Other 4 -
Changes in operating assets and liabilities-
Increase (decrease) in cash and cash equivalents:
Accounts receivable 8,433 (4,584)
Note receivable - 498
Inventories 1,650 (3,401)
Prepaid expenses and other current assets (473) 969
Other assets (989) 130
Accounts payable (9,677) 2,723
Accrued liabilities (8,533) 611
Long-term liabilities 63 (75)
---------- ----------
Net cash (used in) provided by operating activities (4,997) 758
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (373) (457)
Purchase of marketable securities, net (1,500) -
Proceeds from sale of marketable securities - 4,700
Proceeds from sale of fixed assets 16 79
---------- ----------
Net cash (used in) provided by investing activities (1,857) 4,322
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock dividends (750) (750)
Purchase of treasury stock (845) (391)
Proceeds from exercise of stock options 389 110
---------- ----------
Net cash used in financing activities (1,206) (1,031)
---------- ----------
Net (decrease) increase in cash and cash equivalents (8,060) 4,049
Effects of exchange rates on cash and cash equivalents 165 122
CASH AND CASH EQUIVALENTS, beginning of period 25,833 21,935
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 17,938 $ 26,106
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EQUITY MARKETING, INC.
EBITDA, before charge
(In thousands)
EBITDA, before charge, is calculated as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------ -----------------
2003 2002 2003 2002
------- -------- ------- -------
Income before cumulative effect of
change in accounting principles $ 2,140 $ 545 $ 3,118 $ 1,215
Charge for forgiveness of note receivable - 1,685 - 1,685
Interest expense (income), net 12 (44) 16 (84)
Provision for income taxes 1,230 375 1,748 610
Depreciation 414 378 822 748
Amortization 50 28 114 55
------- ------- ------- -------
EBITDA, before charge $ 3,846 $ 2,967 $ 5,818 $ 4,229
======= ======= ======= =======
EBITDA, before charge, is reconciled to net cash provided by (used in) operating
activities, the most comparable measure under generally accepted accounting
principles, as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
EBITDA, before charge $ 3,846 $ 2,967 $ 5,818 $ 4,229
Interest (expense) income, net (12) 44 (16) 84
Provision for income taxes (1,230) (375) (1,748) (610)
Changes in operating assets and liabilities (131) (958) (9,526) (3,129)
Other, net 332 117 475 184
------- ------- ------- -------
Net cash provided by (used in) operating activities $ 2,805 $ 1,795 $(4,997) $ 758
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