Exhibit 99.1
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 RESULTS
FOR THIRD QUARTER OF 2003
LOS ANGELES, OCTOBER 30, 2003 - Equity Marketing, Inc. (Nasdaq: EMAK),
a leading marketing services firm, today announced its financial results for the
third quarter ended September 30, 2003.
Revenues were $48.9 million in the third quarter of 2003, compared with
revenues of $53.1 million in the same period of the previous year.
Net income was $1.3 million, or $0.15 per diluted share, compared with
net income of $2.1 million, or $0.28 per diluted share, in the same period of
the previous year. Net income for the third quarter of 2002 included $339,000 in
charges for restructuring and UPSHOT integration costs. Excluding these charges,
net of tax, net income was $2.3 million, or $0.31 per diluted share in the 2002
period.
"The third quarter generally unfolded as planned with the anticipated
level of activity in both our Marketing Services and Consumer Products
businesses," said Equity Marketing Chairman and Chief Executive Officer Don
Kurz. "Although shipments and billings were lighter than in prior years, new
business activity increased across the Company which is contributing to a solid
pipeline of work for 2004.
"On the consumer products front, we have seen good consumer response to
our new line of Disney's Kim Possible merchandise. As distribution expands, we
believe this line will make a strong contribution in 2004.
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"Most importantly though, we took another significant step in our
growth and diversification efforts with the acquisition of the assets of SCI
Promotion Group ("SCI"). Their outstanding reputation and broad client base in
the retail department store industry provides Equity Marketing with another
profitable income stream with strong growth potential," said Mr. Kurz.
QUARTER ENDED SEPTEMBER 30, 2003 FINANCIAL HIGHLIGHTS
- Revenues were $48.9 million, compared with revenues of $53.1 million in
the same period of the previous year.
- The Logistix, UPSHOT, and SCI businesses generated $16.0 million in
revenues in the third quarter of 2003. These results include
approximately one month of SCI operations (acquired September 3, 2003).
- Marketing Services revenues for the quarter represented 84.8% of total
revenues, while Consumer Products revenues represented 15.2% of total
revenues. In the prior year period, Marketing Services revenues
represented 79.3% of total revenues, while Consumer Products revenues
represented 20.7% of total revenues.
- Gross profit was 27.4% in the third quarter of 2003, as compared to
28.3% in the same period in 2002. Gross profit was 25.9% in the
Marketing Services business and 36.3% in the Consumer Products business
in the third quarter of 2003, as compared to 28.8% and 26.4%,
respectively, in the third quarter of 2002.
- Overall operating expenses were $11.7 million, or 23.9% of revenues,
compared with $11.9 million, or 22.4% of revenues, in the prior year.
Current year expenses exclude two months of SCI (acquired September 3,
2003). Prior year operating expenses exclude SCI and approximately two
weeks of UPSHOT. Prior year operating expenses include integration and
restructuring charges of $339,000.
- Earnings before interest, taxes, depreciation, amortization and charges
("EBITDA") was $2.4 million, compared with $4.1 million in the same
period in 2002.
- Net income was $1.3 million, or $0.15 per diluted share, compared with
net income of $2.1 million, or $0.28 per diluted share, in the same
period of the previous year. Net income before charges, net of tax, was
$2.3 million, or $0.31 per diluted share in the 2002 period.
- Results for the third quarter of 2002 do not include SCI (acquired
September 3, 2003) and include approximately two and one-half months of
UPSHOT (acquired July 17, 2002).
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NINE MONTHS ENDED SEPTEMBER 30, 2003 FINANCIAL HIGHLIGHTS
- Revenues were $153.5 million, an increase of 12.5% over the $136.4
million in the same period of 2002.
- Organic revenue growth, which excludes results from businesses acquired
in the previous 12 months, was 2.5%.
- The Logistix, UPSHOT, and SCI businesses generated $42.4 million in
revenues in the first nine months of 2003. These results include
approximately one month of SCI operations.
- Marketing Services revenues for the first nine 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 80.5% of total revenues, while
Consumer Products revenues represented 19.5% of total revenues.
- Gross profit was 26.7% for the nine months ended September 30, 2003, as
compared to 25.5% in the same period in 2002. The first nine months of
2002 included a pre-tax charge for the forgiveness of a note receivable
in the amount of $1.7 million. Gross profit before charge was 26.8% in
2002. Gross profit was 24.7% in the Marketing Services business and
37.5% in the Consumer Products business in the first nine months of
2003, as compared to 26.6% and 27.5%, respectively, in the same period
of the previous year before charge.
- Overall operating expenses were $34.6 million, or 22.5% of revenues,
compared with $29.9 million, or 21.9% of revenues, in the prior year.
Excluding restructuring and integration charges, operating expenses
were $29.5 million, or 21.7% of revenue, in the prior year period.
- Earnings before interest, taxes, depreciation, amortization and charges
("EBITDA") was $8.3 million for the nine months ended September 30,
2003, compared with $8.4 million recorded in the same period in 2002.
- Net income was $4.4 million for the nine months ended September 30,
2003, or $0.55 per diluted share, compared with $0.9 million or ($0.05)
per diluted share, in the same period in 2002. Net income before
charges, net of tax, and cumulative effect of change in
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accounting principles (recorded in the first quarter of 2002) was $4.6
million, or $0.60 per diluted share, for the nine month period ended
September 30, 2002.
- Results for the first nine months of 2002 do not include SCI (acquired
September 3, 2003) and include approximately two and one-half months of
UPSHOT (acquired July 17, 2002).
FINANCIAL CONDITION
At September 30, 2003, the Company had $16.3 million in cash, cash
equivalents and marketable securities, $28.5 million in working capital, a
current ratio of 1.7 and no debt. The decline in cash, cash equivalents and
marketable securities from $20.4 million as of the previous quarter-end reflects
the use of approximately $6.1 million for the acquisition of the assets of SCI
Promotion Group, partially offset by $2.2 million in positive cash flows
generated from operations in this year's third quarter.
STOCK REPURCHASE PROGRAM
In July 2002, Equity's Board of Directors authorized the implementation
of a new $10 million stock repurchase program. Through September 30, 2003, the
Company had spent a total of $2.3 million from this program to purchase 177,400
shares at an average price of $13.05 per share, including commissions. Since
initiating its original buyback program on July 20, 2000, the Company has spent
a total of approximately $14.4 million to purchase 1,155,709 shares at an
average price of $12.42 per share, including commissions.
Share repurchase activity was modest in the third quarter of 2003 due
to a quiet period related to the acquisition of the assets of SCI Promotion
Group.
SHARE COUNT UPDATE
In accordance with GAAP, based on the level of net income for the third
quarter of 2003, 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 weighted average shares
outstanding for purposes of computing earnings per share was 6.2 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):
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Fourth Quarter 2003: 7.8 million shares
Full Year 2003: 7.8 million shares
Full Year 2004: 8.0 million shares
OUTLOOK
Equity Marketing announced guidance for the fourth quarter and revised
guidance for the full year 2003. For the fourth quarter, the Company expects
revenues to be between $62 million and $67 million, and diluted earnings per
share to range from $0.47 to $0.52. For the full year 2003, the Company now
expects revenues to be between $215 million and $220 million, and diluted
earnings per share to range from $1.05 to $1.10.
The reduction of the Company's full year 2003 revenue and earnings
expectations is principally due to the following developments:
- Lower than expected volumes of custom manufactured premiums in a number
of the Company's promotional programs;
- Slower than projected re-orders of Scooby-Doo(TM) consumer products,
based on the conservative inventory positions of retailers.
2004 GUIDANCE
Equity Marketing also provided its initial guidance for 2004. For the
full year 2004, the Company expects revenues to range between $235 million and
$260 million, and diluted earnings per share to range between $1.25 and $1.45.
This guidance does not reflect the impact of any potential future acquisitions.
In providing the 2004 guidance, the Company cited a number of catalysts
expected to drive the growth in revenue and earnings:
- Deep relationships with major clients such as Burger King, Kellogg's,
and Procter & Gamble provide a solid platform for growth;
- The expansion of the successful Logistix Kids brand to the United
States;
- The addition of SCI, which is expected to be accretive to earnings in
2004;
- Expected strong sales of Scooby-Doo(TM)merchandise driven by the Spring
2004 release of the sequel to the popular 2002 live-action feature
film;
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- A full year of sales from Disney's Kim Possible line of merchandise,
with expanded distribution to major retailers and specialty stores, as
Wal-Mart's 2003 exclusive ends;
- The launch of the first line of toys based on the best-selling Baby
Einstein(TM)brand of videos;
- Expected continued improvement in gross margins as higher margin
Consumer Products are expected to represent a larger percentage of
revenue and fee-based Marketing Services continues to grow;
- An increase in operating margins due to greater operational leverage.
Mr. Kurz commented on the outlook for Equity Marketing: "Although we
are clearly disappointed with the reduced outlook for the fourth quarter, we
believe that 2004 will be another year of significant strategic and financial
progress. We expect to continue making good progress in our diversification
efforts, and believe that our customer concentration will be the lowest in our
history. Importantly, given our strong cash position, the consistent free cash
flow that we generate, and our unused debt capacity, we are in an excellent
position to pursue additional acquisition opportunities that can further
strengthen and diversify the growing franchise we have built. With our recent
recognition by leading trade magazines as one of the top 10 marketing services
agencies in both the United States and the United Kingdom, we believe that we
have positioned the Company to capture a larger share of the $100 billion
dollars spent annually on non-advertising marketing services."
THIRD 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 third 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, Ontario (CA), London,
Paris and Hong Kong. The
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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, Dr Pepper/Seven Up, Kellogg's, Kohl's, Macy's, Nordstrom's, and Procter
& Gamble, among others. The Company complements its core marketing services
business by developing and marketing distinctive consumer products, based
primarily on 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
(UNAUDITED) (UNAUDITED)
------------------------- --------------------------
2003 2002 2003 2002
----------- ---------- ---------- -----------
Revenues $ 48,948 $ 53,119 $ 153,468 $ 136,385
Cost of sales 35,513 38,084 112,566 99,865
Forgiveness of note receivable - - - 1,685
----------- ---------- ---------- -----------
Gross profit 13,435 15,035 40,902 34,835
Operating expenses:
Salaries, wages and benefits 6,141 6,054 17,539 14,979
Selling, general and administrative 5,546 5,490 17,056 14,552
Integration costs - 161 - 219
Restructuring charge - 178 - 178
----------- ---------- ---------- -----------
Total operating expenses 11,687 11,883 34,595 29,928
----------- ---------- ---------- -----------
Income from operations 1,748 3,152 6,307 4,907
Other income 188 121 495 191
----------- ---------- ---------- -----------
Income before provision for income taxes and cumulative
effect of change in accounting principles 1,936 3,273 6,802 5,098
Provision for income taxes 609 1,142 2,357 1,752
----------- ---------- ---------- -----------
Income before cumulative effect of change
in accounting principles 1,327 2,131 4,445 3,346
Cumulative effect of change in accounting principles, net of tax - - - (2,496)
----------- ---------- ---------- -----------
Net income 1,327 2,131 4,445 850
Preferred stock dividends 375 375 1,125 1,125
----------- ---------- ---------- -----------
Net income (loss) available to common stockholders $ 952 $ 1,756 $ 3,320 $ (275)
=========== ========== ========== ===========
Basic income (loss) per share
Income per share before cumulative effect of change in
accounting principles $ 0.17 $ 0.31 $ 0.58 $ 0.39
=========== ========== ========== ===========
Cumulative effect of change in accounting principles - - - (0.44)
=========== ========== ========== ===========
Income (loss) per share $ 0.17 $ 0.31 $ 0.58 $ (0.05)
=========== ========== ========== ===========
Weighted average shares outstanding 5,750,736 5,740,001 5,719,677 5,714,546
=========== ========== ========== ===========
Diluted income (loss) per share
Income per share before cumulative effect of change in
accounting principles $ 0.15 $ 0.28 $ 0.55 $ 0.38
=========== ========== ========== ===========
Cumulative effect of change in accounting principles - - - (0.42)
=========== ========== ========== ===========
Income (loss) per share $ 0.15 $ 0.28 $ 0.55 $ (0.05)
=========== ========== ========== ===========
Weighted average shares outstanding 6,160,484 7,582,285 6,029,523 5,908,233
=========== ========== ========== ===========
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EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS SEPTEMBER 30, DECEMBER 31,
2003 2002
(Unaudited)
------------ ------------
Cash and cash equivalents $ 13,806 $ 25,833
Marketable securities 2,500 1,000
Accounts receivable, net 31,103 43,817
Inventories 17,669 16,363
Prepaid expenses and other current assets 5,704 4,807
--------- ---------
CURRENT ASSETS 70,782 91,820
Fixed assets, net 3,560 4,185
Intangible assets, net 42,004 34,499
Other assets 5,448 2,750
--------- ---------
TOTAL ASSETS $ 121,794 $ 133,254
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt $ - $ -
Accounts payable 27,332 38,334
Accrued liabilities 14,990 24,329
--------- ---------
CURRENT LIABILITIES 42,322 62,663
Long-term liabilities 6,431 1,596
--------- ---------
TOTAL LIABILITIES 48,753 64,259
Mandatory redeemable preferred stock 23,049 23,049
Common stock - -
Additional paid-in capital 23,686 21,641
Retained earnings 42,009 38,689
Accumulated other comprehensive income 2,141 1,710
Less:
Treasury stock (16,480) (15,506)
Unearned compensation (1,364) (588)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 49,992 45,946
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 121,794 $ 133,254
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EQUITY MARKETING, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
----------- -----------
2003 2002
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,445 $ 850
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Cumulative effect of change in accounting principles, net of tax - 2,496
Depreciation and amortization 1,434 1,311
Provision for doubtful accounts 232 334
Gain on disposal of fixed assets (19) (12)
Tax benefit from exercise of stock options 75 16
Forgiveness of note receivable - 1,685
Amortization of restricted stock 259 33
Other - -
Changes in operating assets and liabilities-
Increase (decrease) in cash and cash equivalents:
Accounts receivable 17,664 (4,250)
Note receivable - 498
Inventories (381) (2,430)
Prepaid expenses and other current assets 738 2,552
Other assets (837) 75
Accounts payable (15,160) (1,234)
Accrued liabilities (11,369) 4,120
Long-term liabilities 85 (92)
-------- --------
Net cash (used in) provided by operating activities (2,834) 5,952
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (527) (624)
Purchase of marketable securities, net (1,500) -
Proceeds from sale of marketable securities - 6,700
Payment for purchase of UPSHOT - (9,997)
Payment for purchase of SCI, net of cash acquired of $162 (6,075) -
Proceeds from sale of fixed assets 74 133
-------- --------
Net cash used in investing activities (8,028) (3,788)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock dividends (1,125) (1,125)
Purchase of treasury stock (974) (391)
Proceeds from exercise of stock options 935 130
-------- --------
Net cash used in financing activities (1,164) (1,386)
-------- --------
Net (decrease) increase in cash and cash equivalents (12,026) 778
Effects of exchange rates on cash and cash equivalents (1) 134
CASH AND CASH EQUIVALENTS, beginning of period 25,833 21,935
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 13,806 $ 22,847
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EQUITY MARKETING, INC.
EBITDA
(In thousands)
EBITDA, before charges, is calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
------------------ ------------------
2003 2002 2003 2002
------- -------- ------- --------
Income before cumulative effect of
change in accounting principles $ 1,327 $ 2,131 $ 4,445 $ 3,346
Charge for forgiveness of note receivable - - - 1,685
Integration costs - 161 - 219
Restructuring charge - 178 - 178
Interest expense (income), net 14 (19) 30 (103)
Provision for income taxes 609 1,142 2,357 1,752
Depreciation 410 424 1,232 1,172
Amortization 88 84 202 139
------- ------- ------- -------
EBITDA, before charges $ 2,448 $ 4,101 $ 8,266 $ 8,388
======= ======= ======= =======
EBITDA is reconciled to cash flows 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)
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
EBITDA, before charges $ 2,448 $ 4,101 $ 8,266 $ 8,388
Integration costs - (161) - (219)
Restructuring charge - (178) - (178)
Interest (expense) income, net (14) 19 (30) 103
Provision for income taxes (609) (1,142) (2,357) (1,752)
Changes in operating assets and liabilities 267 2,368 (9,259) (761)
Other, net 71 187 546 371
------- ------- ------- -------
Net cash provided by (used in) operating activities $ 2,163 $ 5,194 $(2,834) $ 5,952
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