AT EQUITY MARKETING, INC.:
Lisa Mueller
Investor Relations
(323) 932-4034
FOR IMMEDIATE RELEASE
EQUITY MARKETING REPORTS RESULTS
FOR FISCAL YEAR AND FOURTH QUARTER OF 2003
LOS ANGELES, FEBRUARY 26, 2004 - Equity Marketing, Inc. (Nasdaq: EMAK), a
leading marketing services firm, today announced its financial results for the
fourth quarter and full year ended December 31, 2003.
Revenues were $65.6 million in the fourth quarter of 2003, compared with
revenues of $70.4 million in the same period of the previous year. Revenues for
the full year 2003 were $219.1 million, a 5.9% increase over revenues of $206.8
million in 2002.
Net income in the fourth quarter of 2003 was $3.5 million, or $0.45 per
diluted share, compared with net income of $3.4 million, or $0.45 per diluted
share, in the same period of the previous year.
In the fourth quarter of 2003, net income was $3.7 million, or $0.47 per
diluted share, excluding a net restructuring charge totaling $146,000, net of
tax. In the fourth quarter of 2002, net income was $3.5 million, or $0.47 per
diluted share, excluding charges related to UPSHOT integration costs totaling
$146,000, net of tax.
Net income in 2003 was $7.9 million, or $1.03 per diluted share, compared
with net income of $4.2 million, or $0.56 per diluted share, in 2002. Excluding
the restructuring charge, net income was $8.1 million, or $1.05 per diluted
share, in 2003. Before various charges and cumulative effect of change in
accounting principles (recorded in the first quarter of 2002), net income was
$8.2 million, or $1.08 per diluted share, in 2002.
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"Our fourth quarter financial results were within our range of
expectations with revenues and gross margins near the high end," said Equity
Marketing Chairman and Chief Executive Officer Don Kurz. "The majority of our
business lines are performing well, as our non-Burger King-related revenues
increased more than 40% over the prior year period. This growth was driven
primarily by the addition of SCI Promotion Group, increased marketing services
work in our European offices, and the contributions of the Disney's Kim
Possible(TM) and Crayola(R) bath merchandise we rolled out this year in our
Consumer Products business.
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"The performance of these business lines helped mitigate the impact of
lower sales to Burger King this quarter compared to the prior year. Although we
continue to implement the same number of promotional programs for Burger King as
we have historically, unit volumes in those programs are lower than we have seen
in the past.
"We were also very pleased to add another growth vehicle with the
acquisition of the promotional agency business of Johnson Grossfield, Inc. (JGI)
shortly after the quarter ended. As a major provider of premiums for Subway
Restaurants' kids marketing program for more than a decade, JGI provides the
Company with excellent leverage to a fast growing segment of the quick-service
restaurant industry," said Mr. Kurz.
QUARTER ENDED DECEMBER 31, 2003 FINANCIAL HIGHLIGHTS
- Revenues were $65.6 million, compared with revenues of $70.4 million
in the same period of the previous year.
- The Logistix, UPSHOT, and SCI businesses generated $19.1 million in
revenues in the fourth quarter of 2003.
- Marketing Services revenues for the quarter represented 81.2% of
total revenues, while Consumer Products revenues represented 18.8%
of total revenues. In the prior year period, Marketing Services
revenues represented 83.6% of total revenues, while Consumer
Products revenues represented 16.4% of total revenues.
- Gross profit was 30.6% in the fourth quarter of 2003, as compared to
27.0% in the same period in 2002. Gross profit was 27.8% in the
Marketing Services business and 42.6% in the Consumer Products
business in the fourth quarter of 2003, as compared to 25.1% and
36.6%, respectively, in the fourth quarter of 2002.
- Overall operating expenses were $14.7 million, or 22.5% of revenues,
compared with $13.8 million, or 19.6% of revenues, in the prior
year. Excluding restructuring charges, operating expenses were $14.5
million, or 22.1% of revenues, in the fourth quarter of 2003. In the
prior year period, operating expenses were $13.6 million, or 19.2%
of revenue, excluding integration charges. Prior year operating
expenses exclude SCI.
- Pursuant to the Company's new stock-based compensation policy,
operating expenses in the fourth quarter of 2003 include
approximately $60,000 in non-cash expense related to grants of
restricted stock units. In the fourth quarter of the prior year, no
expenses were
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recognized on the income statement related to stock option grants
under the previous stock-based compensation policy.
- The Company recorded a restructuring charge in the amount of
$424,000 related to headcount reduction at its UPSHOT division.
Reduced marketing expenditures by some of UPSHOT's major clients had
resulted in sub-optimal staff utilization rates. This charge was
partially offset by a $190,000 reversal of a restructuring reserve
established in 1998 related to exiting former consumer products
licenses. This reversal is attributable to the expiration of certain
contractual rights. The total net restructuring charge recorded in
the fourth quarter of 2003 was $234,000, or $146,000 net of tax.
- Earnings before interest, taxes, depreciation, amortization and
charges ("EBITDA") was $6.0 million, compared with $6.2 million in
the same period in 2002.
- Net income was $3.5 million, or $0.45 per diluted share, compared
with net income of $3.4 million, or $0.45 per diluted share, in the
same period of the previous year. Net income, excluding the
restructuring charge, was $3.7 million or $0.47 per diluted share,
compared to net income, before integration costs, of $3.5 million or
$0.47 per diluted share in 2002.
- Results for the fourth quarter of 2002 do not include SCI (acquired
September 3, 2003). SCI was $0.01 dilutive per share in the fourth
quarter of 2003.
FULL YEAR 2003 FINANCIAL HIGHLIGHTS
- Revenues in 2003 were $219.1 million, an increase of 5.9% over
revenues of $206.8 million in 2002.
- The Logistix, UPSHOT, and SCI businesses generated $61.4 million in
revenues in 2003. These results include approximately four months of
SCI operations.
- Marketing Services revenues represented 83.8% of total revenues,
while Consumer Products revenues represented 16.2% of total
revenues. In the prior year, Marketing Services revenues represented
81.5% of total revenues, while Consumer Products revenues
represented 18.5% of total revenues.
- Gross profit was 27.8% in 2003, as compared to 26.0% in 2002. Gross
profit in 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.
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- For the full year, gross profit was 25.6% in the Marketing Services
business and 39.3% in the Consumer Products business in 2003, as
compared to 26.1% and 30.3%, respectively, in 2002 before charge.
- Overall operating expenses were $49.3 million, or 22.5% of revenues,
compared with $43.7 million, or 21.1% of revenues, in the prior
year. Excluding restructuring charges, operating expenses were $49.1
million, or 22.4% of revenue, in 2003. Excluding restructuring and
integration charges, operating expenses were $43.1 million, or 20.8%
of revenue, in the prior year.
- Pursuant to the Company's new stock-based compensation policy,
operating expenses in 2003 include approximately $180,000, or $0.01
per share, in non-cash expense related to grants of restricted stock
units. In 2002, no expenses were recognized on the income statement
related to stock option grants under the previous stock-based
compensation policy.
- Earnings before interest, taxes, depreciation, amortization and
charges ("EBITDA") was $14.3 million in 2003, compared with $14.6
million recorded in 2002.
- Net income in 2003 was $7.9 million, or $1.03 per diluted share,
compared with $4.2 million, or $0.56 per diluted share, in 2002.
Excluding the restructuring charge, net income in 2003 was $8.1
million, or $1.05 per diluted share. Net income before charges, and
cumulative effect of change in accounting principles (recorded in
the first quarter of 2002) was $8.2 million, or $1.08 per diluted
share, in 2002.
- Full year 2002 financial results do not include SCI (acquired
September 3, 2003) and include approximately five and one-half
months of UPSHOT (acquired July 17, 2002).
FINANCIAL CONDITION
At December 31, 2003, the Company had $19.3 million in cash and cash
equivalents, $29.4 million in working capital, a current ratio of 1.6 and no
debt. The cash, cash equivalents, and marketable securities balance is up from
$16.3 million at September 30, 2003.
STOCK REPURCHASE PROGRAM
In July 2002, Equity's Board of Directors authorized the implementation of
a new $10 million stock repurchase program. Through December 31, 2003, the
Company had spent a total of
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$3.3 million from this program to purchase 251,100 shares at an average price of
$13.12 per share, including commissions. Since initiating its original buyback
program on July 21, 2000, the Company has spent a total of approximately $15.3
million to purchase 1,229,409 shares at an average price of $12.47 per share,
including commissions.
SHARE COUNT UPDATE
In accordance with GAAP, based on the level of net income for both the
fourth quarter and full year 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 7.7
million shares in both periods.
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):
First Quarter 2004: 5.7 million shares
Full Year 2004: 7.8 million shares
OUTLOOK
For the first quarter of 2004, Equity Marketing expects revenues to be
between $45 million and $50 million, and diluted loss per share to range from
$0.05 to $0.10. This guidance includes the impact of several items in the first
quarter, as follows:
- The first quarter is seasonally SCI's smallest quarter of the
year resulting in expected dilution of approximately $0.06 per
diluted share;
- A decline in sales to Burger King with negative impact of
approximately $0.04 per diluted share;
- Charges related to integration costs from SCI and JGI of
approximately $0.01 per diluted share, and expected dilution
from JGI of approximately $0.03 per diluted share due to the
required amortization of acquired intangible assets and other
purchase accounting adjustments; and
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- The non-cash expense related to restricted stock units
resulting in a negative impact of approximately $0.01 per
diluted share. Restricted stock units were not used as the
primary means of stock-based compensation until the second
quarter of 2002.
Equity Marketing continues to expect full year 2004 revenues to range between
$235 million and $260 million, and diluted earnings per share to range between
$1.25 and $1.45. The contribution of JGI and strength in other business lines
are expected to offset a lower level of sales to Burger King than initially
expected for 2004.
"We anticipate our share of the Burger King worldwide premiums business
will remain the same as in 2003, though we will be impacted by lower program
volume. Longer term, we are confident that our Burger King business will once
again contribute to our growth, as the new ownership group and management team
continue to put in place strategies to turnaround this great brand," said Mr.
Kurz.
In providing the 2004 guidance, the Company believes a number of catalysts
are in place to drive the expected growth in revenue and earnings:
- Full year contributions from recent acquisitions SCI and JGI, both
of which are expected to be accretive to earnings in 2004;
- Further expansion of the successful Logistix Kids brand worldwide,
which had a strong increase in its marketing services revenue in
2003 due to a number of new clients in France and Spain;
- Improved performance from the UPSHOT agency business, as a lower
cost structure and higher sales should increase profit contribution;
- Increased sales of Scooby-Doo(TM) merchandise driven by the March
2004 release of the sequel to the popular 2002 live-action feature
film;
- Increased sales of Crayola(R) bath products following expanded
distribution to major drug store chains;
- A full year of sales from Disney's Kim Possible(TM) line of
merchandise, with major retailers and specialty stores such as Toys
"R" Us, Kmart, ShopKo and Meijer stores now selling the merchandise
along with Wal-Mart;
- A full year of sales for the first line of toys based on the
best-selling Baby Einstein(TM) brand of videos, which will primarily
be sold at Target in 2004; and
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- 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.
Mr. Kurz commented on the outlook for Equity Marketing: "We expect the
decline in sales to Burger King to be most pronounced in the first half of the
year, which will result in lower overall year-over-year comparisons for this
business. Additionally, as previously mentioned, we expect our two recent
acquisitions will collectively have a negative bottom-line impact in the first
quarter prior to making solid contributions for the remainder of the year.
"Beyond the first quarter, we feel confident about our ability to generate
strong growth in the remainder of 2004. In addition to strength in our other
business lines, our Consumer Products division now has four solid brands in
Scooby-Doo(TM), Disney's Kim Possible(TM), Crayola(R) bath products, and Baby
Einstein(TM) that we expect will all make good contributions in 2004. In
addition, we are planning to expand retail distribution of our new Samurai
Jack(TM) line in Fall 2004, following the success of its limited launch in 2003.
"With the addition of SCI and JGI and the growth of our other businesses,
we expect our revenue mix to be more diverse than at any time since we went
public in 1994, with non-Burger King-related revenues representing approximately
60% of total revenue in 2004. We continue to explore additional acquisitions
that can contribute to our growth and diversification; and our strong financial
position and unused debt capacity enables us to continue acting on attractive
opportunities in our targeted areas. As we begin 2004, we are very pleased with
the portfolio of assets that now comprise Equity Marketing, and we believe we
have a wealth of vehicles for creating additional value for shareholders in the
years ahead," said Mr. Kurz.
FOURTH 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 fourth quarter and fiscal year 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.
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
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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 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 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 TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED)
--------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues $ 65,645 $ 70,447 $ 219,113 $ 206,832
Cost of sales 45,551 51,442 158,117 151,307
Forgiveness of note receivable -- -- -- 1,685
----------- ----------- ----------- -----------
Gross profit 20,094 19,005 60,996 53,840
Operating expenses:
Salaries, wages and benefits 6,984 5,683 24,523 20,662
Selling, general and administrative 7,520 7,871 24,576 22,423
Integration costs -- 234 -- 453
Restructuring charge 234 -- 234 178
----------- ----------- ----------- -----------
Total operating expenses 14,738 13,788 49,333 43,716
----------- ----------- ----------- -----------
Income from operations 5,356 5,217 11,663 10,124
Other (expense) income (106) 192 389 383
----------- ----------- ----------- -----------
Income before provision for income taxes and cumulative
effect of change in accounting principles 5,250 5,409 12,052 10,507
Provision for income taxes 1,746 2,034 4,103 3,786
----------- ----------- ----------- -----------
Income before cumulative effect of change
in accounting principles 3,504 3,375 7,949 6,721
Cumulative effect of change in accounting principles, net of tax -- -- -- (2,496)
----------- ----------- ----------- -----------
Net income 3,504 3,375 7,949 4,225
Preferred stock dividends 375 375 1,500 1,500
----------- ----------- ----------- -----------
Net income available to common stockholders $ 3,129 $ 3,000 $ 6,449 $ 2,725
=========== =========== =========== ===========
Basic income per share
Income per share before cumulative effect of change in
accounting principles $ 0.55 $ 0.52 $ 1.13 $ 0.91
=========== =========== =========== ===========
Cumulative effect of change in accounting principles -- -- -- (0.44)
=========== =========== =========== ===========
Income per share $ 0.55 $ 0.52 $ 1.13 $ 0.48
=========== =========== =========== ===========
Weighted average shares outstanding 5,715,160 5,743,525 5,718,548 5,721,790
=========== =========== =========== ===========
Diluted income per share
Income per share before cumulative effect of change in
accounting principles $ 0.45 $ 0.45 $ 1.03 $ 0.89
=========== =========== =========== ===========
Cumulative effect of change in accounting principles -- -- -- (0.33)
=========== =========== =========== ===========
Income per share $ 0.45 $ 0.45 $ 1.03 $ 0.56
=========== =========== =========== ===========
Weighted average shares outstanding 7,713,519 7,554,530 7,712,633 7,590,018
=========== =========== =========== ===========
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EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS DECEMBER 31, DECEMBER 31,
2003 2002
(UNAUDITED)
------------ ------------
Cash and cash equivalents $ 19,291 $ 25,833
Marketable securities -- 1,000
Accounts receivable, net 36,765 43,817
Inventories 15,099 16,363
Prepaid expenses and other current assets 4,352 4,807
------------ ------------
CURRENT ASSETS 75,507 91,820
Fixed assets, net 3,809 4,185
Intangible assets, net 43,145 34,499
Other assets 5,869 2,750
------------ ------------
TOTAL ASSETS $ 128,330 $ 133,254
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Short-term debt $ -- $ --
Accounts payable 28,865 38,334
Accrued liabilities 17,195 24,329
------------ ------------
CURRENT LIABILITIES 46,060 62,663
Long-term liabilities 5,555 1,596
------------ ------------
TOTAL LIABILITIES 51,615 64,259
Mandatory redeemable preferred stock 23,049 23,049
Common stock -- --
Additional paid-in capital 23,886 21,641
Retained earnings 45,138 38,689
Accumulated other comprehensive income 3,334 1,710
Less:
Treasury stock (17,458) (15,506)
Unearned compensation (1,234) (588)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 53,666 45,946
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 128,330 $ 133,254
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EQUITY MARKETING, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
TWELVE MONTHS ENDED
DECEMBER 31,
------------ ------------
2003 2002
(UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,949 $ 4,225
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting principles, net of tax -- 2,496
Depreciation and amortization 1,946 1,831
Provision for doubtful accounts 277 484
Gain on disposal of fixed assets (19) (15)
Tax benefit from exercise of stock options 301 93
Forgiveness of note receivable -- 1,685
Amortization of restricted stock 363 80
Other (1) (20)
Changes in operating assets and liabilities-
Increase (decrease) in cash and cash equivalents:
Accounts receivable 12,338 (18,718)
Note receivable -- 498
Inventories 2,294 (5,073)
Deferred income taxes 559 (697)
Prepaid expenses and other current assets 963 4,207
Other assets (840) (542)
Accounts payable (13,892) 14,645
Accrued liabilities (9,486) 5,811
Long-term liabilities (791) (409)
------------ ------------
Net cash provided by operating activities 1,961 10,581
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,150) (982)
Proceeds from sale of marketable securities 1,000 6,200
Payment for purchase of UPSHOT -- (9,891)
Payment for purchase of SCI, net of cash acquired of $162 (6,059) --
Proceeds from sale of fixed assets 74 135
------------ ------------
Net cash used in investing activities (6,135) (4,538)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock dividends (1,500) (1,500)
Purchase of treasury stock (1,952) (1,733)
Proceeds from exercise of stock options 935 840
------------ ------------
Net cash used in financing activities (2,517) (2,393)
------------ ------------
Net (decrease) increase in cash and cash equivalents (6,691) 3,650
Effects of exchange rates on cash and cash equivalents 149 248
CASH AND CASH EQUIVALENTS, beginning of period 25,833 21,935
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 19,291 $ 25,833
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EQUITY MARKETING, INC.
EBITDA
(In thousands)
EBITDA, before charges, is calculated as follows:
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED)
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principles $ 3,504 $ 3,375 $ 7,949 $ 6,721
Charge for forgiveness of note receivable -- -- -- 1,685
Integration costs -- 234 -- 453
Restructuring charge 234 -- 234 178
Interest expense (income), net 39 41 69 (62)
Provision for income taxes 1,746 2,034 4,103 3,786
Depreciation 404 425 1,636 1,597
Amortization 108 95 310 234
---------- ---------- ---------- ----------
EBITDA, before charges $ 6,035 $ 6,204 $ 14,301 $ 14,592
========== ========== ========== ==========
EBITDA is reconciled to cash flows used in operating activities, the most
comparable measure under generally accepted accounting principles, as follows:
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED)
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
EBITDA, before charges $ 6,035 $ 6,204 $ 14,301 $ 14,592
Integration costs -- (234) -- (453)
Restructuring charge (234) -- (234) (178)
Interest (expense) income, net (39) (41) (69) 62
Provision for income taxes (1,746) (2,034) (4,103) (3,786)
Changes in operating assets and liabilities 404 483 (8,855) (278)
Other, net 375 251 921 622
---------- ---------- ---------- ----------
Net cash provided by operating activities $ 4,795 $ 4,629 $ 1,961 $ 10,581
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