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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: October 22, 1999
EQUITY MARKETING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-23346 13-3534145
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(Commission File Number) (IRS Employer I.D. Number)
6330 SAN VICENTE BLVD., LOS ANGELES, CALIFORNIA 90048
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(Address of principal executive offices) (Zip Code)
(323) 932-4300
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
Reference is made to the press release of the Registrant, issued on October 21,
1999, which contains information meeting the requirements of this Item 5, and
which is incorporated herein by this reference. A copy of this press release is
attached to this Form 8-K as Exhibit 99.1.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY MARKETING, INC.
Date: October 22, 1999 /s/ LELAND P. SMITH
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Leland P. Smith
SVP, General Counsel
and Secretary
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EXHIBIT 99.1
CONTACT: RIA CARLSON
VP, CORPORATE COMMUNICATIONS
AND INVESTOR RELATIONS
(323) 932-4096
FOR IMMEDIATE RELEASE
EQUITY MARKETING REPORTS RECORD THIRD QUARTER
REVENUES AND EARNINGS
LOS ANGELES, CA, OCTOBER 21, 1999 --- Equity Marketing, Inc. announced
today financial results for the third quarter ended September 30, 1999.
Revenues were $53.3 million, higher than any third quarter in the
company's history and a 78 percent increase over the $30 million in revenues
posted by the company in the comparable quarter last year.
Net income for the quarter was $2.8 million, or $0.42 per diluted share,
including a restructuring gain of $240,000, or $0.02 per diluted share, related
to a partial reversal of year-end 1998 restructuring reserves. The reversal
reflects a change in the estimate for projected royalty minimum guarantee
shortfalls for licenses the company decided to exit, a result of negotiated
settlements with certain licensors. Excluding the gain, net income was $2.6
million or $0.40 per diluted share, also a third-quarter company record,
compared to $0.04 per diluted share or $253,000 (excluding charges for business
process reengineering) in the third quarter of 1998. Earnings before interest,
taxes, depreciation and amortization (EBITDA), excluding the 1998 business
process reengineering charge and 1999 restructuring gain, was $5.2 million, a
303 percent increase over EBITDA of $1.3 million in the third quarter last year.
For the first nine months of 1999, revenues were a record $136.8
million, representing a 62 percent increase over the $84.4 million generated in
the first nine months of 1998. Nine-month net income, excluding restructuring
gains, was $5.0 million or $0.78 per diluted share in 1999, compared to $2.4
million or $0.39 per diluted share in 1998 (excluding charges). Including gains,
net income for the 1999 nine-month period was $5.4 million or $0.84 per diluted
share. EBITDA for the nine-month period, excluding restructuring gains, was
$11.0 million in 1999 versus $5.5 million in 1998.
"Revenues from promotions, both for the third quarter and nine-month
period, have more than doubled compared to last year," said Don Kurz, Chairman
and Chief Executive Officer. "This was led by strong growth from our largest
client, Burger King, as well as good contributions from our growing roster of
marketing services clients, including CVS/pharmacy, Speedway SuperAmerica and
Sunoco. In our consumer products business, Scooby-Doo has
- more -
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Equity Marketing, Inc.
Third Quarter 1999 Financial Results
Page 2
performed better than anticipated all three quarters of this year and appears to
have good staying power. Moreover, our efforts toward managing expenses have
contributed to improved bottom-line performance."
As a result of the company's planned shift in revenue mix, third quarter
1999 gross profit margin was 26.3 percent compared to 28.8 percent in 1998. The
company announced earlier this year that it would narrow its emphasis on
consumer products and concentrate on marketing services and promotions, a
business that carries a lower gross margin but more attractive operating margins
and risk/return characteristics. The gross margin improved, however, over the
23.2 percent posted in the second quarter 1999. Revenues from promotions
represent 89 percent of total revenues for the third quarter and 90 percent for
the nine-month period in 1999, compared to 61 and 69 percent, respectively, for
1998.
Additionally, the number of weighted average shares outstanding
increased to 6.5 million for the third quarter 1999, compared to 6.1 million one
year ago.
"These results further demonstrate the fundamental strength of our new
business model," continued Mr. Kurz. "While we still have work ahead of us, we
are on track toward fulfilling our long-term vision of being one of the leading
companies in the $80 billion marketing services business, complemented by a
focused consumer products division. We are well positioned to become a
full-service provider of marketing services, as we continue to focus on
long-term relationships with our clients."
Equity Marketing, Inc. is a leading marketing services company,
providing a wide range of custom promotional programs that build sales and brand
awareness for retailers, restaurant chains and consumer goods companies such as
Burger King Corporation, The Coca-Cola Company, Exxon Company USA, Sunoco, Inc.,
CVS/pharmacy and others. The company is also a developer and marketer of
distinctive, branded consumer products that complement its core promotions
business and are based on trademarks it owns or classic licensed properties. The
company's products are sold primarily through specialty and mass-market
retailers. More information about Equity Marketing is available on the company's
web site at www.equity-marketing.com.
# # #
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 1999 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; and the potential negative impact of 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. While many in the financial
community consider EBITDA to be an important measure of comparative operating
performance, it should be considered in addition to, but not as a substitute for
or superior to, operating income, net earnings, cash flow and other measures of
financial performance prepared in accordance with generally accepted accounting
principles.
(tables follow)
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Equity Marketing, Inc.
Third Quarter 1999 Financial Results
Page 3
EQUITY MARKETING, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 53,334 $ 29,987 $ 136,802 $ 84,376
Cost of sales 39,295 21,339 102,832 59,636
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Gross profit 14,039 8,648 33,970 24,740
Operating expenses:
Selling, general and administrative 9,508 7,920 25,069 20,694
Business process reengineering - 1,549 - 1,549
Restructuring gain (240) - (641) -
----------- ----------- ----------- -----------
Total operating expenses 9,268 9,469 24,428 22,243
Income (loss) from operations 4,771 (821) 9,542 2,497
Other expense (151) (317) (590) (90)
----------- ----------- ----------- -----------
Income before provision for income taxes 4,620 (1,138) 8,952 2,407
Provision (benefit) for income taxes 1,848 (438) 3,581 926
----------- ----------- ----------- -----------
Net income (loss) $ 2,772 $ (700) $ 5,371 $ 1,481
=========== =========== =========== ===========
Basic income (loss) per share
Earnings (loss) per share $ 0.44 $ (0.12) $ 0.86 $ 0.25
=========== =========== =========== ===========
Weighted average shares outstanding 6,230,906 6,085,585 6,221,374 6,043,585
=========== =========== =========== ===========
Diluted income (loss) per share
Earnings (loss) per share $ 0.42 $ (0.12) $ 0.84 $ 0.24
=========== =========== =========== ===========
Weighted average shares outstanding 6,533,737 6,085,585 6,387,617 6,238,634
=========== =========== =========== ===========
</TABLE>
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Equity Marketing, Inc.
Third Quarter 1999 Financial Results
Page 4
EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
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<S> <C> <C>
Cash and short-term investments $ 897 $ 7,250
Accounts receivable, net 31,093 57,071
Inventory 9,698 13,117
Prepaids and other current assets 6,521 7,915
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CURRENT ASSETS 48,209 85,353
Fixed assets, net 5,234 5,892
Intangible assets, net 22,117 23,442
Other assets 1,510 793
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TOTAL ASSETS $ 77,070 $ 115,480
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</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SEPTEMBER 30, DECEMBER 31,
STOCKHOLDERS' EQUITY 1999 1998
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<S> <C> <C>
Short-term debt $ 1,000 $ 30,000
Accounts payable 14,860 28,432
Accrued liabilities 21,133 22,653
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CURRENT LIABILITIES 36,993 81,085
Long-term liabilities 2,014 1,988
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TOTAL LIABILITIES 39,007 83,073
Stockholders' equity 38,063 32,407
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 77,070 $ 115,480
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</TABLE>
