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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: FEBRUARY 24, 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)
131 S. RODEO DRIVE, BEVERLY HILLS, CALIFORNIA 90212
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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 February
24, 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.
<PAGE> 3
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: February 26, 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: SHEREE L. ARONSON
SENIOR DIRECTOR, INVESTOR
AND PUBLIC RELATIONS
EQUITY MARKETING, INC.
(323) 923-4096
FOR IMMEDIATE RELEASE
EQUITY MARKETING, INC. REPORTS 1998 FOURTH-QUARTER
AND YEAR-END RESULTS, BEFORE CERTAIN RESTRUCTURING AND OTHER
CHARGES, IN LINE WITH PREVIOUS ANNOUNCEMENT
LOS ANGELES, CA, FEBRUARY 24, 1999 --- Equity Marketing, Inc.
(Nasdaq:EMAK) today announced financial results for the fourth quarter and year
ended December 31, 1998 that, before certain restructuring and other charges,
were consistent with previously announced expectations. The company also said
that it currently expects to report a loss in the first quarter of 1999 but,
based on customer indications, anticipates building significant momentum in
revenues and earnings in the second quarter of 1999.
Total revenues for the fourth quarter reached a record high of $74.8
million, up 48.1 percent compared to the same quarter in 1997, and total
revenues for 1998 reached a record high of $159.1 million, representing an 8.8
percent increase over 1997 revenues of $146.3 million. Excluding the impact of
restructuring charges, asset impairment charges, provisions for
production-in-process losses and business process reengineering costs related to
replacement of its information systems incurred in 1998, the company would have
reported net income for the fourth quarter of $3.3 million, or $0.51 per diluted
share, and net income for 1998 of $5.7 million, or $0.90 per diluted share.
Including the 1998 charges, the company reported a net loss for the fourth
quarter of $7.5 million, or $1.20 per share, and a net loss in 1998 of $6.0
million, or $0.98 per share. The company reported net income of $3.6 million, or
$0.57 per diluted share, in the fourth quarter of 1997, and $9.6 million, or
$1.55 per diluted share, for 1997.
STRATEGIC SHIFT OUTLINED
The 1998 earnings decline was due primarily to disappointing retail
sell-through of Equity Consumer Products' toys based on Columbia/TriStar's
Godzilla and Universal Studios' Babe: Pig in the City, as well as reduced sales
of other Equity toy lines following inventory cutbacks at mass-market retailers
and soft retail sales of NASCAR lapel pins. These events
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<PAGE> 2
Reports 1998 Fourth-Quarter And Year-End Results
February 24, 1999
Page 2
resulted in inventory write-downs, concessions and markdowns to retailers and
increases in provisions for bad debt, and prompted the company to discontinue
certain licensed, retail product lines. The company's performance was also
impacted by weak economic conditions in Latin American and Asian countries and
by increased expenses associated with its 1998 acquisitions, significantly
higher advertising and sales costs relating to discontinued product lines and
the company's decision to absorb a write-off for previously incurred development
costs.
The company recorded $15.7 million in 1998 charges, which break down as
follows: (1) a $6.7 million asset impairment charge related primarily to a
write-down of goodwill associated with the 1996 acquisition of EPI Group Limited
and write-offs of pre-paid royalty guarantees made to licensors for licenses the
company has decided to exit; (2) restructuring charges of $4.1 million for
write-downs of royalty guarantees yet to be paid on licenses the company has
exited or is planning to exit, severance and other charges; (3) $2.7 million in
provisions for production in-process losses associated with tooling and
development of discontinued retail product lines; and (4) $2.2 million in
business process reengineering costs related to the replacement of its
information systems, which was below the $3.5 million in costs previously
estimated and announced. The reduction in business process reengineering costs
was due primarily to the company's ability to complete conversion to SAP R/3
under its original budget. The conversion has been successfully completed on
time and is providing improved management information and reporting, better
inventory and cost tracking, reduced business transaction time and Year 2000
compliance.
"As a result of our experience in 1998, we are dedicating substantial
additional resources to the growth of our core promotions business, which
accounts for roughly 75 percent of total revenues and posted its best quarter
ever in the fourth quarter of 1998," said Donald A. Kurz, chairman and chief
executive officer. "We have a solid track record of helping some of the world's
most prominent companies differentiate their brands and build sales traffic
through innovative promotional programs. Our vision is to expand beyond our
current niche as a superior custom products purveyor to become a comprehensive
promotional marketing services partner to large, consumer-oriented companies."
Equity Marketing remains committed to its consumer products business and
has narrowed its focus to emphasize distinctive, niche products based on
trademarks it owns such as Headliners(R) and Tub Tints(R) or on classic,
time-tested licensed properties such as Scooby-Doo(TM). Further, while NASCAR
and other types of lapel pins will continue to be used by the company as
promotions vehicles, it is exiting the retail lapel pin business.
OUTLOOK FOR 1999
The company said that it expects to report a loss in the first quarter of
1999 due primarily to higher expenses coupled with seasonally low revenues from
businesses it acquired in mid-1998, as well as increased expenses related to the
support of SAP R/3 and the January 1999 relocation of the company's headquarters
offices. Notwithstanding the probable loss in the first
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Reports 1998 Fourth-Quarter And Year-End Results
February 24, 1999
Page 3
quarter, the company currently expects significant momentum in revenues and
earnings as the first half of 1999 progresses.
"We have more than 20 promotional programs in our pipeline for the first
half of 1999, most falling in the second quarter, and we are optimistic about
our prospects as we enter a new era for the company," said Mr. Kurz, who
outlined the company's 1999 growth initiatives as follows:
o To strengthen its partnerships with key clients and capture an
increasing share of clients' marketing budgets.
o To aggressively pursue new promotional client relationships.
o To begin to build a sports promotions business using its
professional sports licensing relationships and Headliners(R)
trademark.
o To expand its promotions expertise and services through joint
ventures, alliances, key personnel hires and acquisitions.
o To complete line extensions of its Headliners(R) collectible
figurines, introduce Tub Tints(R) into the mass market and market
its new line of plush and figural Scooby-Doo(TM) toys.
o To increase revenues while carefully controlling expense levels in
order to improve the company's costs as a percentage of total
revenues.
Equity Marketing is a leading provider of custom promotional products and
services, and a developer of distinctive, branded consumer products that
complement its promotions business. Through Equity Promotions, the company
provides a variety of promotional products and services that build sales and
brand awareness for leading retailers, restaurant chains and consumer goods
companies, including Burger King Corporation, Coca-Cola, Exxon, Sunoco,
CVS/pharmacies and others. Equity Consumer Products develops, manufactures and
markets consumer products based on the company's own trademarks or on classic
licensed properties.
# # #
This news release contains forward-looking statements. The company wishes to
caution readers that all forward-looking statements are necessarily speculative
and not to place undue reliance on any such forward-looking statements, which
speak only as of the date made. Actual results could vary materially from those
anticipated for a variety of reasons, including, without limitation, the
potential cancellation and/or delay of promotions due to delays in release of
theatrical motion pictures, the failure of the company to obtain promotions
projects based on these motion pictures at anticipated levels, the success or
failure of a specific motion picture or television property, the loss of
existing licenses or the inability to renew or extend licenses under favorable
terms, consumer demand for its products, the company's dependence on a single
customer, quarterly fluctuations in financials results and increases in
international tariff rates, which would increase the company's cost of sales.
The company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstance after the date hereof or to reflect the occurrence of
unanticipated events.
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Reports 1998 Fourth-Quarter And Year-End Results
February 24, 1999
Page 4
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Year Ended
December 31, December 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
Revenues $ 74,760 $ 50,484 $ 159,136 $ 146,328
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 53,855 38,129 114,840 107,961
Provision for production-in-process losses 2,666 -- 2,666 --
Salaries, wages and benefits 4,470 2,819 13,403 10,631
Selling, general and administrative 10,175 3,768 20,587 12,611
Impairment of assets 6,712 -- 6,712 --
Restructuring 4,121 -- 4,121 --
Business process reengineering 671 -- 2,220 --
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Total operating expenses 82,670 44,716 164,549 131,203
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Income (loss) from Operations (7,910) 5,768 (5,413) 15,125
Other income (expense) (421) 125 (511) 522
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Income (loss) before provision for
income taxes (8,331) 5,893 (5,924) 15,647
Provision (benefit) for income taxes (857) 2,268 69 6,024
----------- ----------- ----------- -----------
Net income (loss) $ (7,474) $ 3,625 $ (5,993) $ 9,623
=========== =========== =========== ===========
Basic Income Per Share:
Earnings (Loss) Per Share $ (1.20) $ 0.61 $ (0.98) $ 1.63
=========== =========== =========== ===========
Weighted Average Shares Outstanding 6,227,718 5,966,398 6,089,618 5,913,313
=========== =========== =========== ===========
Diluted Income Per Share:
Earnings (Loss) Per Share $ (1.20) $ 0.57 $ (0.98) $ 1.55
=========== =========== =========== ===========
Weighted Average Shares Outstanding 6,227,718 6,318,001 6,089,618 6,216,794
=========== =========== =========== ===========
</TABLE>
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Reports 1998 Fourth-Quarter And Year-End Results
February 24, 1999
Page 5
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS December 31,
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1998 1997
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<S> <C> <C>
Cash and short-term investments $ 7,250 $ 8,935
Accounts receivable, net 57,071 27,773
Inventory 13,117 8,658
Prepaids and other current assets 6,184 3,749
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CURRENT ASSETS 83,622 49,115
Fixed assets, net 5,892 2,550
Intangible assets 23,442 5,079
Other assets 709 409
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TOTAL ASSETS $ 113,665 $ 57,153
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</TABLE>
<TABLE>
<CAPTION>
December 31,
LIABILITIES AND --------------------------
STOCKHOLDERS' EQUITY 1998 1997
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<S> <C> <C>
Short-term debt $ 30,000 $ --
Accounts payable 28,432 14,560
Accrued liabilities 21,650 5,491
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CURRENT LIABILITIES 80,082 20,051
Long-term liabilities 1,242 962
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TOTAL LIABILITIES 81,324 21,013
Stockholders' equity 32,341 36,140
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 113,665 $ 57,153
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</TABLE>
