<PAGE> 1
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: JULY 23, 1999
EQUITY MARKETING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-23346 13-3534145
------------------------ --------------------------
(Commission File Number) (IRS Employer I.D. Number)
6330 SAN VICENTE BLVD., LOS ANGELES, CALIFORNIA 90048
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(323) 932-4300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
Reference is made to the press release of the Registrant, issued on
July 22, 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: July 23, 1999 /s/ LELAND P. SMITH
-------------------------------------
Leland P. Smith
SVP, General Counsel
and Secretary
<PAGE> 1
Exhibit 99.1
[Equity Marketing, Inc. Letterhead]
NEWS RELEASE
CONTACT: SHEREE L. ARONSON
SR. DIRECTOR, INVESTOR AND
PUBLIC RELATIONS
(323) 932-4096
FOR IMMEDIATE RELEASE
EQUITY MARKETING REPORTS HIGHER EARNINGS FOR SECOND QUARTER
|X| REVENUES REACH RECORD HIGH FOR SECOND-QUARTER PERIOD
|X| SECOND-QUARTER EPS OF $0.41, EXCLUDING RESTRUCTURING GAIN, TOPS $0.25
ONE YEAR AGO
LOS ANGELES, CA, JULY 22, 1999 -- Equity Marketing, Inc. (Nasdaq: EMAK)
today announced financial results for the second quarter ended June 30, 1999.
Total revenues for the second quarter rose 83 percent to $56.0 million,
compared to $30.6 million in the second quarter of 1998, representing a new high
for revenues posted by the company in any second-quarter period. The company's
previous high for second-quarter revenues had been in the quarter ended June 30,
1997, when revenues reached $46.6 million.
Net income for the second quarter, including a restructuring gain of
approximately $401,000 related to a partial reversal of 1998 year-end
restructuring reserves for projected royalty minimum guarantee shortfalls, was
$2.9 million, or $0.45 per diluted share. The reversal reflects a change in the
estimate of the restructuring accrual resulting from negotiated settlements with
certain licensors. Excluding the gain, the company reported second-quarter net
income of $2.6 million, or $0.41 per diluted share, up 68 percent from $1.6
million, or $0.25 per diluted share, reported in the second quarter of 1998. For
the second quarter, the company's earnings before interest, taxes, depreciation
and amortization (EBITDA), excluding the restructuring gain, was $5.3 million,
up 79 percent from EBITDA of $3.0 million for the same period one year ago.
For the first six months of 1999, total revenues were $83.5 million, up
53 percent from $54.4 million for the same period last year, representing a new
high versus the first six months of any prior year. Net income for the first six
months of 1999, including the restructuring gain in the second quarter, was $2.6
million, or $0.41 per diluted share. Excluding the gain, net income for the
first half of 1999 rose 8 percent to $2.4 million, or $0.37 per diluted share,
compared to $2.2 million, or $0.35 per diluted share, for the first half of
1998. EBITDA for the first half of 1999, excluding the second-quarter gain, rose
37 percent to $5.7 million, compared to $4.2 million for the same period last
year.
The company attributed the improved second-quarter results primarily to
growth in the level of business it received from existing promotional clients,
including its largest customer, Burger King Corporation, as well as numerous oil
and gas retailers and other consumer-branded firms. Steady sales of its consumer
products based on Scooby-Doo(TM) and continued control over expenses also
contributed to the favorable second-quarter results.
-more-
<PAGE> 2
Equity Marketing, Inc.
Second Quarter Earnings
Page 2
The company said that its gross profit margin declined to 23.2 percent
in the second quarter of 1999, compared to 32.8 percent in the same period last
year and 25.2 percent in the first quarter of 1999. The company attributed the
year-over-year gross margin change primarily to the planned shift in the
company's revenue mix, which was 91 percent promotions and 9 percent consumer
products, compared to 64 percent and 36 percent for promotions and consumer
products, respectively, one year ago. Also impacting the second-quarter gross
margin was the company's completion of its planned liquidation of discontinued
licensed consumer product lines. Both factors relate to Equity Marketing's
strategic plan to substantially narrow its emphasis on consumer products while
focusing on growth of its core promotions business, which typically produces a
lower gross margin but provides more attractive net margins, return on equity
and risk/return characteristics. Consistent with this strategic plan, the
company expects its gross profit margin to be in the range of 24 percent to 28
percent throughout the second half of 1999.
"These improved results are an indication of the fundamental strength
of our core promotions business," said Don Kurz, chairman and CEO. "We began
1999 with a new long-term vision to transform Equity Marketing into a
comprehensive marketing services organization with a complementary consumer
products business. We established four key growth initiatives to support that
long-term vision: deepening our partnerships with existing clients, establishing
new customer relationships, broadening the range of marketing services we
provide and concentrating our consumer products business on unique, niche
brands. During the first half of the year, we have focused our resources on
these key long-term initiatives while also working to deliver improved near-term
financial performance to shareholders. We expect the sales and earnings momentum
we've achieved in the first half of 1999 to continue through the balance of the
year."
Equity Marketing 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. These products, which are sold at specialty and mass-market retailers,
are based on the company's own trademarks or on classic licensed properties.
More information 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 press 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 you 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: our dependence on a single customer; the significant
quarter-to-quarter variability in our revenues and net income; our dependence on
the popularity of licensed entertainment properties and the ability to license,
develop and market new products; our dependence on foreign manufacturers; our
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 circumstance 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 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.
<PAGE> 3
Equity Marketing, Inc.
Second Quarter Earnings
Page 3
EQUITY MARKETING, INC.
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- -----------------------------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 56,011 $ 30,593 $ 83,468 $ 54,389
Cost of sales 42,992 20,572 63,537 38,298
--------------- --------------- ---------------- ----------------
Gross profit 13,019 10,021 19,931 16,091
Operating expenses:
Selling, general and administrative 8,430 7,565 15,561 12,773
Restructuring gain (401) - (401) -
--------------- --------------- ---------------- ----------------
Total operating expenses 8,029 7,565 15,160 12,773
Income from operations 4,990 2,456 4,771 3,318
Other income (expense) (217) 88 (439) 227
--------------- --------------- ---------------- ----------------
Income before provision for income taxes 4,773 2,544 4,332 3,545
Provision for income taxes 1,909 979 1,733 1,364
--------------- --------------- ---------------- ----------------
Net income $ 2,864 $ 1,565 $ 2,599 $ 2,181
=============== =============== ================ ================
Basic Income Per Share
Earnings Per Share $ 0.46 $ 0.26 $ 0.42 $ 0.36
=============== =============== ================ ================
Weighted Average Shares Outstanding 6,223,099 6,035,066 6,216,607 6,022,585
=============== =============== ================ ================
Diluted Income Per Share
Earnings Per Share $ 0.45 $ 0.25 $ 0.41 $ 0.35
=============== =============== ================ ================
Weighted Average Shares Outstanding 6,340,969 6,315,415 6,314,557 6,315,159
=============== =============== ================ ================
</TABLE>
<PAGE> 4
Equity Marketing, Inc.
Second Quarter Earnings
Page 4
EQUITY MARKETING, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
--------------- --------------
<S> <C> <C>
Cash and short-term investments $ 2,441 $ 7,250
Accounts receivable, net 39,881 57,071
Inventory 11,312 13,117
Prepaids and other current assets 6,670 7,915
--------------- --------------
CURRENT ASSETS 60,304 85,353
Fixed assets, net 5,306 5,892
Intangible assets, net 22,881 23,442
Other assets 1,225 793
--------------- --------------
TOTAL ASSETS $ 89,716 $ 115,480
=============== ==============
LIABILITIES AND JUNE 30, DECEMBER 31,
STOCKHOLDERS' EQUITY 1999 1998
--------------- --------------
Short-term debt $ 16,700 $ 30,000
Accounts payable 17,029 28,432
Accrued liabilities 18,857 22,653
--------------- --------------
CURRENT LIABILITIES 52,586 81,085
Long-term liabilities 1,998 1,988
--------------- --------------
TOTAL LIABILITIES 54,584 83,073
Stockholders' equity 35,132 32,407
--------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 89,716 $ 115,480
=============== ==============
</TABLE>
