United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(X) |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2002
or
( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 23346
EQUITY MARKETING, INC.
(Exact name of registrant as specified in its charter.)
| Delaware | 13-3534145 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 6330 San Vicente Blvd. | ||
| Los Angeles, CA | 90048 | |
(Address of principal executive offices) |
(Zip Code) |
(323) 932-4300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
Common Stock, $.001 Par Value, 5,698,603 shares as of August 12, 2002.
EQUITY MARKETING, INC.
Index To Quarterly Report on Form 10-Q
Filed with the Securities and Exchange Commission
June 30, 2002
| Page | ||||||||
| Part I. | Financial Information |
|||||||
Item 1. Financial Statements |
3 | |||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations |
16 | |||||||
| Part II. | Other Information |
|||||||
Item 1.
Legal Proceedings |
22 | |||||||
Item 4. Submission of Matters to a Vote of Security Holders |
22 | |||||||
Item 6. Exhibits and Reports on Form 8-K |
22 | |||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
| December 31, | June 30, | |||||||||
| 2001 | 2002 | |||||||||
| (Unaudited) | ||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 21,935 | $ | 26,106 | ||||||
Marketable securities |
7,200 | 2,500 | ||||||||
Accounts receivable (net of allowances of $2,336 and
$2,317 as of December 31, 2001 and June 30, 2002, respectively) |
22,695 | 27,246 | ||||||||
Note receivable |
2,183 | — | ||||||||
Inventories |
9,337 | 12,882 | ||||||||
Prepaid expenses and other current assets |
6,775 | 7,311 | ||||||||
Total current assets |
70,125 | 76,045 | ||||||||
Fixed assets, net |
4,178 | 3,845 | ||||||||
Goodwill |
24,690 | 21,277 | ||||||||
Other intangibles, net |
749 | 730 | ||||||||
Other assets |
1,620 | 1,492 | ||||||||
Total assets |
$ | 101,362 | $ | 103,389 | ||||||
The accompanying notes are an integral part of these condensed consolidated balance sheets.
3
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| December 31, | June 30, | |||||||||
| 2001 | 2002 | |||||||||
| (Unaudited) | ||||||||||
CURRENT LIABILITIES: |
||||||||||
Accounts payable |
$ | 22,114 | $ | 25,023 | ||||||
Accrued liabilities |
11,391 | 12,217 | ||||||||
Total current liabilities |
33,505 | 37,240 | ||||||||
LONG-TERM LIABILITIES |
2,335 | 2,155 | ||||||||
Total liabilities |
35,840 | 39,395 | ||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||
Mandatory redeemable preferred stock, Series A senior cumulative participating
convertible, $.001 par value per share, 25,000 issued and outstanding, stated at liquidation
preference of $1,000 per share ($25,000), net of issuance costs |
23,049 | 23,049 | ||||||||
STOCKHOLDERS’ EQUITY: |
||||||||||
Preferred stock, $.001 par value per share, 1,000,000
shares authorized, 25,000 Series A issued and outstanding |
— | — | ||||||||
Common stock, $.001 par value per share, 20,000,000
shares authorized, 5,715,293 and 5,696,353 shares outstanding
as of December 31, 2001 and June 30, 2002, respectively |
— | — | ||||||||
Additional paid-in capital |
20,050 | 20,172 | ||||||||
Retained earnings |
35,964 | 33,933 | ||||||||
Accumulated other comprehensive income |
242 | 1,014 | ||||||||
| 56,256 | 55,119 | |||||||||
Less— |
||||||||||
Treasury stock, 2,869,793 and 2,899,608 shares, at cost, as of
December 31, 2001 and June 30, 2002, respectively |
(13,773 | ) | (14,164 | ) | ||||||
Unearned compensation |
(10 | ) | (10 | ) | ||||||
Total stockholders’ equity |
42,473 | 40,945 | ||||||||
Total liabilities and stockholders’ equity |
$ | 101,362 | $ | 103,389 | ||||||
| The accompanying notes are an integral part of these condensed consolidated balance sheets. |
4
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
REVENUES |
$ | 28,237 | $ | 47,151 | $ | 56,264 | $ | 83,266 | ||||||||||
COST OF SALES |
20,234 | 34,877 | 40,071 | 61,781 | ||||||||||||||
FORGIVENESS OF NOTE RECEIVABLE |
— | 1,685 | — | 1,685 | ||||||||||||||
Gross profit |
8,003 | 10,589 | 16,193 | 19,800 | ||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||
Salaries, wages and benefits |
3,547 | 4,648 | 7,276 | 8,925 | ||||||||||||||
Selling, general and administrative |
3,561 | 5,043 | 7,276 | 9,120 | ||||||||||||||
Total operating expenses |
7,108 | 9,691 | 14,552 | 18,045 | ||||||||||||||
Income from operations |
895 | 898 | 1,641 | 1,755 | ||||||||||||||
OTHER INCOME, net |
415 | 22 | 1,194 | 70 | ||||||||||||||
Income
before provision for income taxes and cumulative effect of change
in accounting principles |
1,310 | 920 | 2,835 | 1,825 | ||||||||||||||
PROVISION FOR INCOME TAXES |
450 | 375 | 1,060 | 610 | ||||||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES |
$ | 860 | $ | 545 | $ | 1,775 | $ | 1,215 | ||||||||||
Cumulative effect of change in accounting principles, net of tax |
— | — | — | (2,496 | ) | |||||||||||||
Net
income (loss) |
$ | 860 | $ | 545 | $ | 1,775 | $ | (1,281 | ) | |||||||||
NET
INCOME (LOSS) |
860 | 545 | 1,775 | (1,281 | ) | |||||||||||||
PREFERRED STOCK DIVIDENDS |
375 | 375 | 750 | 750 | ||||||||||||||
NET
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS |
485 | 170 | 1,025 | (2,031 | ) | |||||||||||||
BASIC INCOME (LOSS) PER SHARE |
||||||||||||||||||
Income per share before cumulative effect of change in
accounting principles |
$ | 0.08 | $ | 0.03 | $ | 0.17 | $ | 0.08 | ||||||||||
Cumulative effect of change in accounting principles |
— | — | — | (0.44 | ) | |||||||||||||
INCOME (LOSS) PER SHARE |
$ | 0.08 | $ | 0.03 | $ | 0.17 | $ | (0.36 | ) | |||||||||
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING |
6,061,811 | 5,695,293 | 6,084,228 | 5,701,818 | ||||||||||||||
DILUTED
INCOME (LOSS) PER SHARE |
||||||||||||||||||
Income per share before cumulative effect of change in
accounting principles |
$ | 0.08 | $ | 0.03 | $ | 0.16 | $ | 0.08 | ||||||||||
Cumulative effect of change in accounting principles |
— | — | — | (0.42 | ) | |||||||||||||
INCOME (LOSS) PER SHARE |
$ | 0.08 | $ | 0.03 | $ | 0.16 | $ | (0.34 | ) | |||||||||
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING |
6,175,984 | 5,928,828 | 6,243,296 | 5,918,665 | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||||||||||
NET
INCOME (LOSS) |
$ | 860 | $ | 545 | $ | 1,775 | $ | (1,281 | ) | ||||||||
OTHER
COMPREHENSIVE INCOME (LOSS): |
|||||||||||||||||
Foreign currency translation adjustments |
— | 1,176 | — | 942 | |||||||||||||
Unrealized loss on foreign currency
forward contracts |
— | (175 | ) | — | (170 | ) | |||||||||||
COMPREHENSIVE
INCOME (LOSS) |
$ | 860 | $ | 1,546 | $ | 1,775 | $ | (509 | ) | ||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
6
EQUITY MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2001 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 1,775 | $ | (1,281 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||
Cumulative effect of change in accounting principles, net of tax |
— | 2,496 | ||||||||||
Depreciation and amortization |
1,102 | 803 | ||||||||||
Provision for doubtful accounts |
35 | 185 | ||||||||||
(Gain) loss on disposal of fixed assets |
3 | (13 | ) | |||||||||
Tax benefit from exercise of stock options |
230 | 12 | ||||||||||
Forgiveness of note receivable |
— | 1,685 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Increase (decrease) in cash and cash equivalents: |
||||||||||||
Accounts receivable |
11,863 | (4,584 | ) | |||||||||
Note receivable |
4,068 | 498 | ||||||||||
Inventories |
3,337 | (3,401 | ) | |||||||||
Prepaid expenses and other current assets |
(1,100 | ) | 969 | |||||||||
Other assets |
(613 | ) | 130 | |||||||||
Accounts payable |
(3,195 | ) | 2,723 | |||||||||
Accrued liabilities |
(11,105 | ) | 611 | |||||||||
Long-term liabilities |
(40 | ) | (75 | ) | ||||||||
Net cash provided by operating activities |
6,360 | 758 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchases of fixed assets |
(583 | ) | (457 | ) | ||||||||
Proceeds from sale of fixed assets |
— | 79 | ||||||||||
Proceeds from sale of marketable securities |
5,100 | 4,700 | ||||||||||
Payment for purchase of Contract Marketing, Inc. and U.S. Import and Promotion Co. |
(556 | ) | — | |||||||||
Net cash provided by investing activities |
3,961 | 4,322 | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Payment of preferred stock dividends |
(750 | ) | (750 | ) | ||||||||
Purchase of treasury stock |
(2,783 | ) | (391 | ) | ||||||||
Proceeds from exercise of stock options |
1,111 | 110 | ||||||||||
Net cash used in financing activities |
(2,422 | ) | (1,031 | ) | ||||||||
Net increase in cash and cash equivalents |
7,899 | 4,049 | ||||||||||