EMAK Worldwide Reports 2009 Third Quarter and Nine Month Results

http://www.businesswire.com/news/home/20091029006417/en

Company Reports Growth in Revenues and Net Income
LOS ANGELES--(Business Wire)--
EMAK Worldwide, Inc. (OTC:EMAK), a leading marketing services firm, today
announced its financial results for the third quarter and nine months ended
September 30, 2009.

Recent Highlights

* Revenues grew 11 percent versus the year-ago quarter
* Third quarter net income from continuing operations was $893,000 compared with
$503,000 in the year-ago quarter
* Operating expenses were reduced 11 percent versus the year-ago quarter
* EBITDA before charges and non-cash expenses was $1.8 million in the third
quarter of 2009, compared to $1.3 million in the year-ago quarter
* The Company reported $13.7 million in cash and cash equivalents; no debt

"After generating more than $8.3 million of cash from operations in the first
nine months of 2009, we ended the quarter with the highest cash balance of the
last five years and no debt. The EMAK team has focused on operational
improvements such as managing expenses and shedding underperforming operations,
which are contributing directly to the bottom line," said Jim Holbrook, EMAK`s
Chief Executive Officer.

The following table presents a reconciliation of net income from continuing
operations to EBITDA for the quarter, nine months and trailing twelve months
ended September 30, 2009. Management views EBITDA before charges and non-cash
expenses as the best indicator of the Company`s financial performance.

EBITDA, before charges and non-cash expenses, is calculated as follows:
(In thousands of dollars)

Three Months Ended Nine Months Ended Trailing Twelve Months Ended
September 30, September 30, September 30,
(Unaudited) (Unaudited) (Unaudited)
2008 2009 2008 2009 2008 2009
Net income (loss) from continuing operations $ 503 $ 893 $ (337 ) $ 3,013 $ 1,418 $ 4,310

Interest expense, net 19 9 77 37 67 55
Provision for income taxes 48 67 201 142 302 214
Depreciation 441 516 1,180 1,396 1,567 1,835
Amortization - - 1 - 2 -
EBITDA 1,011 1,485 1,122 4,588 3,356 6,414

Charges:
Restructuring charge - 83 381 336 588 928
Non-cash expenses:
Amortization of restricted stock 323 274 907 805 1,204 550

EBITDA, before charge $ 1,334 $ 1,842 $ 2,410 $ 5,729 $ 5,148 $ 7,892

Net income (loss) from continuing operations, before charge, is calculated as follows:
(In thousands of dollars)
Three Months Ended Nine Months Ended Trailing Twelve Months Ended
September 30, September 30, September 30,
(Unaudited) (Unaudited) (Unaudited)
2008 2009 2008 2009 2008 2009

Net income (loss) from continuing operations $ 503 $ 893 $ (337 ) $ 3,013 $ 1,418 $ 4,310
Charge:
Restructuring charge - 83 381 336 588 928
Net income (loss) from continuing operations before charge $ 503 $ 976 $ 44 $ 3,349 $ 2,006 $ 5,238

Due to the Company`s closure of its operations in Europe, results presented in
this news release reflect European operations as discontinued operations for all
periods and, unless stated otherwise, all financial results reflect continuing
operations only. To assist readers in understanding the overall results of the
Company, the trajectory of improvements over the past few years and the full
drag of European operations on EMAK`s historical results, EBITDA information
representing the results of the total Company follows at the end of this release
and includes both continuing and discontinued operations of the Company.

Third Quarter 2009 Results at a Glance

Results from continuing operations
(In thousands of dollars) Three Months Ended September 30,
(Unaudited)
2008 % of 2009 % of %
revenues revenues change
Revenues by segment:
Agency services $ 9,276 30.4 % $ 7,090 20.9 % -23.6 %
Promotional products 21,191 69.6 % 26,802 79.1 % 26.5 %
30,467 100.0 % 33,892 100.0 % 11.2 %

Gross profit by segment:
Agency services gross profit 3,255 35.1 % (a) 1,643 23.2 % (a) -49.5 %
Promotional products gross profit 4,984 23.5 % (a) 6,165 23.0 % (a) 23.7 %
8,239 27.0 % 7,808 23.0 % -5.2 %

Operating expenses 7,681 25.2 % 6,846 20.2 % -10.9 %
Operating income from continuing operations 558 1.8 % 962 2.8 % 72.4 %
Net income from continuing operations 503 1.7 % 893 2.6 % 77.5 %
Loss from discontinued operations (2,012 ) -6.6 % (20 ) -0.1 % -99.0 %
Net income (loss) (1,509 ) -5.0 % 873 2.6 % N.M.

Non-GAAP financial highlights
EBITDA 1,011 3.3 % 1,485 4.4 % 46.9 %
EBITDA before charge and non-cash expenses 1,334 4.4 % 1,842 5.4 % 38.1 %

(a) Percentage of segment revenues

Third Quarter 2009 Financial Summary

Overview

Revenues for the third quarter were $33.9 million, an increase of 11.2 percent
from the $30.5 million posted in the year-ago quarter. Higher revenues at the
Company`s Equity Marketing, Logistix and Neighbor agencies were offset by lower
revenues at Upshot. The lower services revenues were fully-anticipated due to
the transition in Upshot`s client roster.

Gross profit margin for the third quarter of 2009 was 23.0 percent compared to
27.0 percent in the year-ago quarter and reflected stable margins in Promotional
Products offset by lower gross profit margins in Agency Services due to the
lower level of revenues.

Operating expenses decreased 10.9 percent to $6.8 million compared to $7.7
million in the third quarter of 2008 as a result of continued cost-cutting
efforts. Operating expenses include $318,000 in legal fees addressing recent
corporate matters and $274,000 in non-cash expense related to grants of
restricted stock, compared with approximately $90,000 and $323,000,
respectively, recognized in the same period in 2008.

Third quarter net income from continuing operations was $893,000, or $0.09 per
diluted share, compared with net income of $501,000, or $0.06 per diluted share,
in the same period of the previous year.

Agency Services

In the third quarter of 2009, Agency Services revenues decreased 23.6 percent
versus the year-ago quarter, reflecting incremental revenues at Neighbor offset
by lower revenues at Upshot as it transitions out of work for MillerCoors, and
as it ramps up work for its new clients in the beer and spirits categories.

"Our Agency Services businesses have shown resiliency and continue to represent
EMAK`s growth engine. Neighbor continues to progress after its early success
winning new business. Upshot quickly replaced its MillerCoors business with two
new clients, Crown Imports (including Corona and other brands) and Wild Turkey.
Further, Upshot recently added the interactive expertise of Emerge Digital into
the fold as a fully-integrated offering to its clients. An important part of the
marketing mix, Emerge has cutting edge capabilities in web design, online
promotions, social media, mobile phone marketing and branded interactive games
as well as an impressive client roster of its own," commented Holbrook.

Promotional Products

Promotional Products revenues increased 26.5 percent in the third quarter of
2009, primarily reflecting a difference in the timing of large promotional
programs versus the prior year.

Promotional Products gross profit margin was flat when compared with the
prior-year period, reflecting stability in pricing and costs in the production
and supply chain.

Since 2000, when EMAK`s Promotional Product revenues peaked at $208.6 million,
its agencies have been faced with many industry-wide challenges, including
rising manufacturing costs in Asia, incremental costs from rising QA/QC
standards, pricing pressures from intense competition, advertising regulations,
and kids getting "older younger," so the market for premium toys has been on a
steady decline.

"As we announced recently, EMAK`s Equity Marketing agency will be transitioning
out of work for its largest client over the next three quarters. Despite this
change in our client roster, the client feedback for Equity Marketing has always
pointed to better, faster and more cost effective service and execution than its
competition. Equity Marketing`s successful, decades-long client relationship was
a direct result of our institutional knowledge, the leadership the agency
provided in problem solving and the innovative thinking we offered for
development and manufacturing. In its 26-year history, the agency has produced
more than four billion units for a variety of blue chip clientele, and its
production standards exceed those of the world`s largest consumer products
companies," said Holbrook.

Balance Sheet and Financial Condition

The balance of cash and cash equivalents at September 30, 2009 was $13.7
million, an increase of $7.9 million versus the end of last year. The Company
had no debt at the end of either period.

The Company generated $8.3 million of cash from operations during the first nine
months of 2009, versus generating $6.9 million in the same period in 2008.

Working capital was $11.9 million and the current ratio was 1.5, versus working
capital of $7.2 million and a current ratio of 1.3 at the end of 2008.

EMAK`s unused $7.5 million credit facility provides the Company with adequate
liquidity. Aside from letters of credit securing long-term lease obligations and
commercial letters of credit to vendors, EMAK has not borrowed against the
facility in the last two years.

Nine-Month 2009 Results at a Glance

Results from continuing operations
(In thousands of dollars) Nine Months Ended September 30,
(Unaudited)
2008 % of 2009 % of %
revenues revenues change
Revenues by segment:
Agency services $ 24,414 24.3 % $ 24,719 25.0 % 1.2 %
Promotional products 76,203 75.7 % 74,026 75.0 % -2.9 %
100,617 100.0 % 98,745 100.0 % -1.9 %

Gross profit by segment:
Agency services gross profit 8,139 33.3 % (a) 7,596 30.7 % (a) -6.7 %
Promotional products gross profit 15,140 19.9 % (a) 15,767 21.3 % (a) 4.1 %
23,279 23.1 % 23,363 23.7 % 0.4 %

Operating expenses 23,489 23.3 % 20,141 20.4 % -14.3 %
Operating income (loss) from continuing operations (210 ) -0.2 % 3,222 3.3 % N.M.
Net income (loss) from continuing operations (337 ) -0.3 % 3,013 3.1 % N.M.
Income (loss) from discontinued operations (2,628 ) -2.6 % 4,410 4.5 % N.M.
Net income (loss) (2,965 ) -2.9 % 7,423 7.5 % N.M.

Non-GAAP financial highlights
EBITDA 1,122 1.1 % 4,588 4.6 % 308.9 %
EBITDA before charge and non-cash expenses 2,410 2.4 % 5,729 5.8 % 137.7 %

(a) Percentage of segment revenues

Nine-Month 2009 Financial Summary

Revenues for the first nine months were $98.7 million, a decrease of 1.9 percent
from the $100.6 million posted in the year-ago period.

Gross profit margin for the first nine months of 2009 was 23.7 percent compared
to 23.1 percent in the year-ago period.

Operating expenses decreased 14.3 percent in the first nine months of 2009 as a
result of continued cost-cutting efforts. Operating expenses include $523,000 in
legal fees addressing corporate matters and $805,000 in non-cash expense related
to grants of restricted stock, compared with $219,000 and $907,000,
respectively, recognized in the same period in 2008.

Net income from continuing operations for the first nine months of 2009 was $3.0
million, or $0.32 per diluted share, compared with net loss of $337,000, or
($0.05) per diluted share, in the same period of the previous year.

Recent Corporate Developments

Holbrook commented on the shareholder consent campaign launched by the group of
investors including EMAK`s former CEO, which is also a plaintiff in the recently
filed shareholder lawsuits. "By now EMAK`s investors are aware of the costly and
disruptive shareholder lawsuits and consent campaign that have been launched by
Don Kurz`s group. As we announced previously, we believe that the allegations in
the lawsuits are utterly without merit and we intend to fight against them
vigorously. Lamentably, EMAK`s legal fees are beginning to mount, and we project
that fees could run as high as $150,000 per month. Further, we believe the
initiation of a consent campaign only serves to interfere with our progress and
could have serious adverse effects on the various ongoing new business
initiatives that we are pursuing. We urge investors to ignore and recycle all
materials received directly from this group, including its letter to
shareholders dated October 19, 2009 and corresponding white consent card."

Also announced recently, in order to level the playing field for all
stakeholders, EMAK`s Preferred stockholder gave up its two appointed board seats
in exchange for the right to vote on the election of all Directors on an
as-converted basis.

Outlook

"Our expectations for positive EBITDA before charges and positive cash flow for
2009 remain unchanged," Holbrook reiterated. "One comment about our recent
change in client roster: we`d like to keep good client relationships in place
forever, obviously, but sometimes clients change direction. It`s our job to
bring to bear our core strengths and deliver on our promise to get consumers to
participate with our clients` brands, better than any other agency.

"As I look forward, it is my expectation that in 2010 we will generate EBITDA in
a range of approximately $2.5 million to $3.5 million, and our projection for
2011 is an EBITDA range of approximately $4 million to $6 million. Further
details on our three-year business outlook will be published in the coming
weeks."

Additional Information

For additional financial information, EMAK has posted full third quarter and
nine-month 2009 financial statements to its website. Interested parties can
access these financial statements, as well as historical statements previously
posted, at www.emak.com, by visiting the Investor Info section of the website
under "Financial Reports."

About EMAK Worldwide, Inc.

EMAK Worldwide, Inc. is the parent company of a family of marketing services
agencies including Equity Marketing, Logistix, Neighbor and Upshot. Its agencies
are experts in "consumer activation" by offering strategy-based marketing
programs that directly impact consumer behavior. The agencies provide strategic
planning and research, consumer insight development, entertainment marketing,
design and manufacturing of custom promotional products, kids marketing, event
marketing, shopper marketing and environmental branding. The Company`s blue-chip
clients include Kellogg, Kohl`s, Kraft, Macy`s, Procter & Gamble and Safeway,
among others. Headquartered in Los Angeles, EMAK has offices in Chicago and Hong
Kong. More information about EMAK Worldwide is available on the Company`s
website at www.emak.com.

NOTE: All trademarks and registered trademarks are property of their respective
owners.

Certain expectations and projections regarding the future performance of EMAK
Worldwide, 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 2009 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.

Historical EBITDA, including European operations, before charges (gains) and non-cash expenses, is calculated as follows:
(In thousands of dollars)
Three Months Ended Nine Months Ended Twelve Months Ended Twelve Months Ended
September 30, September 30, September 30, December 31,
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
2007 2007 2007 2007

Net loss $ (3,736 ) $ (8,148 ) $ (7,900 ) $ (7,616 )

Interest expense (income), net 16 (56 ) 37 (75 )
Provision (benefit) for income taxes (85 ) 111 (294 ) 212
Depreciation 384 1,111 1,496 1,536
Amortization 20 59 95 60
EBITDA (3,401 ) (6,923 ) (6,566 ) (5,883 )

Charges:
Restructuring charges (gain) -- -- (97 ) 584
Impairment of assets 3,265 3,265 3,265 3,298
Non-cash expenses:
Amortization of restricted stock 340 1,150 1,612 1,441

EBITDA, before charges (gain) and non-cash expenses $ 204 $ (2,508 ) $ (1,786 ) $ (560 )

Three Months Ended Nine Months Ended Twelve Months Ended Twelve Months Ended
September 30, September 30, September 30, December 31,
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
2008 2008 2008 2008

Net loss $ (1,509 ) $ (2,965 ) $ (2,433 ) $ (2,011 )

Interest expense (income), net 18 66 47 84
Provision (benefit) for income taxes 48 203 304 294
Depreciation 460 1,252 1,677 1,697
Amortization - 1 2 1
EBITDA (983 ) (1,443 ) (403 ) 65

Charges:
Restructuring charges 949 1,376 1,960 2,010
Impairment of assets 13 13 46 68
Non-cash expenses:
Amortization of restricted stock 354 1,006 1,297 755

EBITDA, before charges and non-cash expenses $ 333 $ 952 $ 2,900 $ 2,898

At EMAK Worldwide, Inc.:
Media and investor inquiries:
Jim Holbrook
Chief Executive Officer
(323) 932-4068
or
Michael Sanders
SVP and Chief Financial Officer
(323) 932-4324

Copyright Business Wire 2009