Fotoball USA Inc. reported financial results for the fourth quarter and full year 2002, including a full year earnings per diluted common share of $0.24 versus 2001 earnings from continuing operations of $0.03 per diluted common share.
For the three months ended Dec. 31, 2002, the company reported revenues of $7.9 million, a decrease of 1% from the $8.0 million reported for the fourth quarter of 2001. Income from continuing operations for the current quarter was $26,000, as compared to $258,000 reported for the fourth quarter of 2001. This equaled $0.01 per diluted share for the current quarter, as compared to $0.07 per diluted share in the fourth quarter of 2001.
For the full year 2002, the company posted record revenues of $44.0 million, which represented an increase of 39% from the $31.6 million reported for the full year 2001. Income from continuing operations for 2002 was $932,000, which compared to income from continuing operations of $123,000 and a net loss of ($991,000) for 2001. This equaled $0.24 per diluted share for 2002, as compared to income from continuing operations of $0.03 per diluted common share and net loss of ($0.28) per diluted common share for 2001.
“We are very pleased with our results in 2002 which continued a transition process started at the end of 2001 to return the company to significant growth and long-term profitability,” said Michael Favish, chairman and chief executive officer. “Our success was accomplished in a difficult economic and retail environment. The soft economy and the west coast dock strike and slowdown negatively impacted ours and many other businesses in our industry in the second half of 2002.
“2003 will not begin with as much promotional revenue as the first half of 2002, but strong college football national championship and Super Bowl sales at healthy margins are helping to make up some of the difference,” he added. “We are continuing our growth initiatives and to further strengthen our board, we have added two new directors — Scott Dickey, our president and COO, and James McQuaid, the former CEO of Metromail Corp. and the past chairman of the Direct Marketing Association’s board of directors.”
The decrease in fourth quarter 2002 sales compared to fourth quarter 2001 sales was attributable to a 17% decrease in retail sales and a 33% decrease in entertainment sales, offset by a 387% increase in promotion sales and a 6% increase in team sales. For the fourth quarter of 2002, retail sales were 34% of sales, entertainment sales were 31% of sales, promotion sales were 25% of sales and team sales were 10% of sales.
The increase in 2002 sales compared to 2001 sales was attributable to a 245% increase in promotion sales, a 25% increase in team sales, a 5% increase in retail sales and a 3% increase in entertainment sales. For 2002, promotion sales were 33% of sales, retail sales were 28% of sales, entertainment sales were 27% of sales and team sales were 12% of sales.
The decrease in income from continuing operations for the fourth quarter of 2002 was due to a decrease in gross margin, down 1.0 percentage point from the fourth quarter of 2001, and an increase in royalty expenses as a percentage of sales, up 2.5 percentage points from the fourth quarter of 2001. The increase in income from continuing operations for 2002 was due to an increase in gross margin, up 0.8 percentage points from 2001, and a decrease in operating expenses as a percentage of sales, down 2.1 percentage points from 2001.
The fourth quarter 2002 increase in royalty expense as a percentage of sales was due to a higher percentage of royalty bearing sales and a higher percentage of sports licensed merchandise carrying player association royalties. Sales of Major League Baseball licensed merchandise decreased from the fourth quarter of 2001 to the fourth quarter of 2002 as a result of lower World Series sales. Sales of National Hockey League licensed merchandise increased from the fourth quarter of 2001 to the fourth quarter of 2002 as a result of increased promotional sales. Sales of the new Spider-Man licensed merchandise offset decreases in sales of other entertainment property licensed merchandise. Royalty expense as a percentage of sales increased 0.6 percentage points from 2001 to 2002.
Marketing expenses as a percentage of sales increased 0.3 percentage points from the fourth quarter of 2001 to the fourth quarter of 2002. General and administrative expenses as a percentage of sales increased 1.2 percentage points from the fourth quarter of 2001 to the fourth quarter of 2002. The increase in general and administrative expenses was due to an increase in operational consulting fees incurred to streamline order processing and a property tax adjustment, offset by decreased salary related expenses. Depreciation and amortization expense as a percentage of sales remained consistent from the fourth quarter of 2001 to the fourth quarter of 2002. Marketing expenses as a percentage of sales decreased 0.2 percentage points from 2001 to 2002. General and administrative expenses as a percentage of sales decreased 2.1 percentage points from 2001 to 2002. The decrease in general and administrative expenses was due to a decrease in bad debt expense offset by increased salary related expenses.
Working capital increased $0.8 million from Dec. 31, 2001 to Dec. 31, 2002. Cash decreased $0.6 million from Dec. 31, 2001 to Dec. 31, 2002 as $0.9 million of cash was provided by operating activities, $0.4 million of cash was used in investing activities and $1.0 million of cash was used in financing activities. Quarterly DSO remained constant at 44 days from the fourth quarter of 2001 to fourth quarter of 2002. Quarterly inventory turns increased from 5.3 for the fourth quarter 2001 to 7.3 for the fourth quarter 2002. Bank debt was reduced to $0.7 million at Dec. 31, 2002 from $1.7 million at Dec. 31, 2001.
FOTOBALL USA, INC.
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Three Months Ended Twelve Months Ended
December 31, December 31,
(unaudited)
2002 2001 2002 2001
----------- ----------- ------------ ------------
Net sales $7,903,735 $7,972,344 $43,995,967 $31,631,931
Cost of sales 4,780,209 4,736,742 27,713,725 20,164,421
----------- ----------- ------------ ------------
Gross profit 3,123,526 3,235,602 16,282,242 11,467,510
----------- ----------- ------------ ------------
Operating expenses
Royalties 718,680 525,509 3,413,947 2,264,291
Marketing 943,080 923,896 4,840,372 3,535,607
General and
administrative 1,344,186 1,262,029 6,043,330 4,996,058
Depreciation and
amortization 127,915 132,757 514,137 514,113
----------- ----------- ------------ ------------
Total
operating
expense 3,133,861 2,844,191 14,811,786 11,310,069
----------- ----------- ------------ ------------
Income (loss)
from
operations (10,335) 391,411 1,470,456 157,441
----------- ----------- ------------ ------------
Other income
(expense)
Interest expense (6,632) (21,178) (39,754) (96,036)
Interest income 14,163 18,684 77,414 104,039
----------- ----------- ------------ ------------
Total other
income
(expense) 7,531 (2,494) 37,660 8,003
----------- ----------- ------------ ------------
Income (loss) from
continuing
operations before
income tax (2,804) 388,917 1,508,116 165,444
Income tax expense
(benefit) (28,369) 131,389 576,000 42,000
----------- ----------- ------------ ------------
Income from
continuing
operations 25,565 257,528 932,116 123,444
Discontinued operations:
Loss on
discontinued
operations net of
$19,892 tax and
$245,000 tax
benefit,
respectively -- (87,311) -- (484,650)
Loss on disposal
of discontinued
operations net of
$446,000 tax
benefit -- (629,376) -- (629,376)
----------- ----------- ------------ ------------
Net income (loss) $25,565 $(459,159) $932,116 $(990,582)
