RNS Number:5150B
Applied Graphics Technologies Inc
26 November 1999
APPLIED GRAPHICS TECHNOLOGIES REPORTS
THIRD QUARTER 1999 RESULTS
New York, November 12, 1999 - Applied Graphics Technologies, Inc. (NASDAQ:
AGTX), the country's largest provider of outsourced digital media asset
management services, today reported results for the three months and nine
months ended September 30, 1999.
The third quarter 1999 included the results of the Wace Group Plc
("Wace"), which was consolidated with AGT effective May 21, 1999, for the
entire quarter. The company's revenues increased by 44.0% to
approximately $179.9 million, as compared to $124.9 million in the 1998
third quarter. Revenues for the third quarter of 1999 include
approximately $51.8 million related to Wace. Gross profit was $65.2
million in the 1999 quarter, a 49.6% increase over the $43.6 million
gross profit in the 1998 quarter. Gross profit as a percentage of sales
was 36.3% in the 1999 quarter, an increase of 1.4 percentage points over
the 1998 third quarter. The 36.3% gross profit percentage in the third
quarter of 1999 also represents a 2.6 percentage point increase over that
of the second quarter of 1999. Operating income, before a restructuring
charge of $1.9 million related to integration efforts, was $12.5 million,
an increase of $1.8 million over the 1998 quarter. Operating income is
net of amortization of intangibles, including goodwill, of $3.9 million
in the 1999 quarter and $2.8 million in the 1998 quarter.
The Company had a net loss in the third quarter of 1999 of $821,000,
after a restructuring charge of $1.9 million and the minority interest of
$868,000 related to dividends on the outstanding preference shares of
Wace, as compared to net income of $3.6 million in the 1998 quarter. The
net loss in the 1999 quarter is after interest expense of $7.7 million as
compared to interest expense of $3.4 million in the 1998 quarter. The
loss per share in the 1999 quarter was $0.04 per share (net income of
$0.01 per share before the restructuring charge net of income tax effect)
compared to diluted earnings per share of $0.16 in the third quarter of
1998. The company had 22,475,000 weighted average common shares
outstanding at the end of the third quarter of 1999 and 23,117,000 shares
outstanding on a diluted basis in the third quarter of 1998.
For the nine months ended September 30, 1999, the company's revenues rose 67.4%
to $444.3 million, as compared to revenues of $265.4 million in the nine-month
period last year. Revenues for the first nine months of 1999 include
approximately $79.1 million related to Wace. Gross profit was $154.1 million for
the 1999 nine months as compared to $94.1 million in the 1998 period. The gross
profit percentage for the 1999 period was 34.7% as compared to 35.4% in the 1998
period. Operating income for the 1999 period was $25.6 million, before the
restructuring charge of $1.9 million, as compared to $30.0 million, before a
restructuring charge of $5.3 million, in the 1998 period. Operating income for
the 1999 period is net of $10.1 million of amortization of intangibles,
including goodwill. Such amortization was $4.5 million in the 1998 period. Net
income for the period was $1.5 million, net of $1.4 million in minority interest
related to dividends on the outstanding Wace preference shares, or $0.07 per
share on a diluted basis, as compared to $12.4 million or $0.60 per share on a
diluted basis in the 1998 period. Net income is after interest expense of $15.5
million in the 1999 period as compared to $4.6 million in the 1998 period.
Fred Drasner, Chief Executive Office of Applied Graphics Technologies, Inc.,
said, "We saw continued incremental improvement in several of our core business
areas and we believe we are taking important steps to reposition our operations
for improved profitability and continued growth. Most of the operations we
acquired in the Wace acquisition are performing above expectations. We have also
experienced better than expected performance from our retail sector creative and
prepress service areas, as well as from our Broadcast Distribution
services business. We did experience softness in some areas of our business,
particularly in California.
"Our revenues and gross margin for the quarter improved nicely. However, several
factors negatively impacted our third quarter net income. Selling, general and
administrative expenses included approximately $3.0 million ($0.08 per share net
of tax effect) of expenses due to integration related activities and the need to
retain certain personnel for transition purposes. Our effective tax rate of
approximately 98% and the non-deductible dividend on the Wace preference shares
not exchanged for subordinated notes negatively impacted earnings per share by
about $0.06. The tax rate is the result of adjustments to
reflect the higher proportion of non-tax deductible expenses, such as
amortization of goodwill. Finally, our operations in the West Coast continue to
be negatively impacted by the decrease in advertising and promotion spending by
the motion picture industry. However, our cash flow remains strong with earnings
before interest, taxes, depreciation and amortization ("EBITDA") of
approximately $24.8 million or approximately $1.10 per share for the 1999
quarter.
"On the positive side, certain of our operations showed significant improvement
during the quarter. Wace's U.K. packaging operations are performing above
expectations as are the Wace operations in the Midwest, which serve primarily
the packaging and advertising industries. The retail sector of both our prepress
and creative services continued the trend begun in the second quarter and
produced better than expected results. Our Broadcast Distribution services
business also continued to perform above expectations. These operations
benefited from a combination of focus on expanding service offerings and the
realization of the efficiencies of integrating operations and improving the
business processes in their operations.
"The newly organized E-business, consisting of our Digital Division, the Agile
Enterprises work-flow applications business and the Broadcast Distribution
business have landed important new business with Wal-Mart, the largest retailer
in the United States. This new business should generate one-time revenue from
developing e-commerce applications systems, we are hopeful that the real payoff
will be the recurring revenue streams that this and future e-commerce related
opportunities have the potential to generate.
"Finally, we continue to evaluate certain of our non-core businesses. During the
third quarter we sold a small printing operation and used the proceeds (about
$1.0 million) to pay down debt. As previously announced, we also entered into an
agreement to sell the photographic laboratory business acquired in the Wace
acquisition for between $11 and $12 million. We expect to close that transaction
in the first quarter of 2000. We also have listed for sale certain real estate
in the U.S. and U.K. no longer needed in our business as a result of our ongoing
integration activities. We expect to use the proceeds from these sales to pay
down debt.
"In summary, we believe we are beginning to see positive results from the Devon
and Wace acquisitions, notwithstanding the fact that the integration process has
been more difficult than anticipated. However, these acquisitions have
positioned AGT as the dominant company in our industry worldwide. Moreover, the
breadth of our service offerings and our geographic reach is unequalled by our
competition. We continue to take steps to improve the performance of all of our
businesses and are confident that we will continue to see improvement in our
operations over the course of the next year."
Applied Graphics Technologies, Inc. is a major international provider of
outsourced advanced digital media asset management and archiving services,
through its proprietary Digital Link(R) system, to magazine and newspaper
publishers, advertisers and their agencies, entertainment companies, catalogers
and retailers, and consumer goods and packaging companies. From locations across
the United States, the United Kingdom, and Australia, AGT supplies a complete
range of digital and traditional processes for images, including scanning, color
enhancement, image editing, archiving and electronic distribution. AGT tailors
these services to fit specific customer needs, from conventional project and
contract vendor relationships to today's more progressive arrangements,
consisting of outsourcing on-site facilities management and complete turnkey
operations. Additionally, AGT provides a wide range of advertising and
marketing-related creative services for customers
primarily in retailing. These services include assistance in creation of
newspaper advertising campaigns, development of in-store and collateral
media and photographic services. AGT also provides content management and
the volume reproduction and distribution of television and radio commercials to
broadcast and cable media for ad agencies and their clients. Finally, through
its Devon Publishing Group, AGT is a leading publisher of alternative greeting
cards, calendars and fine art and other prints and wall decor items.
Certain statements in this press release contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements include, without limitation (i) statements concerning the ability of
the Company to integrate Wace's operations swiftly; (ii) statements of the
Company's management relating to the benefits of the Wace acquisition to its
customers; (iii) statements concerning actions to streamline operations; and
(iv) statements regarding new business. Such statements are inherently subject
to known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company to be materially
different from those expected or anticipated in the forward-looking statements.
In addition to the factors described in the Company's SEC filings, including its
quarterly reports on Form 10-Q and its annual reports on Form 10-K, the
following factors, among others, could cause actual results to differ
materially from those expressed herein: (a) lower than expected net sales,
operating income and earnings in 1999; (b) delays in the Company's ability to
integrate Wace's operations and shed non-core business; (c) less than expected
growth, even following the refocus of the Company on sales and streamlined
operations; (d) actions of competitors including business combinations,
technological breakthroughs, new product offerings and marketing and promotional
successes; (e) the risk that anticipated new business may not occur or be
delayed; and (f) general economic conditions that adversely impact the Company's
customers' willingness or ability to purchase or pay for services from the
Company. The Company has no responsibility to update forward-looking statements
contained herein to reflect events or circumstances occurring after the date of
this release.
Additional information about Applied Graphics Technologies can be obtained by
visiting the AGT website: http://www.agt.com.
Applied Graphics Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except percentages and per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenues $179,917 $124,876 $444,303 265,439
Cost of Revenues 114,690 81,267 290,207 171,347
Gross Profit 65,227 43,609 154,096 94,092
Gross Profit Percentage 36.3% 34.9% 34.7% 35.4%
Selling, General and Administrative
Expenses 48,777 30,148 118,416 59,666
Amortization of Intangibles 3,938 2,794 10,130 4,470
Operating Income Before Restructuring
Charge 12,512 10,667 25,550 29,956
Restructuring Charge 1,865 1,865 5,300
Operating Income 10,647 10,667 23,685 24,656
Interest Expense (7,731) (3,420) (15,475) (4,648)
Interest Income 202 82 394 1,813
Other Income (Expense) - Net 875 134 1,146 832
Income Before Provision for Income Taxes
and Minority Interest 3,993 7,463 9,750 22,653
Provision for Income Taxes 3,946 3,832 6,825 10,250
Income before Minority Interest 47 3,631 2,925 12,403
Minority Interest (868) (1,434)
Net Income (Loss) $ (821) $ 3,631 $ 1,491 $ 12,403
Earnings (Loss) Per Common Share:
Basic ($0.04) $0.16 $0.07 $0.62
Diluted ($0.04) $0.16 $0.07 $0.60
Weighted Average Number of Common
Shares:
Basic 22,475 22,335 22,422 19,957
Diluted 22,475 23,117 22,424 20,823
Applied Graphics Technologies, Inc.
Consolidated Balance Sheet Data
(Unaudited)
(In thousands of dollars)
September 30 December 31
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 13,373 $ 20,909
Trade accounts receivable
(net of allowances of $17,361 in
1999 and $15,823 in 1998) 150,907 93,552
Inventory 50,035 34,807
Other current assets 70,283 57,396
Total current assets 284,598 206,664
Property, plant and equipment - net 122,659 83,262
Goodwill and other intangible assets - net 533,515 414,508
Other assets 7,026 8,109
Total assets $947,798 $712,543
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 95,160 $ 56,961
Current portion of long-term debt and
obligations under capital leases 2,609 3,247
Other current liabilities 26,174 21,955
Total current liabilities 123,943 82,163
Long-term debt 346,772 207,305
Other liabilities 22,897 5,677
Total liabilities 493,612 295,145
Minority interest - Redeemable
Preference Shares issued by subsidiary 33,425
Stockholders' equity:
Common stock and other stockholders' equity 387,371 385,499
Retained earnings 33,390 31,899
Total stockholders' equity 420,761 417,398
Total liabilities and stockholders' equity $947,798 $712,543
END
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