NEW YORK, Nov. 14 -- Applied Graphics Technologies today reported results for the nine and three months ended September 30, 2002.
"Although the advertising market in 2002 has suffered significant and adverse effects in the wake of September 11, 2001, the 3% decline in our revenue in the third quarter was negligible as compared to the prior year and represents the smallest decline in revenue versus the prior year that we have experienced in 2002," said Joe Vecchiolla, President and Chief Operating Officer of AGT. "Additionally, our operational integration and cost cutting efforts have enabled us to show a marked improvement in our operating results.
"During the third quarter of 2002, we completed the final component of our aggressive operational integration effort, which we began in the middle of 2001, with the combining of our operations in Grand Rapids and Battle Creek," continued Mr. Vecchiolla. "The successful completion of this integration effort, which was accomplished without sacrificing the quality of the work and service we provide to our customers, enabled us to achieve vastly improved year-over-year results in the face of the significant challenges posed by the overall economic climate.
"As we disclosed in our quarterly report on Form 10-Q that was filed today with the SEC, we continue to be engaged in discussions with our senior lenders about extending the term of our existing credit facility. In addition, we are also pursuing an overall recapitalization of the Company that would include an infusion of outside equity and the settlement, at a discount, of amounts due to our senior lenders, holders of our subordinated notes, and holders of the Wace Group preference shares," concluded Mr. Vecchiolla.
The Company's revenues in the third quarter of 2002 totaling $107.1 million were $3.3 million, or 3.0%, lower than the comparable quarter of 2001. This decrease resulted primarily from the relative softness in the advertising market in the third quarter of 2002 as compared to the prior year, which had an adverse effect on the Company's operations servicing advertising agencies and magazine publishers. Gross profit was $36.9 million in the 2002 quarter, as compared to $34.3 million in the 2001 quarter, and as a percentage of revenue increased to 34.4% in the 2002 quarter from 31.1% in the 2001 quarter. This increase in gross margin was due primarily to the benefits realized from the Company's cost cutting and integration efforts that offset the adverse impact of the aforementioned decline in revenues. The Company had operating income before amortization and other charges of $7.0 million in the 2002 quarter, as compared to $0.3 million in the 2001 quarter. Operating income of $4.3 million in the third quarter of 2002 includes a restructuring charge of $2.1 million and impairment charges of $0.4 million. The loss from continuing operations for the third quarter of 2002 also includes other expense of $1.4 million, primarily relating to $0.3 million for costs incurred in connection with the lapsed tender offer to acquire the Company's subordinated notes and $1.0 million for litigation costs.
The Company's revenues for the nine months ended September 30, 2002, of $311.5 million decreased $35.5 million, or 10.2%, from the comparable period in 2001. This decrease resulted primarily from the same factors that adversely impacted the third quarter of 2002. Gross profit was $102.3 million in the 2002 period, as compared to $105.2 million in the 2001 period, but as a percentage of revenue increased to 32.8% from 30.3%. The Company had operating income before amortization and other charges of $11.8 million in the 2002 period as compared to $1.2 million in 2001. Operating income of $7.4 million in the first nine months of 2002 includes a restructuring charge of $2.1 million, an impairment charge of $1.4 million related to a contingent payment made for a prior period acquisition, and other impairment charges of $0.4 million. The loss from continuing operations for the first nine months of 2002 also includes other expense of $1.5 million, primarily relating to $0.3 million for costs incurred in connection with the lapsed tender offer to acquire the Company's subordinated notes and $1.0 million for litigation costs. The net loss of $343.1 million in the first nine months of 2002 includes an impairment charge of $327.9 million related to the Company's goodwill. The impairment charge was incurred upon the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and is reported as a cumulative effect of a change in accounting principle. The net loss also includes a loss from discontinued operations of $5.8 million related to Portal Publications Ltd., the Company's publishing business, that was sold in April 2002.
Applied Graphics Technologies, Inc., provides digital media asset management services across all forms of media, including print, broadcast, and the Internet and is a leading application service provider for the on-line management of brands. AGT offers a variety of digital imaging and related services to major corporations, which include magazine and newspaper publishers, advertisers and their agencies, entertainment companies, catalogers, retailers, and consumer goods and packaging companies. From locations across the United States, the United Kingdom, and Australia, AGT supplies a complete range of services that are tailored to provide solutions for specific customer needs, with a focus on improving and standardizing the management and delivery of visual communications for clients on a local, national, and international basis. Additionally, AGT provides a wide range of advertising and marketing-related creative services for customers, primarily in retailing.
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