Applied Graphics Reports 1Q Results: Downward Trend Levels Off
Press release from the issuing company
NEW YORK, May 14 -- Applied Graphics Technologies, Inc. today reported results for the three months ended March 31, 2002.
"We experienced activity levels well below the same quarter of 2001 as the advertising market remains soft," said Joe Vecchiolla, President and Chief Operating Officer of AGT. "However, it appears that the downward trend of the last several quarters may have leveled off, and our operational integration and cost cutting efforts allowed us to achieve improved profitability and gross margins even in the face of the reduced revenue," continued Mr. Vecchiolla.
"In April 2002, we completed the integration of our Midwest region operations, and anticipate completing the integration of our Eastern region operations by the end of the second quarter. The completion of these efforts should further enhance our ability to reap the benefits of any economic recovery in future periods. Finally, as we recently disclosed, in April 2002 we completed the sale of Portal Publications Ltd., our publishing business, which enabled us to pay down over $30 million of debt, reducing it to a level that is now half the amount we originally borrowed in May 1999," concluded Mr. Vecchiolla.
The net loss of $337.9 million in the first quarter of 2002 includes an impairment charge of $327.9 million related to the Company's goodwill, which is within the range previously disclosed. 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. An additional impairment charge of $7.2 million was recognized in connection with the April 2002 sale of Portal Publications Ltd., the Company's publishing business.
As previously disclosed, at June 30, 2001, the Company was required by the accounting rules to reclassify its publishing business previously reported as a discontinued operation to "Net assets held for sale." As a result of this required accounting treatment, the results of operations for the first quarter of 2002 are not comparable to the first quarter of 2001 since the publishing business is included as part of the results from continuing operations only for periods subsequent to June 30, 2001, and was included as part of discontinued operations in all prior periods. In order to provide a better comparison of the Company's results, the following table of Pro-Forma Selected Financial Information presents the unaudited results of operations of the Company exclusive of the publishing business in both periods.
Pro-Forma Selected Financial Information
Ended March 31,
Revenues $98,521 $117,728
Cost of revenues 67,665 82,795
Gross profit 30,856 34,933
Gross profit percentage 31.3% 29.7%
Selling, general, and administrative expenses 30,557 35,530
Operating income (loss) before
amortization and other charges $299 $(597)
The Company's reported revenues in the first quarter of 2002 totaling $118.3 million were relatively flat as compared to the same quarter of 2001. Exclusive of the publishing business, revenues in the first quarter of 2002 decreased by 16.3% to $98.5 million. This decrease resulted primarily from the relative softness in the advertising market in the first quarter of 2002 as compared to the prior year, which had an adverse effect on the Company's prepress operations, especially those servicing advertising agencies and magazine publishers. Reported gross profit was $41.1 million in the 2002 quarter, as compared to $34.9 million in the 2001 quarter, and as a percentage of revenue increased to 34.7% in the 2002 quarter from 29.7% in the 2001 quarter. Exclusive of the publishing business, gross profit decreased to $30.9 million, but as a percentage of revenue increased to 31.3% in the first quarter of 2002. This increase was due primarily to the benefits realized from the Company's cost cutting and integration efforts that offset the adverse impact of the aforementioned decrease in revenues. The Company had reported operating income before amortization and other charges of $2.9 million in the 2002 quarter, as compared to a loss of $0.6 million in the 2001 quarter. Exclusive of the publishing business, operating income before amortization and other charges increased to $0.3 million. The reported operating loss of $4.2 million in the first quarter of 2002 includes an impairment charge of $7.2 million related to the write down of the net assets of the publishing business based on its April 2002 sale.
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