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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 QRTPBGQGGBGBGGQ
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