Appld.Graph.Tech.Inc - 3rd Quarter & 9 Mths Results

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


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