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The 2002 first quarter results reflect the cumulative effect of the mandatory change in accounting principle required by Statement of Financial Accounting Standards No. 142, ''Goodwill and Other Intangible Assets,'' that was adopted by the company during the first quarter of 2002. Net income for the first quarter 2002, before the effect of the change in accounting principle, was $155,000 or $0.02 per diluted share.
The first quarter earnings continued IDG's return to profitable results. The quarter ended March 31, 2003 is IDG's sixth consecutive quarter of profitability, excluding the change in accounting principle noted above, an objective achieved in spite of the continued weak manufacturing environment. In addition, the company reversed the revenue trend that had sequentially declined since the second quarter of 2002 as IDG's manufacturing customers continued to show the effects from the slow economy.
''The benefits of our operational transformation and focus on our Flexible Procurement Solutions(TM) are clearly evident in the first quarter financial results,'' said Andrew B. Shearer, IDG's president and CEO.
''We achieved significant top line FPS revenue growth and bottom line profitability through a more cost efficient operating cost structure. These financial results validate our services-based business model. Importantly, IDG is positioned for future growth as manufacturers continue to outsource their MROP activities to achieve productivity improvements and documented cost savings,'' noted Shearer.
For the first quarter, total FPS revenues, including integrated supply, were $64.2 million and represent a 13.4 percent increase over the first quarter of the prior year. FPS revenues including integrated supply were 52 percent of total revenues compared to 47 percent of total revenues for the comparable period in 2002. Traditional MROP revenues declined during the first quarter this year as compared to the first quarter of 2002, reflecting the continued soft economic environment in the manufacturing sector. The company implemented nine new integrated supply sites during the first quarter of 2003.
Gross margins improved slightly to 22.2 percent for the first quarter of 2003 compared to the 22.0 percent reported for the first quarter of 2002. Inventory reserves during the first quarter were somewhat lower than the prior year, helping to support the company's gross profits.
The company's management continued its disciplined focus on containing operating expenses consistent with the level of operational activity. For the quarter, SG&A expenses were $26.1 million compared to the $25.3 million reported for the comparable quarter of 2002. The increase in expense was the direct result of the effect of the temporary company-wide furlough program enacted in the first quarter of 2002. The company had implemented employee furloughs as a means of controlling SG&A expenses during the later part of 2001 and into 2002 in response to the decline in customer manufacturing activities.
''The first quarter was successful for IDG in spite of the challenging external operating environment,'' noted Shearer. ''Not only were industrial data unfavorable for production, new orders, and inventory levels, but winter weather closed certain customers' operations in both January and February. The Institute for Supply Management reported that the manufacturing sector again failed to grow during the first quarter while the overall economy grew. Despite these factors, manufacturers are increasingly seeking IDG's FPS solutions to achieve the cost savings that they urgently need and that IDG can uniquely deliver. I believe our capability to document and deliver cost savings positions IDG for future growth, especially as we look for further economic growth that includes the manufacturing sector,'' concluded Shearer.