1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 1-16431
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3864004
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
450 WEST 33RD STREET
NEW YORK, NY
(Address of principal executive offices)
10001
(Zip Code)
212-716-6600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
The number of shares of the registrant's common stock outstanding as of April
30, 2001, was 9,067,565.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except per-share amounts)
March 31, December 31,
2001 2000
ASSETS ---------- ------------
Current assets:
Cash and cash equivalents $ 13,877 $ 6,406
Marketable securities 1,677
Trade accounts receivable (net of allowances of $5,622 in 2001 and $5,100 in 2000) 85,969 100,394
Due from affiliates 4,785 5,084
Inventory 22,226 21,842
Prepaid expenses 8,273 7,248
Deferred income taxes 18,384 18,618
Other current assets 5,066 4,905
Net current assets of discontinued operations 38,873 44,790
--------- ---------
Total current assets 197,453 210,964
Property, plant, and equipment - net 62,766 63,789
Goodwill and other intangible assets (net of accumulated amortization of $34,714
in 2001 and $31,325 in 2000) 422,180 424,031
Other assets 22,542 23,449
--------- ---------
Total assets $ 704,941 $ 722,233
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 78,882 $ 87,344
Current portion of long-term debt and obligations under capital leases 23,366 18,204
Due to affiliates 837 1,115
Other current liabilities 20,994 21,626
--------- ---------
Total current liabilities 124,079 128,289
Long-term debt 202,112 204,080
Subordinated notes 26,406 27,745
Obligations under capital leases 1,508 1,540
Deferred income taxes 2,390 3,896
Other liabilities 12,011 11,395
--------- ---------
Total liabilities 368,506 376,945
--------- ---------
Commitments and contingencies
Minority interest - Redeemable Preference Shares issued by subsidiary 37,186 36,584
--------- ---------
Stockholders' Equity:
Preferred stock (no par value, 10,000,000 shares authorized; no shares
outstanding)
Common stock ($0.01 par value, 150,000,000 shares authorized;
shares issued and outstanding: 9,033,603 in 2001 and 2000) 90 90
Additional paid-in capital 388,714 388,704
Accumulated other comprehensive income (loss) (302) 522
Retained deficit (89,253) (80,612)
--------- ---------
Total stockholders' equity 299,249 308,704
--------- ---------
Total liabilities and stockholders' equity $ 704,941 $ 722,233
========= =========
See Notes to Interim Consolidated Financial Statements
3
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
For the Three Months Ended
March 31,
--------------------------
2001 2000
--------- ---------
Revenues $ 116,769 $ 144,319
Cost of revenues 81,836 97,287
--------- ---------
Gross profit 34,933 47,032
--------- ---------
Selling, general, and administrative expenses 35,530 40,886
Amortization of intangibles 3,389 3,363
Loss on disposal of property and equipment 28 225
--------- ---------
Total operating expenses 38,947 44,474
--------- ---------
Operating income (loss) (4,014) 2,558
Interest expense (5,989) (7,203)
Interest income 203 202
Other income (expense) - net 1,402 (202)
--------- ---------
Loss before provision for income
taxes and minority interest (8,398) (4,645)
Provision (benefit) for income taxes (357) 2,137
--------- ---------
Loss from continuing operations before minority interest (8,041) (6,782)
Minority interest (600) (663)
--------- ---------
Loss from continuing operations (8,641) (7,445)
Loss from discontinued operations (1,474)
--------- ---------
Net loss (8,641) (8,919)
Other comprehensive loss (435) (760)
--------- ---------
Comprehensive loss $ (9,076) $ (9,679)
========= =========
Basic loss per common share:
Loss from continuing operations $ (0.95) $ (0.82)
Loss from discontinued operations (0.17)
--------- ---------
Total $ (0.95) $ (0.99)
========= =========
Diluted loss per common share:
Loss from continuing operations $ (0.95) $ (0.82)
Loss from discontinued operations (0.17)
--------- ---------
Total $ (0.95) $ (0.99)
========= =========
Weighted average number of common shares:
Basic 9,068 9,046
Diluted 9,068 9,046
See Notes to Interim Consolidated Financial Statements
4
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
For the Three Months Ended
March 31,
--------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $ (8,641) $ (8,919)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 8,862 9,738
Deferred taxes (398) 22
Provision for bad debts 769 252
Loss from discontinued operations 1,474
Other 30 (75)
Changes in Operating Assets and Liabilities, net of effects of acquisitions and
dispositions:
Trade accounts receivable 12,009 7,473
Due from/to affiliates 21 1
Inventory (584) (4,578)
Other assets (1,619) 6,649
Accounts payable and accrued expenses (7,143) 420
Other liabilities 1,138 4,177
Net cash provided by operating activities of discontinued operations 6,128 8,148
--------- ---------
Net cash provided by operating activities 10,572 24,782
--------- ---------
Cash flows from investing activities:
Property, plant, and equipment expenditures (4,364) (5,795)
Software expenditures (95) (738)
Proceeds from sale of available-for-sale securities 1,675
Proceeds from sale of property and equipment 171
Other (3,297) (4,217)
Net cash used in investing activities of discontinued operations (186) (345)
--------- --------
Net cash used in investing activities (6,267) (10,924)
--------- --------
Cash flows from financing activities:
Repayments of notes and capital lease obligations (363) (1,916)
Repayments of term loans (927) (24,396)
Borrowings (repayments) under revolving credit line - net 4,445 (11,000)
Proceeds from sale/leaseback transactions 12,922
Net cash used in financing activities of discontinued operations (25) (30)
--------- --------
Net cash provided by (used in) financing activities 3,130 (24,420)
--------- --------
Net increase (decrease) in cash and cash equivalents 7,435 (10,562)
Effect of exchange rate changes on cash and cash equivalents 36 172
Cash and cash equivalents at beginning of period 6,406 23,218
--------- --------
Cash and cash equivalents at end of period $ 13,877 $ 12,828
======== ========
See Notes to Interim Consolidated Financial Statements
5
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
For the three months ended March 31, 2001
-----------------------------------------
Accumulated other
Additional comprehensive Retained
Common stock paid-in capital income (loss) deficit
------------ --------------- ------------- -------
Balance at January 1, 2001 $ 90 $388,704 $ 522 $(80,612)
Compensation cost of stock options issued to
non-employees 10
Cumulative effect of change in accounting principle (15)
Effective portion of change in fair value of
interest rate swap agreements (638)
Unrealized gain from foreign currency translation
adjustments 312
Reclassification adjustment for gains realized in
net loss (483)
Net loss (8,641)
------------ --------------- ------------- -------
Balance at March 31, 2001 $ 90 $388,714 $ (302) $(89,253)
============ =============== ============= ========
See Notes to Interim Consolidated Financial Statements
6
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Applied Graphics Technologies, Inc. and its subsidiaries (the "Company"),
which have been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles, should be read in
conjunction with the notes to consolidated financial statements contained in the
Company's 2000 Form 10-K. In the opinion of the management of the Company, all
adjustments (consisting primarily of normal recurring accruals) necessary for a
fair presentation have been included in the financial statements. The operating
results of any quarter are not necessarily indicative of results for any future
period.
The Consolidated Statement of Operations and Consolidated Statement of
Cash Flows for the three months ended March 31, 2000, have been restated to
reflect the operations of the Company's publishing business as a discontinued
operation. In addition, all references to the number of shares and per-share
amounts in the Consolidated Statement of Operations for the three months ended
March 31, 2000, have been adjusted to reflect the two-for-five reverse stock
split effected on December 5, 2000. Certain other prior-period amounts in the
accompanying financial statements have been reclassified to conform with the
2001 presentation.
2. DISCONTINUED OPERATIONS
In June 2000, the Company's Board of Directors approved a plan to sell
the Company's publishing business. During the second quarter of 2000, the
Company solicited bids and entered into negotiations with a potential buyer.
After long negotiations, the Company believed it was no longer in its best
interest to pursue the proposed transaction, and negotiations ceased. In 2001,
the Company retained a new investment banking firm and is preparing a revised
offering memorandum. The Company has assumed a disposal date of June 30, 2001,
although there can be no assurance that definitive terms will be reached with a
potential buyer by such date.
The accompanying financial statements have been presented to reflect
the operations of the publishing business as a discontinued operation. The
results of operations of the discontinued business for the three months ended
March 31, 2000, presented as Discontinued Operations in the accompanying
Consolidated Statement of Operations, were as follows:
Revenues $ 18,406
=========
Loss from operations before income taxes $ (1,471)
Provision equivalent to income taxes 3
---------
Loss from operations $ (1,474)
=========
7
The results of operations of the publishing business include an
allocation of interest expense of $1,629 for the three months ended March 31,
2000. The allocated interest expense consisted solely of the interest expense on
the Company's borrowings under its primary credit facilities (the "1999 Credit
Agreement"), which represents the interest expense not directly attributable to
the Company's other operations. Interest expense was allocated based on the
ratio of the net assets of the discontinued operation to the sum of the
consolidated net assets of the Company and the outstanding borrowings under the
1999 Credit Agreement.
The results of operations of the publishing business and the cash flows
of the publishing business for the three months ended March 31, 2001 and 2000,
include amounts for selected items as follows:
2001 2000
---- ----
Income (loss) from operations before income tax $ 822 $ (1,471)
Interest expense $ 352 $ 1,667
Interest income $ 38 $ 34
Depreciation and amortization expense $ 376 $ 1,070
Gain (loss) on disposal of property and equipment $ (5) $ 1
Property, plant, and equipment expenditures $ 186 $ 345
Repayments of notes and capital lease obligations $ 25 $ 30
The net assets of discontinued operations include $338 of long-term
debt and obligations under capital leases, inclusive of the current portion, at
March 31, 2001.
3. RESTRUCTURING
The Company completed various restructuring plans in prior periods (the
"1998 Second Quarter Plan," the "1998 Fourth Quarter Plan," the "1999 Third
Quarter Plan," the "1999 Fourth Quarter Plan," and the "2000 Second Quarter
Plan," respectively). The amounts included in "Other current liabilities" in the
accompanying Consolidated Balance Sheet as of March 31, 2001, for the future
costs of the various restructuring plans, primarily future rental obligations
for abandoned property and equipment, and the amounts charged against the
respective restructuring liabilities during the three months ended March 31,
2001, were as follows:
1998 Second 1998 Fourth 1999 Third 1999 Fourth 2000 Second
Quarter Plan Quarter Plan Quarter Plan Quarter Plan Quarter Plan
------------ ------------ ------------ ------------ ------------
Balance at January 1, 2001 $ 120 $ 249 $ 7 $ 407 $ 336
Facility closure costs (10) (48)
Abandoned assets (30) (4) (68)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2001 $ 90 $ 239 $ 3 $ 339 $ 288
============ ============ ============ ============ ============
8
4. INVENTORY
The components of inventory were as follows:
March 31, December 31,
2001 2000
---- ----
Work-in-process $ 19,673 $ 19,089
Raw materials 2,553 2,753
--------- ---------
Total $ 22,226 $ 21,842
========= =========
5. DERIVATIVES
In accordance with the terms of the 1999 Credit Agreement, the Company
entered into four interest rate swap agreements with an aggregate notional
amount of $90,000 (collectively, the "Swaps") under which the Company pays a
fixed rate on a quarterly basis and is paid a floating rate based on the three
month LIBOR in effect at the beginning of each quarterly payment period. Through
December 31, 2000, the Company accounted for the Swaps as hedges against the
variable interest rate component of the 1999 Credit Agreement.
On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133)." SFAS No. 133, as amended, establishes accounting and
reporting standards for derivative instruments and for hedging activities, and
requires that entities measure derivative instruments at fair value and
recognize those instruments as either assets or liabilities in the statement of
financial position. The accounting for the change in fair value of a derivative
instrument will depend on the intended use of the instrument. In accordance with
the provisions of SFAS No. 133, the Company designated the Swaps as cash flow
hedging instruments of the variable interest rate component of the 1999 Credit
Agreement. Upon the adoption of SFAS No. 133, the fair value of the Swaps, a
liability of $26, was recognized in "Other noncurrent liabilities" and
reflected, net of tax, as a cumulative effect of a change in accounting
principle in "Other comprehensive income (loss)."
At March 31, 2001, the fair value of the Swaps was a liability of
$1,370, resulting in a total loss of $1,344 for the three months ended March 31,
2001. The Company recognized $253 of this loss as a component of interest
expense in the Consolidated Statement of Operations for the three months ended
March 31, 2001, which represents the ineffectiveness of the Swaps during the
period. The remaining loss of $1,091 was recognized, net of tax, as a component
of "Other comprehensive income (loss)" for the period. During the three months
ended March 31, 2001, the Company recognized a $15 reduction of interest expense
relating to the reclassification into earnings of the cumulative effect recorded
in "Other comprehensive income (loss)" upon the adoption of SFAS No. 133. Were
the Company to unwind any of the Swaps, the gain or loss in "Accumulated other
comprehensive income (loss)" associated with such swap would be reclassified
into earnings over the original remaining term of that swap.
The Derivatives Implementation Group of the Financial Accounting
Standards Board continues to discuss issues and release definitive guidance
pertaining to SFAS No. 133, some of which could cause the Swaps to no longer
qualify as hedges. Were the Swaps to no longer qualify as hedges, any gain or
loss in "Accumulated other comprehensive income (loss)" associated with the
Swaps would be reclassified into earnings over the original term of the Swaps
and all future changes in fair value of the Swaps would be included as a
component of interest expense in the current period.
9
6. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with
related parties during the three months ended March 31, 2001 and 2000, were as
follows:
2001 2000
---- ----
Affiliate sales $ 2,708 $ 2,759
Affiliate purchases $ 24 $ 117
Administrative charges $ 536 $ 315
Administrative charges include charges for certain legal, administrative,
and computer services provided by affiliates and for rent incurred for leases
with affiliates.
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the three months ended March
31, 2001 and 2000, were as follows:
2001 2000
---- ----
Interest paid $ 5,986 $ 6,910
Income taxes paid $ 1,507 $ 246
Noncash investing and financing activities for the three months ended
March 31, 2001 and 2000, were as follows:
2001 2000
---- ----
Additions to intangible assets for contingent payments $ 720
Fair value of stock options issued to non-employees $ 10
Reduction of goodwill from amortization of excess tax -
deductible goodwill $ 52 $ 92
Common stock issued as additional consideration for
prior period acquisitions $ 2,000
10
8. SEGMENT INFORMATION
Segment information relating to results of operations for the three
months ended March 31, 2001 and 2000, was as follows:
2001 2000
---- ----
Revenue:
Content Management Services $ 109,046 $ 131,040
Other operating segments 7,723 13,279
--------- ---------
Total $ 116,769 $ 144,319
========= =========
Operating Income (Loss):
Content Management Services $ 6,680 $ 11,755
Other operating segments (450) 1,996
--------- ---------
Total 6,230 13,751
Other business activities (6,894) (7,744)
Amortization of intangibles (3,389) (3,363)
Loss on disposal of property and equipment (28) (225)
Interest expense (5,922) (7,064)
Interest income 203 202
Other income (expense) 1,402 (202)
--------- ---------
Consolidated loss before provision for income
taxes and minority interest $ (8,398) $ (4,645)
========= =========
Segment information relating to the Company's assets as of March 31,
2001, was as follows:
Total Assets:
Content Management Services $610,250
Other operating segments 29,556
Other business activities 26,262
Discontinued operations - net 38,873
--------
Total $704,941
========
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking" statements (within the meaning of the Private Securities
Litigation Reform Act of 1995). Such statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: the ability of the Company to maintain compliance with
the financial covenant requirements under the 1999 Credit Agreement (as defined
herein) or to obtain waivers from its lending institutions in the event such
compliance is not maintained; the advertising market continuing to soften; the
timing of completion and the success of the Company's various restructuring
plans and integration efforts; the ability to consummate the sale of certain
properties and non-core businesses, including the publishing business; the rate
and level of capital expenditures; and the adequacy of the Company's credit
facilities and cash flows to fund cash needs.
The accompanying financial statements for the three months ended March
31, 2000, have been restated to reflect the Company's publishing business as a
discontinued operation. The following discussion and analysis (in thousands of
dollars) should be read in conjunction with the Company's Interim Consolidated
Financial Statements and notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001, COMPARED WITH 2000
Revenues in the first quarter of 2001 were $27,550 lower than in the
comparable period in 2000. Revenues in the 2001 period decreased by $21,994 from
content management services, $4,505 from digital services, and $1,051 from
broadcast media distribution services. Decreased revenues from content
management services primarily resulted from the softening advertising market,
which adversely impacted the Company's Midwest prepress and creative services
operations as well as from the anticipated reduction in revenues associated with
the sale of the Company's photographic laboratory business and the closing of
its Atlanta prepress facility, both of which occurred subsequent to the 2000
period. Decreased revenues from digital services primarily resulted from the
sale of the Company's digital portrait systems business in December 2000.
Decreased revenues from broadcast media distribution services primarily resulted
from the softening advertising market and from price reductions made under a
long-term contract with a significant customer.
Gross profit decreased $12,099 in the first quarter of 2001 as a result
of the decrease in revenues for the period as discussed above. The gross profit
percentage in the first quarter of 2001 was 29.9% as compared to 32.6% in the
2000 period. This decrease in the gross profit percentage primarily resulted
from reduced margins at the Company's Midwest prepress and creative services
operations as a result of the decrease in revenues discussed above, which
resulted in lower absorption of fixed manufacturing costs, as well as from
reduced margins from broadcast media distribution services as a result of the
price reductions given to a significant customer and reduced margins from
digital services due to the sale of the digital portrait systems business in
December 2000, which had higher margins than the Company's other digital
operations. Such decreases were partially offset by an increase in margins
resulting from the sale of the photographic laboratory business in April 2000,
which had lower margins than the Company's other content management operations.
Selling, general, and administrative expenses in the first quarter of
2001 were $5,356 lower than in the 2000 period, but as a percent of revenue
increased to 30.4% in the 2001 period from 28.3% in the 2000 period. Selling,
general, and administrative expenses in 2001 and 2000 include charges of $419
and $911, respectively, for nonrestructuring-related employee termination costs.
Interest expense in the first quarter of 2001 was $1,214 lower than in
the 2000 period due primarily to reduced borrowings outstanding under the
Company's primary credit facility (the "1999 Credit Agreement") as well as an
overall reduction in interest rates throughout the 2001 period.
12
The Company recorded an income tax benefit of $357 in the first quarter
of 2001. The benefit recognized was at a lower rate than the statutory rate due
primarily to additional Federal taxes on foreign earnings and the projected
annual permanent items related to nondeductible goodwill and the nondeductible
portion of meals and entertainment expenses.
Revenues from business transacted with affiliates for the three months
ended March 31, 2001 and 2000, totaled $2,708 and $2,759, respectively,
representing 2.3% and 1.9%, respectively, of the Company's revenues.
FINANCIAL CONDITION
During the first three months of 2001, the Company repaid $363 of notes
and capital lease obligations, made contingent payments related to acquisitions
of $3,297, and invested $4,364 in facility construction and new equipment. Such
amounts were primarily generated from borrowings under the Company's credit
facilities and cash from operating activities.
Cash flows from operating activities of continuing operations during
the first three months of 2001 decreased by $12,190 as compared to the
comparable period in 2000 due primarily to the timing of vendor payments, the
receipt of income tax refunds in the 2000 period with no such refunds received
in 2001, and a decrease in cash from operating income.
The Company expects to spend approximately $18,000 over the course of
the next twelve months for capital improvements, essentially all of which is for
modernization. The Company intends to finance these expenditures under operating
or capital leases, sale and leaseback arrangements, or with working capital or
borrowings under the 1999 Credit Agreement.
Under the terms of the 1999 Credit Agreement, the Company must comply
with certain financial covenants. In August 2000, the Company's lending
institutions agreed to relax such financial covenant requirements through the
quarterly fiscal period ending June 30, 2001. At March 31, 2001, the Company was
in compliance with all financial covenants. The covenant requirements revert
back to the more restrictive covenant requirements originally contained in the
1999 Credit Agreement beginning with the quarterly fiscal period ending
September 30, 2001. As previously disclosed, the Company did not anticipate
being able to attain compliance with these more restrictive covenant
requirements. Based on its most recent projections, which have been revised to
take into account current economic and advertising market conditions, the
Company believes it may not be able to remain in compliance with the covenant
requirements currently in effect for the quarterly fiscal period ending June 30,
2001. The Company has commenced discussions with its bank group regarding
waivers of any covenant default and amendments to the financial covenant
requirements that would be required in the event of noncompliance, but there can
be no assurance that the Company will be successful in its efforts.
The Company believes that cash flows from operations, sales of certain
properties and noncore businesses, and available borrowing capacity, subject to
the Company's ability to remain in compliance or obtain a waiver in the event of
noncompliance, if any, with the financial covenants under the 1999 Credit
Agreement, will provide sufficient cash flows to fund its cash needs for the
foreseeable future.
On April 10, 2001, the Company's common stock commenced trading on The
American Stock Exchange under the symbol "AGD." At such time, the Company's
common stock ceased trading on the Nasdaq National Market.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary exposure to market risk is interest rate risk.
The Company had $222,948 outstanding under its primary credit facility at March
31, 2001. Interest rates on funds borrowed under the Company's primary credit
facility vary based on changes to the prime rate or LIBOR. The Company partially
manages its interest rate risk through four interest rate swap agreements under
which the Company pays a fixed rate and is paid a floating rate based on the
three month LIBOR rate. The notional amounts of the four interest rate swaps
totaled $90,000 at March 31, 2001. A change in interest rates of 1.0% would
result in a change in income before taxes of $1,329 based on the outstanding
balance under the Company's primary credit facility and the notional amounts of
the interest rate swap agreements at March 31, 2001.
14
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Asset Purchase Agreement by and among
Applied Graphics Technologies, Inc., and
Flying Color Graphics, Inc. and its
Shareholders dated January 16, 1998
(Incorporated by reference to Exhibit No.
2.1 forming part of the Registrant's Report
on Form 8-K (File No. 0-28208) filed with
the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as
amended, on January 30, 1998).
2.2 Agreement and Plan of Merger, dated as of
February 13, 1998, by and among Devon Group,
Inc., Applied Graphics Technologies, Inc.,
and AGT Acquisition Corp. (Incorporated by
reference to Exhibit No. 2.2 forming part of
the Registrant's Report on Form 10-K (File
No. 0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 1997).
3.1(a) First Restated Certificate of Incorporation
(Incorporated by reference to Exhibit No.
3.1 forming part of the Registrant's
Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and
Exchange Commission under the Securities Act
of 1933, as amended).
3.1(b) Certificate of Amendment of First Restated
Certificate of Incorporation (Incorporated
by reference to Exhibit No. 3.1(b) forming
part of the Registrant's Report on Form 10-Q
(File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 1998).
3.1(c) Second Certificate of Amendment of First
Restated Certificate of Incorporation
(Incorporated by reference to Exhibit No.
3.1(c) forming part of the Registrant's
Report on Form 10-K (File No. 0-28208) filed
with the Securities and Exchange Commission
under the Securities Exchange Act of 1934,
as amended, for the fiscal year ended
December 31, 2000).
3.2(a) Amended and Restated By-Laws of Applied
Graphics Technologies, Inc. (Incorporated by
reference to Exhibit No. 3.2 forming part of
Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and
Exchange Commission under the Securities Act
of 1933, as amended).
15
3.2(b) Amendment to Amended and Restated By-Laws of
Applied Graphics Technologies, Inc.
(Incorporated by reference to Exhibit No.
3.3 forming part of the Registrant's
Registration Statement on Form S-4 (File No.
333-51135) filed with the Securities and
Exchange Commission under the Securities Act
of 1933, as amended).
3.2(c) Amendment to Amended and Restated By-Laws of
Applied Graphics Technologies, Inc.
(Incorporated by reference to Exhibit No.
3.2(c) forming part of Registrant's Report
on Form 10-Q (File No. 0-28208) filed with
the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as
amended, for the quarterly period ended
September 30, 2000).
4 Specimen Stock Certificate (Incorporated by
reference to Exhibit 7 forming part of
Registrant's Registration Statement on Form
8-A (File No. 1-16431) filed with the
Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended,
on April 5, 2001).
10.2 Applied Graphics Technologies, Inc. 1996
Stock Option Plan (Incorporated by reference
to Exhibit No. 10.2 forming part of
Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No.
333-00478) filed with the Securities and
Exchange Commission under the Securities Act
of 1933, as amended).
10.3 Applied Graphics Technologies, Inc.
Non-Employee Directors Nonqualified Stock
Option Plan (Incorporated by reference to
Exhibit No. 10.3 forming part of Amendment
No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended).
10.6(a) Employment Agreement, effective as of
November 30, 2000, between the Company and
Joseph D. Vecchiolla (Incorporated by
reference to Exhibit No. 10.6(a) forming
part of the Registrant's Report on Form 10-K
(File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 2000).
10.6(b) Agreement and General Release, effective
June 4, 2000, between the Company and Louis
Salamone, Jr. (Incorporated by reference to
Exhibit No. 10.6 (b) forming part of the
Registrant's Report on Form 10-Q (File No.
0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 2000).
10.6(c)(i) Employment Agreement, effective as of May
24, 1999, between the Company and Derek
Ashley (Incorporated by reference to Exhibit
No. 10.6 (c) forming part of Registrant's
Report on Form 10-Q (File No. 0-28208) filed
with the Securities and Exchange Commission
under the Securities Exchange Act of 1934,
as amended, for the quarterly period ended
June 30, 1999).
16
10.6(c)(ii) Agreement and General Release, dated
December 15, 2000, between the Company and
Derek Ashley (Incorporated by reference to
Exhibit No. 10.6(c)(ii) forming part of the
Registrant's Report on Form 10-K (File No.
0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 2000).
10.6(d)(i) Employment Agreement, effective as of April
1, 1996, between the Company and Scott A.
Brownstein (Incorporated by reference to
Exhibit No. 10.6 forming part of Amendment
No. 3 to the Registrant's Registration
Statement on Form S-1 (File No. 333-00478)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended).
10.6(d)(ii) Employment Agreement Extension dated March
23, 1998, between the Company and Scott
Brownstein (Incorporated by reference to
Exhibit No. 10.6 (d)(ii) forming part of the
Registrant's Registration Statement on Form
S-4 (File No. 333-51135) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.6(d)(iii) Separation Agreement, effective December
18, 2000, between the Company and Scott
Brownstein (Incorporated by reference to
Exhibit No. 10.6(d)(iii) forming part of the
Registrant's Report on Form 10-K (File No.
0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 2000).
10.7 Form of Registration Rights Agreement
(Incorporated by reference to Exhibit No.
10.7 forming part of Amendment No. 3 to the
Registrant's Registration Statement on Form
S-1 (File No. 333-00478) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.8 Applied Graphics Technologies, Inc., 1998
Incentive Compensation Plan, as Amended and
Restated (Incorporated by reference to
Exhibit No. 10.8 forming part of
Registrant's Report on Form 10-Q (File No.
0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 1999).
10.8(a) Amendment No. 1, dated as of May 8, 2000, to
the Applied Graphics Technologies, Inc.,
Amended and Restated 1998 Incentive
Compensation Plan (Incorporated by reference
to Exhibit No. 10.8(a) forming part of the
Registrant's Report on Form 10-Q (File No.
0-28208) filed with the Securities and
Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 2000).
17
10.9(a) Amended and Restated Credit Agreement, dated
as of March 10, 1999, among Applied Graphics
Technologies, Inc., Other Institutional
Lenders as Initial Lenders, and Fleet Bank,
N.A. (Incorporated by reference to Exhibit
No. 99.2 of the Registrant's Report on Form
8-K (File No. 0-28208) filed with the
Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended,
on March 22, 1999).
10.9(b) Amendment No. 1, dated as of June 2, 1999,
to the Amended and Restated Credit Agreement
among Applied Graphics Technologies, Inc.,
Other Institutional Lenders as Initial
Lenders, and Fleet Bank, N.A. (Incorporated
by reference to Exhibit No. 10.9(b) forming
part of Registrant's Report on Form 10-Q
(File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 1999).
10.9(c) Amendment No. 2, dated July 28, 1999, to the
Amended and Restated Credit Agreement among
Applied Graphics Technologies, Inc., Other
Institutional Lenders as Initial Lenders,
and Fleet Bank, N.A. (Incorporated by
reference to Exhibit No. 10.9(c) forming
part of Registrant's Report on Form 10-Q
(File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended September 30, 1999).
10.9(d) Amendment No. 3, dated as of July 21, 2000,
to the Amended and Restated Credit Agreement
among Applied Graphics Technologies, Inc.,
Other Institutional Lenders as Initial
Lenders, and Fleet Bank, N.A. (Incorporated
by reference to Exhibit No. 10.9(d) forming
part of the Registrant's Report on Form 10-Q
(File No. 0-28208) filed with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the
quarterly period ended June 30, 2000).
10.9(e) Amendment No. 4, dated as of August 11,
2000, to the Amended and Restated Credit
Agreement among Applied Graphics
Technologies, Inc., Other Institutional
Lenders as Initial Lenders, and Fleet Bank,
N.A. (Incorporated by reference to Exhibit
No. 10.9(e) forming part of the Registrant's
Report on Form 10-Q (File No. 0-28208) filed
with the Securities and Exchange Commission
under the Securities Exchange Act of 1934,
as amended, for the quarterly period ended
June 30, 2000).
10.10 Consulting Agreement, dated as of March 1,
2001, by and between the Company and
Knollwood Associates, LLC.
--------------------------------------------------------------------------------
(b) The Registrant did not file any reports on Form 8-K during the quarter ended
March 31, 2001.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Fred Drasner
-------------------------------------
Date: May 14, 2001 Fred Drasner
Chairman
(Principal Executive officer)
/s/ Joseph D. Vecchiolla
-------------------------------------
Date: May 14, 2001 Joseph D. Vecchiolla
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)