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 June 30, 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 July 31,
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)
June 30, December 31,
2001 2000
-------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 34,357 $ 6,406
Marketable securities 1,677
Trade accounts receivable (net of allowances of $5,814 in 2001
and $5,100 in 2000) 87,712 100,394
Due from affiliates 5,113 5,084
Inventory 20,472 21,842
Prepaid expenses 6,658 7,248
Deferred income taxes 12,933 18,618
Other current assets 5,509 4,905
Net assets held for sale 37,567
Net current assets of discontinued operations 44,790
-------------- ----------------
Total current assets 210,321 210,964
Property, plant, and equipment - net 60,802 63,789
Goodwill and other intangible assets (net of accumulated amortization
of $38,103 in 2001 and $31,325 in 2000) 418,590 424,031
Deferred income taxes 1,557
Other assets 22,476 23,449
-------------- ----------------
Total assets $ 713,746 $ 722,233
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 61,713 $ 87,344
Current portion of long-term debt and obligations under capital leases 1,469 18,204
Due to affiliates 708 1,115
Other current liabilities 21,853 21,626
-------------- ----------------
Total current liabilities 85,743 128,289
Long-term debt 258,259 204,080
Subordinated notes 26,122 27,745
Obligations under capital leases 1,154 1,540
Deferred income taxes 3,896
Other liabilities 12,438 11,395
-------------- ----------------
Total liabilities 383,716 376,945
-------------- ----------------
Commitments and contingencies
Minority interest - Redeemable Preference Shares issued by subsidiary 37,426 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: 9,067,565 in 2001 and 9,033,603 in 2000) 91 90
Additional paid-in capital 389,459 388,704
Accumulated other comprehensive income (loss) (313) 522
Retained deficit (96,633) (80,612)
-------------- ----------------
Total stockholders' equity 292,604 308,704
-------------- ----------------
Total liabilities and stockholders' equity $ 713,746 $ 722,233
============== ================
See Notes to Interim Consolidated Financial Statements
3
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share amounts)
For the Six Months Ended For the Three Months Ended
June 30, June 30,
--------------------------------- -----------------------------------
2001 2000 2001 2000
-------------- ------------ -------------- --------------
Revenues $ 234,829 $ 291,342 $ 118,060 $ 147,023
Cost of revenues 163,962 193,894 82,126 96,607
-------------- ------------ -------------- --------------
Gross profit 70,867 97,448 35,934 50,416
-------------- ------------ -------------- --------------
Selling, general, and
administrative expenses 69,979 81,741 34,449 40,855
Amortization of intangibles 6,778 6,744 3,389 3,381
Loss (gain) on disposal of property and equipment 1,976 (47) 1,948 (272)
Restructuring charges 1,167 611 1,167 611
Impairment charges 97,766 1,241 97,766 1,241
-------------- ------------ -------------- --------------
Total operating expenses 177,666 90,290 138,719 45,816
-------------- ------------ -------------- --------------
Operating income (loss) (106,799) 7,158 (102,785) 4,600
Interest expense (11,749) (13,194) (5,760) (5,991)
Interest income 337 433 134 231
Other income (expense) - net 2,170 (154) 768 48
-------------- ------------ -------------- --------------
Loss from continuing operations before provision
for income taxes and minority interest (116,041) (5,757) (107,643) (1,112)
Provision (benefit) for income taxes (2,480) 2,068 (2,123) (69)
-------------- ------------ -------------- --------------
Loss from continuing operations before
minority interest (113,561) (7,825) (105,520) (1,043)
Minority interest (1,186) (1,296) (586) (633)
-------------- ------------ -------------- --------------
Loss from continuing operations (114,747) (9,121) (106,106) (1,676)
Income (loss) from discontinued operations 98,726 (98,383) 98,726 (96,909)
-------------- ------------ -------------- --------------
Net loss (16,021) (107,504) (7,380) (98,585)
Other comprehensive loss (835) (1,952) (400) (1,192)
-------------- ------------ -------------- --------------
Comprehensive loss $ (16,856) $ (109,456) $ (7,780) $ (99,777)
============== ============ ============== ==============
Basic loss per common share:
Loss from continuing operations $ (12.66) $ (1.01) $ (11.70) $ (0.19)
Income (loss) from discontinued operations 10.89 (10.87) 10.89 (10.71)
-------------- ------------ -------------- --------------
Total $ (1.77) $ (11.88) $ (0.81) $ (10.90)
============== ============ ============== ==============
Diluted loss per common share:
Loss from continuing operations $ (12.66) $ (1.01) $ (11.70) $ (0.19)
Income (loss) from discontinued operations 10.89 (10.87) 10.89 (10.71)
-------------- ------------ -------------- --------------
Total $ (1.77) $ (11.88) $ (0.81) $ (10.90)
============== ============ ============== ==============
Weighted average number of common shares:
Basic 9,068 9,046 9,068 9,046
Diluted 9,068 9,046 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 Six Months Ended
June 30,
--------------------------------
2001 2000
------------- -------------
Cash flows from operating activities:
Net loss $ (16,021) $ (107,504)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 17,563 19,578
Deferred taxes (3,757) 462
Loss (gain) on disposal of property and equipment 1,976 (272)
Provision for bad debts 1,360 854
Impairment charges 97,766 1,241
Loss (income) from discontinued operations (98,726) 98,383
Other (17) 173
Changes in Operating Assets and Liabilities, net of effects of acquisitions and
dispositions:
Trade accounts receivable 9,326 2,569
Due from/to affiliates (436) (482)
Inventory 1,126 (3,536)
Other assets (517) 4,844
Accounts payable and accrued expenses (15,949) (8,756)
Other liabilities 2,580 (962)
Net cash provided by operating activities of discontinued operations 6,425 8,577
------------- -------------
Net cash provided by operating activities 2,699 15,169
------------- -------------
Cash flows from investing activities:
Property, plant, and equipment expenditures (9,218) (9,978)
Software expenditures (585) (1,113)
Proceeds from sale of available-for-sale securities 1,675
Proceeds from sale of property and equipment 14,039
Proceeds from sale of a business 11,693
Other (3,313) (4,217)
Net cash used in investing activities of discontinued operations (351) (706)
------------- -------------
Net cash provided by (used in) investing activities (11,792) 9,718
------------- -------------
Cash flows from financing activities:
Repayments of notes and capital lease obligations (752) (1,450)
Repayments of term loans (6,240) (33,397)
Borrowings (repayments) under revolving credit line - net 44,045 (4,125)
Net cash used in financing activities of discontinued operations (51) (87)
------------- -------------
Net cash provided by (used in) financing activities 37,002 (39,059)
------------- -------------
Net increase (decrease) in cash and cash equivalents 27,909 (14,172)
Effect of exchange rate changes on cash and cash equivalents 42 (435)
Cash and cash equivalents at beginning of period 6,406 23,218
------------- -------------
Cash and cash equivalents at end of period $ 34,357 $ 8,611
============= =============
See Notes to Interim Consolidated Financial Statements
5
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
For the six months ended June 30, 2001
--------------------------------------
Accumulated
Additional other
paid-in comprehensive Retained
Common stock capital income (loss) deficit
-------------- -------------- ----------------- ---------------
Balance at January 1, 2001 $ 90 $ 388,704 $ 522 $ (80,612)
Issuance of 33,962 common shares as
additional consideration in connection
with prior period acquisition 1 719
Compensation cost of stock options issued
to non-employees 36
Cumulative effect of change in accounting
principle (15)
Effective portion of change in fair value
of interest rate swap agreements (742)
Unrealized gain from foreign currency
translation adjustments 414
Reclassification adjustment for losses
realized in net income (492)
Net loss (16,021)
-------------- -------------- ----------------- ---------------
Balance at June 30, 2001 $ 91 $ 389,459 $ (313) $ (96,633)
============== ============== ================= ===============
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.
All references to the number of shares and per-share amounts in the
Consolidated Statement of Operations for the six and three months ended June 30,
2000, have been adjusted to reflect the two-for-five reverse stock split
effected on December 5, 2000. Certain prior-period amounts in the accompanying
financial statements have been reclassified to conform with the 2001
presentation.
2. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE
In connection with the Company's adoption of a plan in June 2000 to sell
its publishing business, the results of operations of that business were
reflected as a discontinued operation in the Company's financial statements. At
such time, the Company solicited bids and entered into negotiations with a
potential buyer. Such negotiations ceased after the Company believed it was no
longer in its best interest to pursue the proposed transaction. The Company
continued to pursue its plan to sell the publishing business, and in 2001 it
retained a new investment banking firm and distributed an updated offering
memorandum. The Company has received non-binding indications of interest from
several parties, certain of which have commenced due diligence. However, as of
June 30, 2001, one year from the measurement date, the Company had not reached
definitive terms with a potential buyer. Accordingly, the net assets of the
publishing business previously reported as a discontinued operation were
reclassified as "Net assets held for sale" in the Company's Consolidated Balance
Sheet at June 30, 2001.
The results of operations of the publishing business for the six and three
months ended June 30, 2001 and 2000, and the estimated loss on disposal and the
subsequent reversal of the loss on disposal, are presented as Discontinued
Operations in the accompanying Consolidated Statements of Operations as follows:
7
For the six months ended For the three months ended
June 30, June 30,
------------------------------------ -----------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ---------------
Revenues $ 36,007 $ 36,361 $ 17,578 $ 17,955
================ ================ ================ ===============
Income (loss) from operations
before income taxes $ 1,598 $ (3,134) $ 776 $ (1,663)
Provision (benefit) equivalent to
income taxes 868 7 (150) 4
---------------- ---------------- ---------------- ---------------
Income (loss) from operations 730 (3,141) 926 (1,667)
Reversal of (loss on) disposal 97,996 (95,242) 97,800 (95,242)
---------------- ---------------- ---------------- ---------------
Income (loss) from discontinued
operations $ 98,726 $ (98,383) $ 98,726 $ (96,909)
================ ================ ================ ===============
The results of operations for the six and three months ended June 30, 2001,
include income from discontinued operations for the reversal of the remaining
estimated accrued loss on disposal of the publishing business originally
recognized in the second quarter of 2000. The results of operations of the
publishing business include an allocation of interest expense of $646 and $2,950
for the six months ended June 30, 2001 and 2000, respectively, and $325 and
$1,321 for the three months ended June 30, 2001 and 2000, respectively. The
allocated interest expense consisted solely of the interest expense on the
Company's borrowings under its credit facility (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.
Upon the reclassification of the publishing business to "Net assets held
for sale," the Company recognized an impairment charge of $97,766 in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires assets held for sale to be valued at
the lower of carrying amount or fair value less estimated costs to sell. The
fair value of the publishing business was estimated based on the recently
received non-binding indications of interest. Commencing July 1, 2001, the
assets of the publishing business will not be depreciated and its results of
operations will be included as part of continuing operations.
The results of operations and the cash flows of the publishing business
include amounts for selected items as follows:
For the six months ended For the three months ended
June 30, June 30,
----------------------------- ------------------------------
2001 2000 2001 2000
------------ ------------ ------------- ------------
Income (loss) from operations before
income tax $ 1,598 $ (3,134) $ 776 $ (1,663)
Interest expense $ 707 $ 3,026 $ 355 $ 1,359
Interest income $ 73 $ 68 $ 35 $ 34
Depreciation and amortization expense $ 734 $ 2,150 $ 358 $ 1,080
Loss on disposal of property and equipment $ 6 $ 8 $ 1 $ 9
Property, plant, and equipment expenditures $ 351 $ 706 $ 165 $ 361
Repayments of notes and capital lease
obligations $ 51 $ 87 $ 26 $ 57
8
The net assets of discontinued operations include $312 of long-term debt
and obligations under capital leases, inclusive of the current portion, at June
30, 2001.
3. RESTRUCTURING
In June 2001, the Company initiated and completed a plan (the "2001 Second
Quarter Plan") to consolidate certain of its content management facilities in
Chicago. As part of the 2001 Second Quarter Plan, the Company terminated certain
employees and consolidated the work previously performed at three facilities
into a single facility. The results of operations for the six and three months
ended June 30, 2001, include a charge of $1,167 for the 2001 Second Quarter
Plan, which consisted of $614 for facility closure costs and $553 for employee
termination costs for 50 employees. In addition, 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 Sheets
as of June 30, 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
six months ended June 30, 2001, were as follows:
1998 1998 1999 1999 2000 2001
Second Fourth Third Fourth Second Second
Quarter Quarter Quarter Quarter Quarter Quarter
Plan Plan Plan Plan Plan Plan
--------- --------- ---------- ---------- ---------- ----------
Balance at January 1, 2001 $ 120 $ 249 $ 7 $ 407 $ 336
Restructuring charge $ 1,167
Facility closure costs (20) (91) (48)
Employee termination costs (186)
Abandoned assets (60) (7) (108)
--------- --------- ---------- ---------- ---------- ----------
Balance at June 30, 2001 $ 60 $ 229 $ - $ 299 $ 245 $ 933
========= ========= ========== ========== ========== ==========
The charge against the 2001 Second Quarter Plan's liability for employee
termination costs included 40 employees. The employees terminated under the 2001
Second Quarter Plan are principally production workers, salespeople, and
administrative support staff.
In addition to the restructuring charge incurred in connection with the
2001 Second Quarter Plan, for the six and three months ended June 30,
2001, the Company incurred nonrestructuring-related severance charges of $767
and $348, respectively, and incurred losses on the disposal of property and
equipment of $1,976 and $1,948, respectively. The losses on disposal of property
and equipment primarily consisted of equipment disposed of in connection with
the 2001 Second Quarter Plan and other integration efforts at the Company's
Midwest operations.
The Company is currently performing an overall review of its various
operations in an effort to identify additional operating efficiencies and
synergies and, as a result, may incur additional restructuring charges. The
Company does not anticipate any material adverse effect on its future results of
operations from the various restructuring plans.
9
4. INVENTORY
The components of inventory were as follows:
June 30, December 31,
2001 2000
---------------- -----------------
Work-in-process $ 18,063 $ 19,089
Raw materials 2,409 2,753
---------------- -----------------
Total $ 20,472 $ 21,842
================ =================
5. LONG-TERM DEBT
In July 2001, the Company entered into an amendment to the 1999 Credit
Agreement (the "Fifth Amendment") that modified all of the financial covenant
requirements to be less restrictive than previously required for the quarterly
fiscal periods through December 31, 2002, removed the minimum net worth covenant
requirement, and established a minimum cumulative EBITDA covenant. If the
Company does not satisfy such minimum cumulative EBITDA covenant for any
non-quarter month end, the Company's short-term borrowing availability would be
limited until such time as the Company is in compliance with the covenant, but
such failure would not constitute an event of default. The terms of the Fifth
Amendment also accelerated the maturity to January 2003, deferred scheduled
principal payments until July 2002, and increased interest rates on borrowings
by 50 basis points. In addition, with respect to the last $30,000 of
availability under the revolving line of credit (the "Revolver"), the Company
will be limited to borrowing an amount equal to a percentage of certain trade
receivables. The first $51,000 of availability under the Revolver is not subject
to such potential limitation. At June 30, 2001, there would have been no
limitation on the amounts the Company could borrow under the Revolver.
Furthermore, the Company agreed to attempt to raise $50,000 to be used to repay
borrowings under the 1999 Credit Agreement. The Fifth Amendment contains a
number of deadlines by which the Company must satisfy certain milestones in
connection with raising such amount, the earliest of which is October 31, 2001.
For each deadline missed, the Company will be required to either pay additional
fees or issue warrants to its lenders to purchase shares representing a maximum
of 10% of the then outstanding common stock or, until such time as the Company
satisfies each requirement, incur an increase in interest rates on borrowings of
a maximum of 200 basis points. The Company incurred bank fees and expenses of
approximately $2,500 in connection with the Fifth Amendment.
The principal payments on long-term debt, reflecting the modified principal
payment schedule of the Fifth Amendment, including the deferral of $22,188 of
principal payments that otherwise would have been classified as a current
liability, are due as follows:
2001 $ 491
2002 14,009
2003 243,381
2004 900
------------
Total 258,781
Less current portion 522
------------
Total long-term debt $ 258,259
============
10
As a result of the substantial modifications to the principal payment
schedule resulting from the Fifth Amendment, the Company's financial statements
will reflect an extinguishment of old debt and the incurrence of new debt.
Accordingly, the Company will recognize a loss on extinguishment in the third
quarter of 2001 of approximately $3,500, net of taxes of approximately of
$2,450, as an extraordinary item.
Based upon the modified financial covenants contained in the Fifth
Amendment, the Company was in compliance with all covenants at June 30, 2001.
Had the Company not entered into the Fifth Amendment, the Company would not have
been in compliance with the financial covenants. There can be no assurance that
the Company will be able to maintain compliance with the amended covenant
requirements in future periods.
6. 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, two of which expire in 2001 (the "2001 Swaps") and two of
which expire in 2003 (the "2003 Swaps") (collectively, the "Swaps"). Under the
Swaps, 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
depends 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 net
loss 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 June 30, 2001, the fair value of the Swaps was a net loss of $1,311,
resulting in a loss of $1,284 for the six months ended June 30, 2001, and income
of $60 for the three months ended June 30, 2001. For the six and three months
ended June 30, 2001, the Company recognized expense of $17 and income of $236,
respectively, as a component of interest expense in the Consolidated Statement
of Operations, representing the ineffectiveness of the Swaps during the periods.
For the six and three months ended June 30, 2001, the Company also recognized
pretax losses of $1,267 and $176, respectively, as a component of "Other
comprehensive income (loss)." During the six and three months ended June 30,
2001, the Company recognized a reduction of interest expense of $30 and $15,
respectively, relating to the reclassification into earnings of the cumulative
effect recorded in "Other comprehensive income (loss)" upon the adoption of SFAS
No. 133.
As a result of the accelerated maturity of the 1999 Credit Agreement in
accordance with the terms of the Fifth Amendment, the 2003 Swaps will no longer
qualify for hedge accounting. Accordingly, the loss in "Accumulated other
comprehensive income (loss)" pertaining to the 2003 Swaps on the effective date
of the Fifth Amendment will be reclassified into earnings over the remaining
term of the 1999 Credit Agreement, and all future changes in fair value of the
2003 Swaps will be included as a component of interest expense in the current
period. The 2001 Swaps will continue to qualify for hedge accounting. Were the
Company to unwind either of the 2001 Swaps, the gain or loss in "Accumulated
other comprehensive income (loss)" associated with such swap agreement would be
reclassified into earnings over the original term of that swap agreement. The
Company expects $561 of the loss in "Accumulated other comprehensive income
(loss)" to be reclassified into earnings in the next twelve months.
11
The Financial Accounting Standards Board continues to discuss issues and
release definitive guidance pertaining to SFAS No. 133, some of which could
cause the 2001 Swaps to no longer qualify for hedge accounting. In such event,
any gain or loss in "Accumulated other comprehensive income (loss)" associated
with the 2001 Swaps would be reclassified into earnings over the original term
of the 2001 Swaps, and all future changes in fair value of the 2001 Swaps would
be included as a component of interest expense in the current period.
7. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the six and three months ended June 30, 2001 and 2000, were as
follows:
Six months ended June 30, Three months ended June 30,
2001 2000 2001 2000
------------- ------------- -------------- --------------
Affiliate sales $ 5,084 $ 5,493 $ 2,376 $ 2,734
Affiliate purchases $ 48 $ 278 $ 24 $ 161
Administrative charges $ 1,061 $ 734 $ 525 $ 419
Administrative charges include charges for certain legal, administrative,
and computer services provided by affiliates and for rent incurred for leases
with affiliates.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the six months ended June 30,
2001 and 2000, were as follows:
2001 2000
---------------- ------------------
Interest paid $ 11,465 $ 15,145
Income taxes paid $ 2,462 $ 1,341
Noncash investing and financing activities for the six months ended June
30, 2001 and 2000, were as follows:
2001 2000
---------------- -------------------
Issuance of common stock as additional consideration
in connection with prior period acquisitions $ 720 $ 2,000
Reduction of goodwill from amortization of excess tax
deductible goodwill $ 72 $ 98
Fair value of stock options issued to non-employees $ 35
Exchange of Preference Shares for subordinated notes $ 68
12
9. SEGMENT INFORMATION
Segment information relating to results of continuing operations for the
six and three months ended June 30, 2001 and 2000, was as follows:
Six months ended June 30, Three months ended June 30,
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Revenue:
Content Management Services $ 219,703 $ 263,465 $ 110,657 $ 132,426
Other operating segments 15,126 27,877 7,403 14,597
--------------- ------------- ------------- --------------
Total $ 234,829 $ 291,342 $ 118,060 $ 147,023
=============== ============= ============= ==============
Operating Income (Loss):
Content Management Services $ 16,144 $ 28,434 $ 9,464 $ 16,556
Other operating segments (767) 3,602 (316) 1,606
--------------- ------------- ------------- --------------
Total 15,377 32,036 9,148 18,162
Other business activities (14,581) (16,579) (7,688) (8,712)
Amortization of intangibles (6,778) (6,744) (3,389) (3,381)
Restructuring charges (1,167) (611) (1,167) (611)
Gain (loss) on disposal of fixed assets (1,976) 47 (1,948) 272
Impairment charges (97,766) (1,241) (97,766) (1,241)
Interest expense (11,657) (12,944) (5,735) (5,880)
Interest income 337 433 134 231
Other income (expense) 2,170 (154) 768 48
--------------- ------------- ------------- --------------
Consolidated loss from continuing
operations before provision for
income taxes and minority interest $ (116,041) $ (5,757) $ (107,643) $ (1,112)
=============== ============= ============= ==============
Segment information relating to the Company's assets as of June 30, 2001,
was as follows:
Total Assets:
Content Management Services $ 625,092
Other operating segments 27,782
Other business activities 23,305
Net assets held for sale 37,567
------------
Total $ 713,746
============
The net assets held for sale at June 30, 2001, relate entirely to the
Company's publishing business that was previously reported as a discontinued
operation (see Note 2 to the Interim Consolidated Financial Statements).
13
10. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," was issued in June 2001, and is effective for fiscal
years beginning after December 15, 2001. SFAS No. 142 establishes accounting
and reporting standards for acquired goodwill and other intangible assets, and
supercedes Accounting Principles Board (APB) Opinion No. 17, "Intangible
Assets." Under SFAS No. 142, acquired goodwill and other intangible assets
without finite useful lives will no longer be amortized over an estimated
useful life, but instead will be subject to an annual impairment test. SFAS No.
142 provides specific guidance for such impairment tests. Intangible assets
with finite useful lives will continue to be amortized over their useful lives.
Any impairment charge resulting from the initial adoption of SFAS No. 142 will
be accounted for as a cumulative effect of a change in accounting principle in
accordance with APB Opinion No. 20, "Accounting Changes." Impairment charges
subsequent to the initial adoption of SFAS No. 142 will be reflected as a
component of income from continuing operations. The calculation of the
impairment charge will be based on valuations at January 1, 2002, and will be
impacted by many factors, including the overall state of the economy. Based on
preliminary analyses at June 30, 2001, the Company estimates that it will incur
an impairment charge in the range of $300,000 to $350,000 upon the initial
adoption of SFAS No. 142, which would exceed the book value of the Company's
shareholders' equity. The actual impairment incurred could differ from this
range due to a change in one or more of the factors that impact the valuations.
14
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); 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 ability to raise funds to
repay borrowings under the 1999 Credit Agreement by certain stated deadlines;
the rate and level of capital expenditures; and the adequacy of the Company's
credit facilities and cash flows to fund cash needs.
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
SIX MONTHS ENDED JUNE 30, 2001, COMPARED WITH 2000
Revenues in the first six months of 2001 were $56,513 lower than in the
comparable period in 2000. Revenues in the 2001 period decreased by $43,762 from
content management services, $9,842 from digital services, and $2,909 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, the loss of a low-margin customer at the Company's West Coast
operations, and the anticipated reduction in revenues associated with both the
sale of the Company's photographic laboratory business and the closing of one of
its Atlanta prepress facilities, the results of which are included in the 2000
period. Decreased revenues from digital services primarily resulted from the
sale of the Company's digital portrait systems business in December 2000 and a
decrease in revenues resulting from the continued contraction of
Internet-related business. 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 $26,581 in the first six months of 2001 as a result
of the decrease in revenues for the period as discussed above. The gross profit
percentage in the first six months of 2001 was 30.2% as compared to 33.4% 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 six months of
2001 were $11,762 lower than in the 2000 period, but as a percent of revenue
increased to 29.8% in the 2001 period from 28.1% in the 2000 period. Selling,
general, and administrative expenses in 2001 include charges of $767 for
nonrestructuring-related employee termination costs and $1,174 for consultants
retained to assist the Company with its restructuring and integration efforts.
Selling, general, and administrative expenses in 2000 include a charge of $1,732
for non-restructuring-related employee termination costs.
15
The results of operations for the six months ended June 30, 2001, include a
restructuring charge of $1,167 related to the closing of certain of the
Company's content management facilities in Chicago and the consolidation of
those operations into a single facility (the "2001 Second Quarter Plan"). The
charge for the 2001 Second Quarter Plan consisted of $614 for facility closure
costs and $553 for employee termination costs for 50 employees.
The loss on disposal of property and equipment was $1,976 for the six months
ended June 30, 2001. The loss included $654 resulting from equipment disposed of
in connection with the 2001 Second Quarter Plan and $1,030 resulting from
integration efforts at the Company's other Midwest content management
facilities.
At June 30, 2001, the Company reclassified the net assets of its publishing
business that were previously reported as a discontinued operation to "Net
assets held for sale" in its Consolidated Balance Sheet. In connection with this
reclassification, for the six months ended June 30, 2001, the Company reversed
the estimated loss on disposal of the publishing business, resulting in income
from discontinued operations of $98,726, and incurred an impairment charge of
$97,766 relating to the write down of the net assets of the publishing business
to their fair value less estimated costs to sell.
Interest expense in the first six months of 2001 was $1,445 lower than in
the 2000 period due primarily to the reduced borrowings outstanding under the
Company's credit facility (the "1999 Credit Agreement") as well as an overall
reduction in interest rates throughout the 2001 period.
The Company recorded an income tax benefit of $2,480 for the first six
months 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 six months ended
June 30, 2001 and 2000, totaled $5,084 and $5,493, respectively, representing
2.2% and 1.9%, respectively, of the Company's revenues.
THREE MONTHS ENDED JUNE 30, 2001, COMPARED WITH 2000
Revenues in the second quarter of 2001 were $28,963 lower than in the
comparable period in 2000. Revenues in the 2001 period decreased by $21,769 from
content management services, $5,336 from digital services, and $1,858 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, the loss of a low-margin customer at the Company's West Coast
operations, and the anticipated reduction in revenues associated with both the
sale of the Company's photographic laboratory business and the closing of one of
its Atlanta prepress facilities, the results of which are included in the 2000
period. Decreased revenues from digital services primarily resulted from the
sale of the Company's digital portrait systems business in December 2000 and a
decrease in revenues resulting from the continued contraction of
Internet-related business. 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 $14,482 in the second quarter of 2001 as a result of
the decrease in revenues for the period as discussed above. The gross profit
percentage in the second quarter of 2001 was 30.4% as compared to 34.3% 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.
16
Selling, general, and administrative expenses in the second quarter of 2001
were $6,406 lower than in the 2000 period, but as a percent of revenue increased
to 29.2% in the 2001 period from 27.8% in the 2000 period. Selling, general, and
administrative expenses in the second quarter of 2001 include charges of $348
for nonrestructuring-related employee termination costs and $1,174 for
consultants retained to assist the Company with its restructuring and
integration efforts. Selling, general, and administration expenses in the second
quarter of 2000 include a charge of $821 for nonrestructuring-related employee
termination costs. Adjusting for these charges, selling, general, and
administration expenses represented 27.9% and 27.2% of revenues in the 2001 and
2000 periods, respectively.
The results of operations in the second quarter of 2001 include a
restructuring charge of $1,167 related to the 2001 Second Quarter Plan.
The loss on disposal of property and equipment was $1,948 in the second
quarter of 2001. The loss included $654 resulting from equipment disposed of in
connection with the 2001 Second Quarter Plan and $1,030 resulting from
nonrestructuring-related integration efforts at the Company's other Midwest
content management facilities.
At June 30, 2001, the Company reclassified the net assets of its publishing
business that were previously reported as a discontinued operation to "Net
assets held for sale" in its Consolidated Balance Sheet. In connection with this
reclassification, for the three months ended June 30, 2001, the Company reversed
the estimated loss on disposal of the publishing business, resulting in income
from discontinued operations of $98,726, and incurred an impairment charge of
$97,766 relating to the write down of the net assets of the publishing business
to their fair value less estimated costs to sell.
The Company recorded an income tax benefit of $2,123 in the second 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 June 30, 2001 and 2000, totaled $2,376 and $2,734, respectively,
representing 2.0% and 1.9%, respectively, of the Company's revenues.
FINANCIAL CONDITION
In July 2001, the Company entered into an amendment to the 1999 Credit
Agreement (the "Fifth Amendment") that modified all of the financial covenant
requirements to be less restrictive than previously required for the quarterly
fiscal periods through December 31, 2002, removed the minimum net worth covenant
requirement, and established a minimum cumulative EBITDA covenant. If the
Company does not satisfy such minimum cumulative EBITDA covenant for any
non-quarter month end, the Company's short-term borrowing availability would be
limited until such time as the Company is in compliance with the covenant, but
such failure would not constitute an event of default. The terms of the Fifth
Amendment also accelerated the maturity to January 2003, deferred scheduled
principal payments until July 2002, and increased interest rates on borrowings
by 50 basis points. In addition, with respect to the last $30,000 of
availability under the revolving line of credit (the "Revolver"), the Company
will be limited to borrowing an amount equal to a percentage of certain trade
receivables. The first $51,000 of availability under the Revolver is not subject
to such potential limitation. At June 30, 2001, there would have been no
limitation on the amounts the Company could borrow under the Revolver.
Furthermore, the Company agreed to attempt to raise $50,000 to be used to repay
borrowings under the 1999 Credit Agreement. The Fifth Amendment contains a
number of deadlines by which the Company must satisfy certain milestones in
connection with raising such amount, the earliest of which is October 31, 2001.
For each deadline missed, the Company will be required to either pay additional
fees or issue warrants to its lenders to purchase shares representing a maximum
of 10% of the then outstanding common stock or, until such time as the Company
satisfies each requirement, incur an increase in interest rates on borrowings of
a maximum of 200 basis points. The Company incurred bank fees and expenses of
approximately $2,500 in connection with the Fifth Amendment.
As a result of the substantial modifications to the principal payment
schedule resulting from the Fifth Amendment, the Company's financial statements
will reflect an extinguishment of old debt and the incurrence of new debt.
Accordingly, the Company will recognize a loss on extinguishment in the third
quarter of 2001 of approximately $3,500, net of taxes of approximately of
$2,450, as an extraordinary item.
17
Based upon the modified financial covenants contained in the Fifth
Amendment, the Company was in compliance with all covenants at June 30, 2001.
Had the Company not entered into the Fifth Amendment, the Company would not have
been in compliance with the financial covenants. There can be no assurance that
the Company will be able to maintain compliance with the amended covenant
requirements in future periods.
During the first six months of 2001, the Company repaid $752 of notes and
capital lease obligations, made contingent payments related to acquisitions of
$3,313, and invested $9,803 in facility construction, new equipment, and
software-related projects. Such amounts were primarily generated from borrowings
under the 1999 Credit Agreement and cash from operating activities.
Cash flows from operating activities of continuing operations during the
first six months of 2001 decreased by $10,808 as compared to the comparable
period in 2000 due primarily to a decrease in cash from operating income and the
timing of vendor payments, partially offset by the timing of collections from
customers. Cash generated by discontinued operations during the first six months
of 2001 decreased by $2,152 as compared to the 2000 period.
The Company expects to spend approximately $15,000 over the course of the
next twelve months for capital improvements and management information systems,
essentially all of which is for modernization and growth. The Company intends to
finance a substantial portion of these expenditures with working capital or
borrowings under the 1999 Credit Agreement.
The Company believes that the cash flow from operations, including
potential improvements in operations as a result of its various integration and
restructuring efforts, sales of certain properties and noncore businesses, and
available borrowing capacity, subject to the Company's ability to remain in
compliance with the revised financial covenants under the 1999 Credit Agreement,
will provide sufficient cash flows to fund its cash needs through 2002.
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," was issued in June 2001, and is effective for fiscal
years beginning after December 15, 2001. SFAS No. 142 establishes accounting and
reporting standards for acquired goodwill and other intangible assets, and
supercedes Accounting Principles Board (APB) Opinion No. 17, "Intangible
Assets." Under SFAS No. 142, acquired goodwill and other intangible assets
without finite useful lives will no longer be amortized over an estimated useful
life, but instead will be subject to an annual impairment test. SFAS No. 142
provides specific guidance for such impairment tests. Intangible assets with
finite useful lives will continue to be amortized over their useful lives. Any
impairment charge resulting from the initial adoption of SFAS No. 142 will be
accounted for as a cumulative effect of a change in accounting principle in
accordance with APB Opinion No. 20, "Accounting Changes." Impairment charges
subsequent to the initial adoption of SFAS No. 142 will be reflected as a
component of income from continuing operations. The calculation of the
impairment charge will be based on valuations at January 1, 2002, and will be
impacted by many factors, including the overall state of the economy. Based on
preliminary analyses at June 30, 2001, the Company estimates that it will incur
an impairment charge in the range of $300,000 to $350,000 upon the initial
adoption of SFAS No. 142, which would exceed the book value of the Company's
shareholders' equity. The actual impairment incurred could differ from this
range due to a change in one or more of the factors that impact the valuations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary exposure to market risk is interest rate risk. The
Company had $257,235 outstanding under its credit facilities at June 30, 2001.
Interest rates on funds borrowed under the Company's credit facilities 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 June 30, 2001. A change in interest rates of 1.0% would result in an annual
change in income before taxes of $1,672 based on the outstanding balance under
the Company's credit facilities and the notional amounts of the interest rate
swap agreements at June 30, 2001.
18
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
In April 2001, the Company issued 33,962 shares of its common stock as
additional consideration to the former shareholders of Agile Enterprise, Inc.,
which the Company acquired in September 1998. The sale and issuance of such
securities by the Registrant were effected in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of Applied Graphics Technologies,
Inc., was held on June 14, 2001. The stockholders voted on the following matter:
1. The election of the following eleven directors of the Company for
terms expiring at the 2002 annual meeting of stockholders:
Shares Shares
Voted For Withheld
--------- --------
Fred Drasner 6,151,546 1,707,028
John W. Dreyer 7,660,847 197,727
John R. Harris 7,661,167 197,407
Martin D. Krall 6,154,550 1,704,024
Marne Obernauer, Jr. 6,153,510 1,705,064
David R. Parker 7,661,567 197,007
Howard Stringer 7,661,567 197,007
Joseph D. Vecchiolla 6,154,190 1,704,384
John R. Walter 7,661,087 197,487
John Zuccotti 7,660,967 197,607
Mortimer B. Zuckerman 7,659,494 199,080
Item 5. Other Information
At its meeting on June 5, 2001, the Board of Directors of the Company
appointed Fred Drasner as Chairman of the Board. Mortimer Zuckerman, the former
Chairman of the Board, will remain as a director of the Company.
19
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).
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).
20
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).
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).
21
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).
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).
22
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).
10.9(f) Fifth Amendment, dated as of July 27, 2001, to the Amended and Restated
Credit Agreement by and among Applied Graphics Technologies, Inc., the
lenders party thereto, and Fleet National Bank, as agent.
10.10 Consulting Agreement, dated as of March 1, 2001, by and between the
Company and Knollwood Associates, LLC. (Incorporated by reference to
Exhibit No. 10.10 forming part of the Registrant's Report on Form 10-Q
(File No. 1-16431) filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, for the
quarterly period ended March 31, 2001).
--------------------------------------------------------------------------------
b) The Registrant filed the following reports on Form 8-K during the quarter
ended June 30, 2001:
Current report on Form 8-K filed on April 13, 2001, announcing the listing
of the Company's common stock on the American Stock Exchange and the concurrent
withdrawal from listing on the NASDAQ National Market.
23
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: August 14, 2001 ---------------------------------------------------
Fred Drasner
Chairman
(Principal Executive Officer)
/s/ Joseph D. Vecchiolla
Date: August 14, 2001 ---------------------------------------------------
Joseph D. Vecchiolla
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)