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 September 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 October
31, 2001, was 9,067,565.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except per-share amounts)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,425 $ 6,406
Marketable securities 1,677
Trade accounts receivable (net of allowances of $5,763 in 2001
and $5,100 in 2000) 92,897 100,394
Due from affiliates 3,927 5,084
Inventory 21,436 21,842
Prepaid expenses 4,578 7,248
Deferred income taxes 13,943 18,618
Other current assets 1,877 4,905
Net assets held for sale 40,875
Net assets of discontinued operations 44,790
--------- ---------
Total current assets 182,958 210,964
Property, plant, and equipment - net 57,795 63,789
Goodwill and other intangible assets (net of accumulated amortization
of $41,438 in 2001 and $31,325 in 2000) 415,112 424,031
Deferred income taxes 4,207
Other assets 22,150 23,449
--------- ---------
Total assets $ 682,222 $ 722,233
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 65,463 $ 87,344
Current portion of long-term debt and obligations under capital leases 7,857 18,204
Due to affiliates 1,009 1,115
Other current liabilities 20,919 21,626
--------- ---------
Total current liabilities 95,248 128,289
Long-term debt 223,533 204,080
Subordinated notes 27,298 27,745
Obligations under capital leases 955 1,540
Deferred income taxes 3,896
Other liabilities 13,979 11,395
--------- ---------
Total liabilities 361,013 376,945
--------- ---------
Commitments and contingencies
Minority interest - Redeemable Preference Shares issued by subsidiary 38,232 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 389,481 388,704
Accumulated other comprehensive income (loss) (759) 522
Retained deficit (105,836) (80,612)
--------- ---------
Total stockholders' equity 282,977 308,704
--------- ---------
Total liabilities and stockholders' equity $ 682,222 $ 722,233
========= =========
See Notes to Interim Consolidated Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED Statements of OPERATIONS
(Unaudited)
(In thousands, except per-share amounts)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
------------------------- --------------------------
2001 2000 2001 2000
--------- --------- ---------- ---------
Revenues $ 369,658 $ 431,385 $ 134,829 $ 140,043
Cost of revenues 250,965 285,365 87,003 91,471
--------- --------- --------- ---------
Gross profit 118,693 146,020 47,826 48,572
--------- --------- --------- ---------
Selling, general, and
administrative expenses 112,693 118,896 42,714 37,155
Amortization of intangibles 10,113 10,005 3,335 3,261
Loss (gain) on disposal of property and equipment 2,242 (2,406) 266 (2,359)
Restructuring charges 1,167 487 (124)
Impairment charges 97,766 1,241
--------- --------- --------- ---------
Total operating expenses 223,981 128,223 46,315 37,933
--------- --------- --------- ---------
Operating income (loss) (105,288) 17,797 1,511 10,639
Interest expense (19,297) (20,521) (7,548) (7,327)
Interest income 513 633 176 200
Other income (expense) - net 2,213 369 43 523
--------- --------- --------- ---------
Income (loss) from continuing operations before
provision for income taxes and minority interest (121,859) (1,722) (5,818) 4,035
Provision (benefit) for income taxes (3,097) 3,674 (617) 1,606
--------- --------- --------- ---------
Income (loss) from continuing operations before
minority interest (118,762) (5,396) (5,201) 2,429
Minority interest (1,778) (1,904) (592) (608)
--------- --------- --------- ---------
Income (loss) from continuing operations (120,540) (7,300) (5,793) 1,821
Income (loss) from discontinued operations 98,726 (98,383)
Extraordinary item - Loss on debt extinguishment,
net of taxes of $2,451 (3,410) (3,410)
--------- --------- --------- ---------
Net income (loss) (25,224) (105,683) (9,203) 1,821
Other comprehensive loss (1,237) (2,223) (402) (271)
--------- --------- --------- ---------
Comprehensive income (loss) $ (26,461) $(107,906) $ (9,605) $ 1,550
========= ========= ========= =========
Basic income (loss) per common share:
Income (loss) from continuing operations $ (13.29) $ (0.81) $ (0.63) $ 0.20
Income (loss) from discontinued operations 10.89 (10.88)
Extraordinary loss (0.38) (0.38)
--------- --------- --------- ---------
Total $ (2.78) $ (11.69) $ (1.01) $ 0.20
========= ========= ========= =========
Diluted income (loss) per common share:
Income (loss) from continuing operations $ (13.29) $ (0.81) $ (0.63) $ 0.20
Income (loss) from discontinued operations 10.89 (10.88)
Extraordinary loss (0.38) (0.38)
--------- --------- --------- ---------
Total $ (2.78) $ (11.69) $ (1.01) $ 0.20
========= ========= ========= =========
Weighted average number of common shares:
Basic 9,068 9,042 9,068 9,034
Diluted 9,068 9,042 9,068 9,034
See Notes to Interim Consolidated Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
For the Nine Months Ended
September 30,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $ (25,224) $(105,683)
Adjustments to reconcile net loss to net cash from operating activities:
Loss (income) from discontinued operations (98,726) 98,383
Depreciation and amortization 25,966 29,151
Deferred taxes (6,078) 191
Loss (gain) on disposal of property and equipment 2,242 (2,406)
Provision for bad debts 4,105 2,340
Impairment charges 97,766 1,241
Extraordinary loss 5,861
Other 2,294 (107)
Changes in Operating Assets and Liabilities, net of effects of acquisitions
and dispositions:
Trade accounts receivable 4,253 2,073
Due from/to affiliates 1,051 1,085
Inventory 337 (2,608)
Other assets 1,739 3,534
Accounts payable and accrued expenses (14,865) 637
Other liabilities 1,524 (3,998)
Net assets held for sale (4,816)
Net cash provided by operating activities of discontinued operations 6,425 7,642
--------- ---------
Net cash provided by operating activities 3,854 31,475
--------- ---------
Cash flows from investing activities:
Property, plant, and equipment expenditures (10,882) (12,190)
Software expenditures (754) (1,226)
Proceeds from sale of available-for-sale securities 1,675
Proceeds from sale of property and equipment 5,836
Proceeds from sale of a business 11,799
Other (2,967) (4,217)
Net cash used in investing activities of discontinued operations (351) (1,003)
--------- ---------
Net cash used in investing activities (13,279) (1,001)
--------- ---------
Cash flows from financing activities:
Proceeds from sale/leaseback transactions 12,922
Repayments of notes and capital lease obligations (1,035) (2,562)
Repayments of term loans (6,240) (37,027)
Borrowings (repayments) under revolving credit line - net 15,795 (16,869)
Payment of debt extinguishment fees (2,000)
Net cash used in financing activities of discontinued operations (51) (448)
--------- ---------
Net cash provided by (used in) financing activities 6,469 (43,984)
--------- ---------
Net decrease in cash and cash equivalents (2,956) (13,510)
Effect of exchange rate changes on cash and cash equivalents (25) (592)
Cash and cash equivalents at beginning of period 6,406 23,218
--------- ---------
Cash and cash equivalents at end of period $ 3,425 $ 9,116
========= =========
See Notes to Interim Consolidated Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
For the nine months ended September 30, 2001
--------------------------------------------
Accumulated
Additional other
Common paid-in comprehensive Retained
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 58
Cumulative effect of change in accounting
principle (15)
Effective portion of change in fair value
of interest rate swap agreements (1,052)
Unrealized gain from foreign currency
translation adjustments (77)
Reclassification adjustment for losses
realized in net income (137)
Net loss (25,224)
--------- --------- --------- ---------
Balance at September 30, 2001 $ 91 $ 389,481 $ (759) $(105,836)
========= ========= ========= =========
See Notes to Interim Consolidated Financial Statements
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 nine and three months ended
September 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
reported 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. As of September 30, 2001, the Company was in discussions with
several potential buyers. As of November 2001, the Company was proceeding toward
a sale by the end of 2001, subject to the completion of due diligence and
financing arrangements of a potential buyer. Given the current economic and
political conditions, there can be no assurance that the transaction will be
consummated by that time.
Since as of June 30, 2001, one year from the measurement date, the Company
had not reached definitive terms with a potential buyer, 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, and continue to be reported as such at September 30,
2001. Commencing July 1, 2001, the assets of the publishing business are no
longer depreciated and its results of operations are included as part of
continuing operations.
The results of operations of the publishing business for the six months
ended June 30, 2001, and the nine and three months ended September 30, 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:
For the six For the nine For the three
months ended months ended months ended
June 30, September 30, September 30,
2001 2000 2000
------------ ------------- -------------
Revenues $ 36,007 $ 62,183 $ 25,822
======== ======== ========
Income (loss) from operations
before income taxes $ 1,598 $ (620) $ 2,513
Provision (benefit) equivalent to
income taxes 868 (836) (843)
-------- -------- --------
Income from operations 730 216 3,356
Reversal of (loss on) disposal 97,996 (98,599) (3,356)
-------- -------- --------
Income (loss) from discontinued operations $ 98,726 $(98,383) $ --
======== ======== ========
The results of operations for the six 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 for the six months ended June
30, 2001, and $3,432 and $482 for the nine and three months ended September 30,
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 current
discussions with potential buyers. The revenues, gross profit, and operating
income from the publishing business included in the Company's results of
continuing operations for the nine months and three months ended September 30,
2001, were $25,135, $13,530, and $4,826, respectively. The net assets of the
publishing business include $295 of long-term debt and obligations under capital
leases, inclusive of the current portion, at September 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 and to relocate one of its content management facilities in New York. As
part of the 2001 Second Quarter Plan, the Company terminated certain employees
and consolidated the work previously performed at three facilities in Chicago
into a single facility. The results of operations for the nine months ended
September 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 September 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 nine months ended September 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 (30) (140) (427)
Employee termination costs (358)
Abandoned assets (90) (7) (141)
------- ------- ------- ------- ------- -------
Balance at September 30, 2001 $ 30 $ 219 $ -- $ 266 $ 196 $ 382
======= ======= ======= ======= ======= =======
The charge against the 2001 Second Quarter Plan's liability for employee
termination costs included 50 employees. The employees terminated under the 2001
Second Quarter Plan are principally production workers, salespeople, and
administrative support staff.
For the nine and three months ended September 30, 2001, the Company
incurred nonrestructuring-related severance charges of $1,622 and $856,
respectively, and incurred losses on the disposal of property and equipment of
$2,242 and $266, respectively. The losses on disposal of property and equipment
for the nine months ended September 30, 2001, 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 continues to perform an overall review of its 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
its various restructuring plans.
4. INVENTORY
The components of inventory were as follows:
September 30, December 31,
2001 2000
------------- ------------
Work-in-process $18,807 $19,089
Raw materials 2,629 2,753
------- -------
Total $21,436 $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 of the 1999 Credit Agreement 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 September 30, 2001,
there was 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 has
been satisfied. The next such deadline is December 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, are due as follows:
2001 $ 491
2002 13,992
2003 215,131
2004 900
------------
Total 230,514
Less current portion 6,981
------------
Total long-term debt $ 223,533
============
As a result of the substantial modifications to the principal payment
schedule resulting from the Fifth Amendment, the Company's financial statements
reflect an extinguishment of old debt (the "Debt Extinguishment") and the
incurrence of new debt. Accordingly, the Company recognized a loss on
extinguishment of $3,410, net of taxes of $2,451, as an extraordinary item.
Based upon the modified financial covenants contained in the Fifth
Amendment, the Company was in compliance with all covenants at September 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 original terms of the 1999 Credit Agreement, the
Company originally entered into four interest rate swap agreements with an
aggregate notional amount of $90,000, one of which expired in August 2001, one
of which expires in December 2001 (together, the "2001 Swaps"), and two of which
expire in August 2003 (the "2003 Swaps") (collectively, the "Swaps"). The
remaining outstanding Swaps at September 30, 2001, have an aggregate notional
amount of $65,000. 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)."
All previous hedging relationships terminated as a result of the Debt
Extinguishment. Accordingly, the loss in "Accumulated other comprehensive income
(loss)" of $1,052 pertaining to the Swaps on the effective date of the Fifth
Amendment is being reclassified into earnings over the shorter of the remaining
term of the individual Swaps or the remaining term of the 1999 Credit Agreement.
Subsequent to the Debt Extinguishment, the 2003 Swaps did not qualify for future
hedging accounting, and the Company did not redesignate the 2001 Swaps as
hedges. Therefore, all changes in fair value of the Swaps subsequent to the
termination of the hedging relationships have been and will be included as a
component of interest expense. The Company expects $645 of the loss in
"Accumulated other comprehensive income (loss)" to be reclassified into earnings
in the next twelve months.
At September 30, 2001, the fair value of the Swaps was a net loss of
$2,705, resulting in a loss of $2,679 and $1,395 for the nine and three months
ended September 30, 2001, respectively. For the nine and three months ended
September 30, 2001, the Company recognized a non-cash charge of $1,458 and
$1,472, respectively, as a component of interest expense in the Consolidated
Statements of Operations, which consisted of the following:
Nine months Three months
ended ended
September 30, September 30,
2001 2001
------------- -------------
Ineffectiveness of Swaps through termination of hedging relationships $ 79 $ 62
Reclassification of loss in "Accumulated other comprehensive income
(loss)" pertaining to termination of hedging relationships 611 611
Change in fair market value of Swaps subsequent to termination of
hedging relationships 801 801
Reclassification of cumulative effect recorded upon adoption of
SFAS No. 133 (33) (2)
------- -------
Total $ 1,458 $ 1,472
======= =======
7. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the nine and three months ended September 30, 2001 and 2000, were
as follows:
Nine months ended September 30, Three months ended September 30,
2001 2000 2001 2000
--------- ---------- ---------- ----------
Affiliate sales $ 7,697 $ 7,686 $ 2,613 $ 2,193
Affiliate purchases $ 50 $ 298 $ 2 $ 20
Administrative charges $ 1,602 $ 1,080 $ 541 $ 346
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 nine months ended September
30, 2001 and 2000, were as follows:
2001 2000
---- ----
Interest paid $ 18,160 $ 23,102
Income taxes paid $ 2,718 $ 1,839
Noncash investing and financing activities for the nine months ended
September 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 $ 92 $ 99
Fair value of stock options issued to non-employees $ 58
Exchange of Preference Shares for subordinated notes $ 68
9. SEGMENT INFORMATION
Segment information relating to results of continuing operations for the
nine and three months ended September 30, 2001 and 2000, was as follows:
Nine months ended Three months ended
September 30, September 30,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenue:
Content Management Services $ 322,885 $ 391,612 $ 103,182 $ 128,147
Publishing 25,135 25,135
Other operating segments 21,638 39,773 6,512 11,896
--------- --------- --------- ---------
Total $ 369,658 $ 431,385 $ 134,829 $ 140,043
========= ========= ========= =========
Operating Income (Loss):
Content Management Services $ 24,895 $ 45,673 $ 8,751 $ 17,240
Publishing 4,826 4,826
Other operating segments (1,540) 5,996 (772) 2,394
--------- --------- --------- ---------
Total 28,181 51,669 12,805 19,634
Other business activities (22,322) (24,885) (7,742) (8,306)
Amortization of intangibles (10,113) (10,005) (3,335) (3,261)
Restructuring charges (1,167) (487) 124
Gain (loss) on disposal of fixed assets (2,242) 2,406 (266) 2,359
Impairment charges (97,766) (1,241)
Interest expense (19,156) (20,181) (7,499) (7,238)
Interest income 513 633 176 200
Other income (expense)-net 2,213 369 43 523
--------- --------- --------- ---------
Consolidated income (loss) from continuing
operations before provision for income
taxes and minority interest $(121,859) $ (1,722) $ (5,818) $ 4,035
========= ========= ========= =========
Segment information relating to the Company's assets as of September 30,
2001, was as follows:
Total Assets:
Content Management Services $593,122
Other operating segments 27,054
Other business activities 21,171
Net assets held for sale 40,875
---------
Total $682,222
=========
The net assets held for sale at September 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).
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 with
indefinite 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 September 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
stockholders' 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
or from additional guidance that is currently under discussion by the Financial
Accounting Standards Board.
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in August 2001, and
is effective for fiscal years beginning after December 15, 2001. SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed of,
including segments, and supercedes 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," and Accounting Principles Board Opinion
(APB) No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Under SFAS No. 144, goodwill will no longer
be allocated to long-lived assets, and therefore will no longer be subject to
testing for impairment as part of those assets, but will be tested separately
under SFAS No. 142. Additionally, SFAS No. 144 broadens the presentation of
discontinued operations to include components of an entity rather than being
limited to a segment of a business. The Company does not expect the
implementation of SFAS No. 144 to have a material effect on its financial
condition or results of operations.
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 remain in compliance with
the financial covenant requirements under the 1999 Credit Agreement (as defined
herein); the advertising market continuing to soften; the effects of the events
of September 11, 2001; the timing of completion and the success of the Company's
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 results of operations of the Company's publishing business were
reported as a discontinued operation for all periods through June 30, 2001.
Commencing July 1, 2001, the results of operations of the publishing business
are included as part of the Company's continuing operations. 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
NINE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED WITH 2000
Revenues in the first nine months of 2001 were $61,727 lower than in the
comparable period in 2000. Revenues in the 2001 period decreased by $68,727 from
content management services, $13,689 from digital services, and $4,446 from
broadcast media distribution services. These decreases were partially offset by
$25,135 of revenues in the third quarter of 2001 from the publishing business.
The results of operations of the publishing business were reported as a
discontinued operation for the entire 2000 period and for the first six months
of 2001. Decreased revenues from content management services primarily resulted
from the softening advertising market, which adversely impacted the Company's
East Coast prepress operations and its Midwest prepress and creative services
operations, as well as from the loss of a low-margin customer at the Company's
West Coast operations. The Company also experienced an anticipated reduction in
revenues associated with both the sale of its photographic laboratory business
and the closing of one of its Atlanta prepress facilities, the results of which
are included for a portion of 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 $27,327 in the first nine months of 2001 as a result
of the decrease in revenues for the period as discussed above. The gross profit
percentage in the first nine months of 2001 was 32.1% as compared to 33.8% in
the 2000 period. Continuing operations in the third quarter of 2001 included the
results of operations of the publishing business, which has higher margins than
the Company's other businesses. Exclusive of the publishing business, the gross
profit percentage was 30.5% in the first nine months of 2001. This decrease in
the gross profit percentage primarily resulted from the decrease in revenues
from content management services and digital services 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. Additionally, the gross profit
percentage was adversely impacted by 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 nine months of
2001 were $6,203 lower than in the 2000 period, but as a percent of revenue
increased to 30.5% in the 2001 period from 27.6% in the 2000 period. Selling,
general, and administrative expenses in 2001 include charges of $1,622 for
nonrestructuring-related employee termination costs and $2,186 for consultants
retained to assist the Company with its restructuring and integration efforts.
The 2001 period also includes the results of operations of the publishing
business for the third quarter of 2001, which business incurs selling, general,
and administrative costs at a higher rate than the Company's other businesses.
Selling, general, and administrative expenses in 2000 include a charge of $1,734
for nonstructuring-related employee termination costs. Exclusive of the
publishing business, and adjusting for these other charges, selling, general,
and administrative expenses as a percent of revenue were 29.1% and 27.2% in the
2001 period and the 2000 period, respectively.
The results of operations for the nine months ended September 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 as well as the relocation of one of its
content management facilities in New York (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 $2,242 for the nine
months ended September 30, 2001, primarily resulting from equipment disposed of
in connection with the 2001 Second Quarter Plan and other integration efforts at
the Company's 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 nine months ended September 30, 2001, the Company
reversed the estimated loss on disposal of the publishing business, resulting in
after-tax 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 nine months of 2001 was $1,224 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. This decrease was
partially offset by a non-cash charge of $1,458 related to four interest rate
swap agreements entered into by the Company that are accounted for in accordance
with Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivatives and Hedging Activities," which was adopted by the Company on January
1, 2001 (see Note 6 to the Interim Consolidated Financial Statements). In
addition, $3,432 of interest expense was allocated to discontinued operations in
the 2000 period as compared to only $646 in the 2001 period (see Note 2 to the
Interim Consolidated Financial Statements).
The Company recorded an income tax benefit of $3,097 for the first nine
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 nine months
ended September 30, 2001 and 2000, totaled $7,697 and $7,686, respectively,
representing 2.1% and 1.8%, respectively, of the Company's revenues.
THREE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED WITH 2000
Revenues in the third quarter of 2001 were $5,214 lower than in the
comparable period in 2000. Revenues in the 2001 period decreased by $24,965 from
content management services, $3,847 from digital services, and $1,537 from
broadcast media distribution services. These decreases were partially offset by
$25,135 of revenues from the publishing business in the 2001 period. The results
of operations of the publishing business were reported as a discontinued
operation in the 2000 period. Decreased revenues from content management
services primarily resulted from the softening advertising market, which
adversely impacted the Company's East Coast prepress operations and its Midwest
prepress and creative services operations, as well as from the loss of a
low-margin customer at the Company's West Coast operations. 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 $746 in the third quarter of 2001. The decrease in
gross profit as a result of the decrease in revenues for the period as discussed
above was almost entirely offset by the inclusion of the results of operations
of the publishing business in continuing operations in the third quarter of
2001. The gross profit percentage in the third quarter of 2001 was 35.5% as
compared to 34.7% in the 2000 period. Exclusive of the publishing business, the
gross profit percentage was 31.3% in the third quarter of 2001. This decrease in
the gross profit percentage primarily resulted from the decrease in revenues
from content management services and digital services 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. Additionally, the gross profit
percentage was adversely impacted by 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 at the Company's Midwest creative services operations resulting from
improved efficiencies realized from the 2001 Second Quarter Plan and from
improved customer pricing.
Selling, general, and administrative expenses in the third quarter of 2001
were $5,559 higher than in the 2000 period, and as a percent of revenue
increased to 31.7% in the 2001 period from 26.5% in the 2000 period. Selling,
general, and administrative expenses in the third quarter of 2001 include
charges of $856 for nonrestructuring-related employee termination costs and
$1,012 for consultants retained to assist the Company with its restructuring and
integration efforts. The 2001 period also includes the results of operations of
the publishing business for the third quarter of 2001, which business incurs
selling, general, and administrative costs at a higher rate than the Company's
other businesses. Exclusive of the publishing business, and adjusting for these
other charges, selling, general, and administration expenses represented 29.3%
of revenues in the 2001 period.
Interest expense in the third quarter of 2001 was $221 higher than in the
2000 period. Lower interest expense resulting from reduced borrowings under the
1999 Credit Agreement and an overall reduction in interest rates in 2001 was
more than offset by a non-cash charge of $1,472 related to four interest rate
swap agreements that are accounted for in accordance with SFAS No. 133 (see Note
6 to the Interim Consolidated Financial Statements). In addition, $482 of
interest expense was allocated to discontinued operations in the 2000 period
with no corresponding allocation in the 2001 period (see Note 2 to the Interim
Consolidated Financial Statements).
The Company recorded an income tax benefit of $617 in the third 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 September 30, 2001 and 2000, totaled $2,613 and $2,193, respectively,
representing 1.9% and 1.6%, 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 of the 1999 Credit Agreement 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 September 30, 2001,
there was 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 has
been satisfied. The next such deadline is December 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
reflect an extinguishment of old debt and the incurrence of new debt.
Accordingly, the Company recognized a loss on extinguishment in the third
quarter of 2001 of approximately $3,410, net of taxes of approximately of
$2,451, as an extraordinary item.
Based upon the modified financial covenants contained in the Fifth
Amendment, the Company was in compliance with all covenants at September 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 nine months of 2001, the Company repaid $1,035 of notes
and capital lease obligations, made contingent payments related to acquisitions
of $2,967, and invested $11,636 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 nine months
of 2001 decreased by $26,404 as compared to the comparable period in 2000 due
primarily to a decrease in cash from operating income and the timing of vendor
payments.
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. 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 with indefinite 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 September 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 stockholders' 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 or from additional guidance that is currently under
discussion by the Financial Accounting Standards Board.
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," was issued in August
2001, and is effective for fiscal years beginning after December 15, 2001. SFAS
No. 144 establishes a single accounting model for long-lived assets to be
disposed of, including segments, and supercedes 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," and Accounting
Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
Under SFAS No. 144, goodwill will no longer be allocated to long-lived assets,
and therefore will no longer be subject to testing for impairment as part of
those assets, but will be tested separately under SFAS No. 142. Additionally,
SFAS No. 144 broadens the presentation of discontinued operations to include
components of an entity rather than being limited to a segment of a business.
The Company does not expect the implementation of SFAS No. 144 to have a
material effect on its financial condition or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's primary exposure to market risk is interest rate risk.
The Company had $228,985 outstanding under its credit facilities at September
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 three 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 three interest rate swaps
totaled $65,000 at September 30, 2001. A change in interest rates of 1.0% would
result in an annual change in income before taxes of $1,640 based on the
outstanding balance under the Company's credit facilities and the notional
amounts of the interest rate swap agreements at September 30, 2001.
PART II. - OTHER INFORMATION
Item 5. Other Information
During the third quarter of 2001, the Board of Directors of the Company
appointed Joseph Vecchiolla as President of the Company and Kenneth Torosian as
Chief Financial Officer of the Company. Mr. Vecchiolla continues to serve as
Chief Operating Officer.
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).
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).
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).
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. (Incorporated by
reference to Exhibit No. 10.9(f) 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 June 30, 2001).
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 did not file any reports on Form 8-K during the quarter ended
September 30, 2001.
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/ Joseph D. Vecchiolla
Date: November 14, 2001 ______________________________________
Joseph D. Vecchiolla
President and Chief Operating Officer
(Principal Executive Officer)
/s/ Kenneth G. Torosian
Date: November 14, 2001 ______________________________________
Kenneth G. Torosian
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)