RNS Number:8057E
Applied Graphics Technologies Inc
6 June 2001
PART 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 1-16431
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3864004
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
450 WEST 33RD STREET
NEW YORK, NY
(Address of principal executive offices)
10001
(Zip Code)
212-716-6600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
N/A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes(X) No( )
The number of shares of the registrant's common stock outstanding as of April
30, 2001, was 9,067,565.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of dollars, except per-share amounts)
March December
31, 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents $ 13,877 $ 6,406
Marketable securities 1,677
Trade accounts receivable (net of allowances of $5,622 85,969 100,394
in 2001 and $5,100 in 2000)
Due from affiliates 4,785 5,084
Inventory 22,226 21,842
Prepaid expenses 8,273 7,248
Deferred income taxes 18,384 18,618
Other current assets 5,066 4,905
Net current assets of discontinued operations 38,873 44,790
Total current assets 197,453 210,964
Property, plant, and equipment - net 62,766 63,789
Goodwill and other intangible assets (net of
accumulated amortization of $34,714
in 2001 and $31,325 in 2000) 422,180 424,031
Other assets 22,542 23,449
Total assets $ 704,941 $ 722,233
Liabilities and STOCKholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 78,882 $ 87,344
Current portion of long-term debt and obligations 23,366 18,204
under capital leases
Due to affiliates 837 1,115
Other current liabilities 20,994 21,626
Total current liabilities 124,079 128,289
Long-term debt 202,112 204,080
Subordinated notes 26,406 27,745
Obligations under capital leases 1,508 1,540
Deferred income taxes 2,390 3,896
Other liabilities 12,011 11,395
Total liabilities 368,506 376,945
Commitments and contingencies
Minority interest - Redeemable Preference Shares 37,186 36,584
issued by subsidiary
Stockholders' Equity:
Preferred stock (no par value, 10,000,000 shares
authorized; no shares outstanding)
Common stock ($0.01 par value, 150,000,000 shares
authorized;
shares issued and outstanding: 9,033,603 in 2001 and 90 90
2000)
Additional paid-in capital 388,714 388,704
Accumulated other comprehensive income (loss) (302) 522
Retained deficit (89,253) (80,612)
Total stockholders' equity 299,249 308,704
Total liabilities and stockholders' equity $ 704,941 $ 722,233
See Notes to Interim Consolidated Financial Statements
Applied Graphics Technologies, Inc.
CONSOLIDATED Statements of OPERATIONS
(Unaudited)
(In thousands, except per-share amounts)
For the Three Months Ended
March 31,
2001 2000
Revenues $ 116,769 $ 144,319
Cost of revenues 81,836 97,287
Gross profit 34,933 47,032
Selling, general, and administrative expenses 35,530 40,886
Amortization of intangibles 3,389 3,363
Loss on disposal of property and equipment 28 225
Total operating expenses 38,947 44,474
Operating income (loss) (4,014) 2,558
Interest expense (5,989) (7,203)
Interest income 203 202
Other income (expense) - net 1,402 (202)
Loss before provision for income
taxes and minority interest (8,398) (4,645)
Provision (benefit) for income taxes (357) 2,137
Loss from continuing operations before (8,041) (6,782)
minority interest
Minority interest (600) (663)
Loss from continuing operations (8,641) (7,445)
Loss from discontinued operations (1,474)
Net loss (8,641) (8,919)
Other comprehensive loss (435) (760)
Comprehensive loss $ (9,076) $ (9,679)
Basic loss per common share:
Loss from continuing operations $ (0.95) $ (0.82)
Loss from discontinued operations (0.17)
Total $ (0.95) $ (0.99)
Diluted loss per common share:
Loss from continuing operations $ (0.95) $ (0.82)
Loss from discontinued operations (0.17)
Total $ (0.95) $ (0.99)
Weighted average number of common shares:
Basic 9,068 9,046
Diluted 9,068 9,046
See Notes to Interim Consolidated Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
For the Three Months
Ended
March 31,
2001 2000
Cash flows from operating activities:
Net loss $ (8,641) $ (8,919)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 8,862 9,738
Deferred taxes (398) 22
Provision for bad debts 769 252
Loss from discontinued operations 1,474
Other 30 (75)
Changes in Operating Assets and Liabilities,
net of effects of acquisitions
and dispositions:
Trade accounts receivable 12,009 7,473
Due from/to affiliates 21 1
Inventory (584) (4,578)
Other assets (1,619) 6,649
Accounts payable and accrued expenses (7,143) 420
Other liabilities 1,138 4,177
Net cash provided by operating activities of 6,128 8,148
discontinued operations
Net cash provided by operating activities 10,572 24,782
Cash flows from investing activities:
Property, plant, and equipment expenditures (4,364) (5,795)
Software expenditures (95) (738)
Proceeds from sale of available-for-sale 1,675
securities
Proceeds from sale of property and equipment 171
Other (3,297) (4,217)
Net cash used in investing activities of (186) (345)
discontinued operations
Net cash used in investing activities (6,267) (10,924)
Cash flows from financing activities:
Repayments of notes and capital lease (363) (1,916)
obligations
Repayments of term loans (927) (24,396)
Borrowings (repayments) under revolving credit 4,445 (11,000)
line - net
Proceeds from sale/leaseback transactions 12,922
Net cash used in financing activities of (25) (30)
discontinued operations
Net cash provided by (used in) financing 3,130 (24,420)
activities
Net increase (decrease) in cash and cash 7,435 (10,562)
equivalents
Effect of exchange rate changes on cash and cash 36 172
equivalents
Cash and cash equivalents at beginning of period 6,406 23,218
Cash and cash equivalents at end of period $ 13,877 $ 12,828
See Notes to Interim Consolidated Financial Statements
APPLIED GRAPHICS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
For the three months ended March 31, 2001
Common Additional Accumulated Retained
stock paid-in other deficit
capital comprehensive
income (loss)
Balance at January $ 90 $ 388,704 $ 522 $ (80,612)
1, 2001
Compensation 10
cost of stock
options issued
to non-employees
Cumulative (15)
effect of change
in accounting
principle
Effective (638)
portion of
change in fair
value of
interest rate
swap agreements
Unrealized gain 312
from foreign
currency
translation
adjustments
Reclassification (483)
adjustment for
gains realized
in net loss
Net loss (8,641)
Balance at March 31, $ 90 $ 388,714 $ (302) $ (89,253)
2001
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.
The Consolidated Statement of Operations and Consolidated Statement of Cash
Flows for the three months ended March 31, 2000, have been restated to reflect
the operations of the Company's publishing business as a discontinued
operation. In addition, all references to the number of shares and per-share
amounts in the Consolidated Statement of Operations for the three months ended
March 31, 2000, have been adjusted to reflect the two-for-five reverse stock
split effected on December 5, 2000. Certain other prior-period amounts in the
accompanying financial statements have been reclassified to conform with the
2001 presentation.
2. DISCONTINUED OPERATIONS
In June 2000, the Company's Board of Directors approved a plan to sell the
Company's publishing business. During the second quarter of 2000, the
Company solicited bids and entered into negotiations with a potential
buyer. After long negotiations, the Company believed it was no longer in
its best interest to pursue the proposed transaction, and negotiations
ceased. In 2001, the Company retained a new investment banking firm and is
preparing a revised offering memorandum. The Company has assumed a
disposal date of June 30, 2001, although there can be no assurance that
definitive terms will be reached with a potential buyer by such date.
The accompanying financial statements have been presented to reflect the
operations of the publishing business as a discontinued operation. The
results of operations of the discontinued business for the three months
ended March 31, 2000, presented as Discontinued Operations in the
accompanying Consolidated Statement of Operations, were as follows:
Revenues $ 18,406
Loss from operations before income taxes $ (1,471)
Provision equivalent to income taxes 3
Loss from operations $ (1,474)
The results of operations of the publishing business include an allocation
of interest expense of $1,629 for the three months ended March 31, 2000.
The allocated interest expense consisted solely of the interest expense on
the Company's borrowings under its primary credit facilities (the "1999
Credit Agreement"), which represents the interest expense not directly
attributable to the Company's other operations. Interest expense was
allocated based on the ratio of the net assets of the discontinued
operation to the sum of the consolidated net assets of the Company and the
outstanding borrowings under the 1999 Credit Agreement.
The results of operations of the publishing business and the cash flows of
the publishing business for the three months ended March 31, 2001 and
2000, include amounts for selected items as follows:
2001 2000
Income (loss) from operations before income tax $ 822 $ (1,471)
Interest expense $ 352 $ 1,667
Interest income $ 38 $ 34
Depreciation and amortization expense $ 376 $ 1,070
Gain (loss) on disposal of property and $ (5) $ 1
equipment
Property, plant, and equipment expenditures $ 186 $ 345
Repayments of notes and capital lease $ 25 $ 30
obligations
The net assets of discontinued operations include $338 of long-term debt
and obligations under capital leases, inclusive of the current portion, at
March 31, 2001.
3. RESTRUCTURING
The Company completed various restructuring plans in prior periods (the
"1998 Second Quarter Plan," the "1998 Fourth Quarter Plan," the "1999
Third Quarter Plan," the "1999 Fourth Quarter Plan," and the "2000 Second
Quarter Plan," respectively). The amounts included in "Other current
liabilities" in the accompanying Consolidated Balance Sheet as of March
31, 2001, for the future costs of the various restructuring plans,
primarily future rental obligations for abandoned property and equipment,
and the amounts charged against the respective restructuring liabilities
during the three months ended March 31, 2001, were as follows:
1998 1998 1999 1999 2000
Second Fourth Third Fourth Second
Quarter Quarter Quarter Quarter Quarter
Plan Plan Plan Plan Plan
Balance $ 120 $ 249 $ 7 $ 407 $ 336
at
January
1, 2001
Facility (10) (48)
closure
costs
Abandoned (30) (4) (68)
assets
Balance $ 90 $ 239 $ 3 $ 339 $ 288
at March
31, 2001
4. INVENTORY
The components of inventory were as follows:
March 31, December 31,
2001 2000
Work-in-process $ 19,673 $ 19,089
Raw materials 2,553 2,753
Total $ 22,226 $ 21,842
5. DERIVATIVES
In accordance with the terms of the 1999 Credit Agreement, the Company entered
into four interest rate swap agreements with an aggregate notional amount of
$90,000 (collectively, the "Swaps") under which the Company pays a fixed rate
on a quarterly basis and is paid a floating rate based on the three month
LIBOR in effect at the beginning of each quarterly payment period. Through
December 31, 2000, the Company accounted for the Swaps as hedges against the
variable interest rate component of the 1999 Credit Agreement.
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an amendment of FASB Statement No.
133)." SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments and for hedging activities, and requires
that entities measure derivative instruments at fair value and recognize those
instruments as either assets or liabilities in the statement of financial
position. The accounting for the change in fair value of a derivative
instrument will depend on the intended use of the instrument. In accordance
with the provisions of SFAS No. 133, the Company designated the Swaps as cash
flow hedging instruments of the variable interest rate component of the 1999
Credit Agreement. Upon the adoption of SFAS No. 133, the fair value of the
Swaps, a liability of $26, was recognized in "Other noncurrent liabilities"
and reflected, net of tax, as a cumulative effect of a change in accounting
principle in "Other comprehensive income (loss)."
At March 31, 2001, the fair value of the Swaps was a liability of $1,370,
resulting in a total loss of $1,344 for the three months ended March 31, 2001.
The Company recognized $253 of this loss as a component of interest expense in
the Consolidated Statement of Operations for the three months ended March 31,
2001, which represents the ineffectiveness of the Swaps during the period. The
remaining loss of $1,091 was recognized, net of tax, as a component of "Other
comprehensive income (loss)" for the period. During the three months ended
March 31, 2001, the Company recognized a $15 reduction of interest expense
relating to the reclassification into earnings of the cumulative effect
recorded in "Other comprehensive income (loss)" upon the adoption of SFAS No.
133. Were the Company to unwind any of the Swaps, the gain or loss in
"Accumulated other comprehensive income (loss)" associated with such swap
would be reclassified into earnings over the original remaining term of that
swap.
The Derivatives Implementation Group of the Financial Accounting Standards
Board continues to discuss issues and release definitive guidance pertaining
to SFAS No. 133, some of which could cause the Swaps to no longer qualify as
hedges. Were the Swaps to no longer qualify as hedges, any gain or loss in
"Accumulated other comprehensive income (loss)" associated with the Swaps
would be reclassified into earnings over the original term of the Swaps and
all future changes in fair value of the Swaps would be included as a component
of interest expense in the current period.
6. RELATED PARTY TRANSACTIONS
Sales to, purchases from, and administrative charges incurred with related
parties during the three months ended March 31, 2001 and 2000, were as
follows:
2001 2000
Affiliate sales $ 2,708 $ 2,759
Affiliate purchases $ 24 $ 117
Administrative charges $ 536 $ 315
Administrative charges include charges for certain legal, administrative,
and computer services provided by affiliates and for rent incurred for
leases with affiliates.
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Payments of interest and income taxes for the three months ended March 31,
2001 and 2000, were as follows:
2001 2000
Interest paid $ 5,986 $ 6,910
Income taxes paid $ 1,507 $ 246
Noncash investing and financing activities for the three months ended March
31, 2001 and 2000, were as follows:
2001 2000
Additions to intangible assets for contingent $ 720
payments
Fair value of stock options issued to non-employees $ 10
Reduction of goodwill from amortization of excess tax $ 52 $ 92
deductible goodwill
Common stock issued as additional consideration
for
prior period acquisitions $2,000
MORE TO FOLLOW
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