-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JVlJ5LPeOvbWH7HVdz1WEC8EFRcg2bK19+P52I0+jDts7fkmDQ5EJs+xmKWg9jDT LlMTOJkAEBVuv7q1j5KYaQ== 0000950123-97-007438.txt : 19970912 0000950123-97-007438.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950123-97-007438 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED GRAPHICS TECHNOLOGIES INC CENTRAL INDEX KEY: 0001006030 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MAILING, REPRODUCTION, COMMERCIAL ART & PHOTOGRAPHY [7330] IRS NUMBER: 133864004 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-28208 FILM NUMBER: 97673411 BUSINESS ADDRESS: STREET 1: 28 W 23RD ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2129294111 MAIL ADDRESS: STREET 2: 463 BARELL AVE CITY: CARLSTADT STATE: NJ ZIP: 07072 10-K/A 1 APPLIED GRAPHICS TECHNOLOGIES INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 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 0-28208 -------------- APPLIED GRAPHICS TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-3864004 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 28 WEST 23RD STREET, NEW YORK, NY 10010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-929-4111 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value Nasdaq National Market $.01 per share 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[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of registrant's voting stock held by non-affiliates as of March 10, 1997, was $139,851,203. The number of shares of the registrant's Common Stock outstanding as of March 10, 1997, was 14,349,683 shares. The following documents are hereby incorporated by reference into this Form 10-K: (1) Portions of the Registrant's 1997 Proxy Statement to be filed with the Securities and Exchange Commission (Part III). (2) Form 8-K filed with the Securities and Exchange Commission on October 4, 1996 (Part II). 2 This amendment is being filed to reflect the pro forma net income data on the face of the Statements of Operations. 3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 15 4 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Applied Graphics Technologies, Inc. We have audited the accompanying balance sheet of Applied Graphics Technologies, Inc. (a majority-owned subsidiary of Applied Printing Technologies L.P.) (the "Company") as of December 31, 1996, and the related statements of operations, stockholders' equity and owner's equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1996 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP MARCH 12, 1997 NEW YORK, NEW YORK 16 5 REPORT OF INDEPENDENT ACCOUNTANTS To the Owners of the Predecessor Group: We have audited the accompanying combined balance sheet of the Predecessor Group to Applied Graphics Technologies, Inc. as of December 31, 1995, and the related combined statements of operations, cash flows and changes in owners' equity (deficit) for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Predecessor Group's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Predecessor Group as of December 31, 1995 and the combined results of their operations and cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. New York, New York March 8, 1996 17 6 APPLIED GRAPHICS TECHNOLOGIES, INC. BALANCE SHEETS (In thousands of dollars, except per-share amounts)
December 31, ----------------------------- 1996 1995 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 2,567 $ 666 Marketable securities at cost 1,600 Accounts receivable - trade (net of allowances of $472 in 1996 and $1,431 in 1995) 29,584 19,476 Due from affiliates 1,841 Inventory 4,639 3,582 Prepaid expenses and other current assets 2,485 3,050 Deferred income taxes 705 ------------ ------------ Total current assets 41,580 28,615 Property, plant and equipment, net 20,544 13,741 Goodwill (net of amortization of $552 in 1996 and $405 in 1995) 7,121 551 Deferred income taxes 1,644 Other assets 1,258 1,902 ------------ ------------ Total assets $ 72,147 $ 44,809 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY/OWNERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 19,630 $ 20,096 applied Printing Note 1,600 Current portion of long-term debt 507 711 Current portion of obligations under capital leases 1,354 1,576 Intercompany borrowings 30,181 Due to affiliates 354 Other current liabilities 2,407 1,125 ------------ ------------ Total current liabilities 25,852 53,689 Long-term debt 6,005 853 Obligations under capital leases 1,265 2,415 Other liabilities 3,142 7,233 ------------ ------------ Total liabilities 36,264 64,190 ------------ ------------ Commitments and contingencies Stockholders' Equity/Owners' Deficit: Preferred stock (no par value, 10,000,000 shares authorized; no shares outstanding) Common stock ($0.01 par value, 40,000,000 shares authorized; shares issued and outstanding: 14,349,683) 143 Additional paid-in capital 25,584 Retained earnings 10,156 Owners' deficit (19,381) ------------ ------------ Total stockholders' equity/owners' deficit 35,883 (19,381) ------------ ------------ Total liabilities and stockholders' equity /owners' deficit $ 72,147 $ 44,809 ============ ============
See Notes to Financial Statements 18 7 APPLIED GRAPHICS TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (In thousands, except per-share amounts)
For the years ended December 31, 1996 1995 1994 --------- --------- --------- Revenues $ 132,725 $ 117,802 $ 115,986 Cost of revenues 92,242 86,296 85,297 --------- --------- --------- Gross profit 40,483 31,506 30,689 --------- --------- --------- Selling expenses 15,486 16,156 15,746 General and administrative expenses 13,068 17,373 16,341 Reorganization charge 3,060 6,668 --------- --------- --------- Total operating expenses 28,554 36,589 38,755 --------- --------- --------- Operating income (loss) 11,929 (5,083) (8,066) Interest expense (1,833) (3,332) (2,807) Other income, net 724 603 2,116 --------- --------- --------- Income (loss) before provision for income taxes 10,820 (7,812) (8,757) Provision for income taxes 865 --------- --------- --------- Net income (loss) $ 9,955 $ (7,812) $ (8,757) ========= ========= ========= Earnings per common share: Primary $ 0.78 Fully diluted $ 0.74 Weighted average number of common shares: Primary 12,797 Fully diluted 13,506 Pro Forma Net Income Data: Income (loss) before provision for income taxes, as reported $ 10,820 $ (7,812) Pro forma provision for income taxes 785 115 --------- --------- Pro forma net income (loss) $ 10,035 $ (7,927) ========= ========= Pro forma earnings (loss) per common share: Primary $ 0.78 $ (0.80) Fully diluted $ 0.74 $ (0.80) Pro forma weighted average number of common shares: Primary 12,797 9,930 Fully diluted 13,506 9,930
See Notes to Financial Statements 19 8 APPLIED GRAPHICS TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (In thousands of dollars)
For the years ended December 31, 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 9,955 $ (7,812) $ (8,757) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 4,932 5,359 7,405 Deferred taxes (2,349) Gain on insurance settlement (18) (2,023) (1,908) Reorganization charges 3,060 6,668 Other (40) 1,012 747 Management of Changes in Operating Assets and Liabilities, net of effects of acquisitions: Accounts receivable (11,442) 3,772 (2,550) Due from affiliates 1,917 (981) 2,110 Inventory (937) (422) (426) Other assets 2,452 1,401 (148) Accounts payable and accrued expenses (413) 1,387 2,513 Other liabilities (2,591) 204 (275) -------- -------- -------- Net cash provided by operating activities 1,466 4,957 5,379 -------- -------- -------- Cash flows from investing activities: Investment in marketable securities (1,600) Property, plant and equipment expenditures (14,851) (3,455) (4,296) Proceeds from the sale of fixed assets 1,099 1,483 Net proceeds from insurance claims 243 1,782 1,189 Entities purchased, net of cash acquired 350 (69) (1,000) -------- -------- -------- Net cash used in investing activities (14,759) (259) (4,107) -------- -------- -------- Cash flows from financing activities: Proceeds received from the sale of common stock 46,103 Borrowings under revolving credit line 5,628 Proceeds from sale/leaseback transactions 4,093 558 945 Repayment of Applied Printing Note (14,400) Repayment of notes and capital lease obligations (2,662) (4,020) (4,875) Increase in (repayments of) intercompany borrowings, net (18,000) 3,789 10,367 Net distributions to Applied Printing (5,568) (4,449) (8,422) -------- -------- -------- Net cash provided by (used in) financing activities 15,194 (4,122) (1,985) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,901 576 (713) Cash and cash equivalents at beginning of year 666 90 803 ======== ======== ======== Cash and cash equivalents at end of year $ 2,567 $ 666 $ 90 ======== ======== ========
See Notes to Financial Statements 20 9 APPLIED GRAPHICS TECHNOLOGIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY AND OWNERS' EQUITY/(DEFICIT) (In thousands of dollars, except per-share amounts)
Additional Owners' Common Paid-in Retained Equity/ Stock Capital Earnings (Deficit) -------- -------- -------- -------- Balance at January 1, 1994 $ 10,059 Net loss for the year (8,757) Distribution for the year (8,422) -------- Balance at December 31, 1994 (7,120) Net loss for the year (7,812) Distribution for the year (4,449) -------- Balance at December 31, 1995 (19,381) Issuance of 9,309,900 common shares in exchange for assets of Prepress Business $ 93 Issuance of 4,500,000 common shares in a public offering at $12.00 per share 45 $ 46,058 Issuance of 539,683 shares in an acquisition at $15.75 per share 5 8,495 Net income (loss) for the period $ 10,156 (201) Distribution for the year (9,387) Conveyance (28,969) 28,969 -------- -------- -------- -------- Balance at December 31, 1996 $ 143 $ 25,584 $ 10,156 $ 0 ======== ======== ======== ========
See Notes to Financial Statements 21 10 APPLIED GRAPHICS TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS (In thousands of dollars, except per-share amounts) 1. ORGANIZATION AND BASIS OF PRESENTATION Applied Graphics Technologies, Inc. (the "Company") is a provider of digital prepress services to magazine publishers, advertising agencies, entertainment companies and catalog retailers. In addition, the Company provides outsourced, on-site prepress and related services to third parties and advanced digital imaging services, such as digital archiving and distribution services, and commencing in December 1996, duplication and distribution services of advertising content for the broadcast industry. The Company was incorporated in Delaware on December 12, 1995. Applied Printing Technologies, L.P. ("Applied Printing"), an entity beneficially owned by the Chairman of the Board of Directors of the Company (the "Chairman") and the Chief Executive Officer of the Company (the "CEO"), was issued 100 shares of common stock and became the Company's sole stockholder. On April 16, 1996 (the "Offering Date"), the Company's Registration Statement on Form S-1 under the Securities Act of 1933, as amended, relating to the initial public offering (the "Offering") of the Company's Common Stock, was declared effective. Upon the offering being declared effective, the Company acquired substantially all of the assets and certain related liabilities relating to the prepress, digital imaging services and related businesses of Applied Printing (collectively, the "Prepress Business") in exchange for 9,309,900 shares of the Company's Common Stock and $37,000 of additional consideration ("Additional Consideration") comprised of (i) the assumption by the Company of the principal amount of collateralized senior indebtedness to Applied Printing's primary institutional lender (the "Institutional Senior Indebtedness") of $21,000 and (ii) the issuance of a promissory note by the Company to Applied Printing (the "Applied Printing Note") of $16,000. The Company received net proceeds of $46,103 from the Offering, of which $21,000 was used to repay Institutional Senior Indebtedness and $16,000 was used to invest in short-term investments to support a standby letter of credit that collateralized the Applied Printing Note. At December 31, 1996, Applied Printing owned approximately 60% of the Company's outstanding common stock. The acquisition of the Prepress Business has been accounted for in a manner similar to a pooling of interests. Accordingly, the financial statements of the Company reflect the combined results of operations of the Prepress Business through April 16, 1996, and the results of the Company from April 17, 1996, through December 31, 1996. The financial statements through the Offering Date have been prepared by combining the assets, liabilities, results of operations and cash flows of the specific divisions that comprise the Prepress Business. Historically, these specific divisions have operated as separate business units and maintained their own books and records. Through the effective date, Applied Printing managed the cash and financing requirements of all of its divisions centrally; as such, the interest expense, and related intercompany borrowing, represent an allocation of Applied Printing's interest expense and the related debt. As discussed in Note 9, this allocation of debt is presented as an intercompany borrowing. Additionally, Applied Printing and other related parties had historically provided certain corporate, general and administrative services to the Prepress Business including general management, treasury, financial reporting, and legal services. Accordingly, the financial statements include an allocation of expenses for such services. The combined financial position and combined results of operations of the Prepress Business may differ from results that may have been achieved had the Prepress Business operated as an independent entity. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS: Cash equivalents include highly liquid investments with a maturity of less than three months at the time of acquisition. MARKETABLE SECURITIES: Marketable securities consist of United States government obligations that mature in January 1997. These securities support a letter of credit that collateralizes the Applied Printing Note. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", these securities have been classified as held to maturity and are recorded at amortized cost, which approximates fair value due to their short-term maturity. 22 11 INVENTORY: Raw materials are valued at the lower of cost (cost being determined on a weighted average basis) or market. Work-in-process, consisting of labor and materials on partially completed projects, is recorded at cost (specific identification) but not in excess of net realizable value. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost. Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets, which generally range from 30 years for buildings to three years for computer software and vehicles. Leasehold improvements and amounts recorded under capital leases are amortized on the straight-line method over the terms of the leases or their estimated useful lives. REVENUE RECOGNITION: Revenue is recognized at the time projects are shipped or transmitted to the customer. Revenue for digital archiving services is recognized on a per-image basis as items are scanned. GOODWILL: Goodwill is being amortized on the straight-line method over periods ranging from 7 to 20 years. The Company continually evaluates the carrying value of goodwill by comparing it to the undiscounted expected future cash flows to be generated. Goodwill is written off when there has been a loss of value. INCOME TAXES: The Prepress Business was treated as a partnership for Federal and state income tax purposes prior to the Offering Date and was not subject to tax. A provision for income taxes is included in the Company's Statement of Operations only for the period subsequent to the Offering Date. EARNINGS PER SHARE OF COMMON STOCK: Earnings per share of common stock are computed by dividing net income by the weighted average of the number of shares of common stock and common stock equivalents, where dilutive, outstanding. LONG-LIVED ASSETS: 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", the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. ESTIMATES: The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION OF PRIOR YEARS' FINANCIAL STATEMENTS: Certain prior-year amounts in the accompanying financial statements have been reclassified to conform with the 1996 presentation. 3. ACQUISITION On December 3, 1996, the Company acquired the assets of SpotLink, Inc. ("SpotLink"), a company that reproduces and distributes commercials to broadcast and cable media, for a purchase price of approximately $8,500. The assets, consisting primarily of duplication equipment, were acquired for 539,683 shares of the Company's common stock. The acquisition was accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of SpotLink have been recorded at their estimated fair values at the date of acquisition.. The excess of the purchase price over the fair value of the net assets acquired was $6,716 and has been recorded as goodwill, which is being amortized on the straight-line method over 20 years. The results of operations of SpotLink have been included in the Statement of Operations since the date of the acquisition. 23 12 The following unaudited pro forma information combines the results of operations of the Company and SpotLink for the years ended December 31, 1996 and 1995, calculated as if the acquisition had occurred on January 1, 1995. The pro forma information has been prepared for comparative purposes only and does not purport to be indicative of the results of operations that would have occurred had the acquisition been consummated at the beginning of 1996 and 1995 or of results which may occur in the future.
Unaudited 1996 1995 --------- --------- Total revenues $ 139,867 $ 123,765 Income (loss) before provision for income taxes $ 10,614 $ (7,216) Net income $ 9,933 $ (7,216) Earnings per common share: Primary $ 0.78 Fully diluted $ 0.74
4. INVENTORY The components of inventory at December 31 were as follows:
1996 1995 ------ ------ Work-in-Process $2,596 $2,518 Raw Materials 2,043 1,064 ------ ------ Total $4,639 $3,582 ====== ======
5. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at December 31 consisted of the following:
1996 1995 ------- ------- Machinery and equipment $23,422 $19,279 Leasehold improvements 4,643 4,212 Buildings and improvements 11,050 4,768 Computer software 1,651 1,163 Furniture and fixtures 1,531 1,448 Construction in progress 203 538 ------- ------- Total 42,500 31,408 Less accumulated depreciation and amortization 21,956 17,667 ------- ------- Net $20,544 $13,741 ======= =======
Interest capitalized on construction of buildings and improvements during 1996 was $130. Depreciation and amortization of property, plant, and equipment charged to expense for the years ended December 31, 1996, 1995, and 1994 were $4,785, $5,106, and $5,997, respectively. 24 13 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31 consisted of the following:
1996 1995 ------- ------- Accounts payable $ 7,694 $ 9,513 Salaries and benefits 4,329 4,499 Income taxes 2,449 Commissions 1,374 1,153 Other 3,784 4,931 ------- ------- Total $19,630 $20,096 ======= =======
7. APPLIED PRINTING NOTE On April 16, 1996, as part of the acquisition of the assets of the Prepress Business, the Company issued a promissory note to Applied Printing in the amount of $16,000. A principal payment in the amount of $14,400 was made during 1996. The remaining balance of $1,600 was repaid in February 1997. This obligation, which bore interest at the rate of 4.145% per annum, was collateralized by a letter of credit. The Company incurred interest charges of $295 during the 1996 period. 8. LONG-TERM DEBT Long-term debt at December 31 consisted of the following:
1996 1995 ------ ------ 3.62% - 8% notes payable due 1997 through 2000 $ 377 $ 853 Variable rate revolving credit line due 1998 5,628 ------ ------ Total $6,005 $ 853 ====== ======
In August 1996 the Company obtained a $10,000 revolving credit facility that is collateralized by the Company's trade receivables. The credit facility is a two-year variable-rate facility with a major financial institution. Under the terms of the facility, the Company must comply with certain covenants related to tangible net worth, ratio of debt to tangible net worth, and debt service coverage ratio. At December 31, 1996, the Company was in compliance with all covenants. Interest on funds borrowed is the prime lending rate, which at December 31, 1996, was 8.25%. The Company also has the option to borrow at LIBOR plus 2.25%. Borrowings under this LIBOR provision may have maturities of 30, 90, or 180 days. At December 31, 1996, there were no outstanding borrowings under the LIBOR provision. The average variable rate on this revolving credit facility during the period in 1996 was 8.25%. As of December 31, 1996, under the most restrictive covenant of the revolving credit facility, approximately $10,000 were available for the payment of dividends. 25 14 Principal payments on the long-term debt are as follows: 1997 $ 507 1998 5,781 1999 166 2000 58 ------ Total 6,512 Less current portion 507 ------ Total long-term debt $6,005 ======
9. INTERCOMPANY BORROWINGS The Prepress Business had been financed principally through advances from Applied Printing. Historically, Applied Printing had financed all of its operations, including those of the Prepress Business, with Institutional Senior Indebtedness, borrowings from the Daily News, L.P. (the "Daily News") (see Note 13), and borrowings from the majority limited partner (collectively, "Borrowings"). Prior to the Offering Date the financial statements include an allocation of Applied Printing's interest expense and related Borrowings. Applied Printing's interest expense related to the Borrowings had been allocated to the Prepress Business based on the ratio of net assets of the Prepress Business, before an allocation of intercompany debt, to the sum of the total consolidated net assets of Applied Printing plus the Applied Printing debt that is not directly attributable to specific divisions within Applied Printing. The intercompany borrowing amounts reflected in the financial statements represent derived amounts which have been computed by applying Applied Printing's weighted average interest rate to the allocated interest expense, calculated using the methodology discussed above. The weighted average interest rates during the period ended April 16, 1996, and the year ended December 1995, were 10.8% and 8.9%, respectively The Company incurred interest charges of $944, $2,683, and $1,992 for the period ended April 16, 1996, and the years ended December 31, 1995 and 1994, respectively. 10. LEASES The Company leases certain property and equipment used in its operations under agreements that are classified as both capital and operating leases. Such agreements generally include provisions for inflation-based rate adjustments and, in the case of leases for buildings and office space, payments of certain operating expenses and property taxes. 26 15 Future minimum rental payments required under capital leases and operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:
Capital Operating Leases Leases ------- ------- 1997 $ 1,537 $ 7,904 1998 783 3,825 1999 595 3,242 2000 1,782 2001 1,152 Later years 5,057 ------- ------- Total minimum lease payments 2,915 $22,962 ======= Less amount representing interest 296 ------- Present value of minimum lease payments 2,619 Less current portion 1,354 ------- Long-term obligation under capital leases $ 1,265 =======
Assets recorded under capital leases are included in property, plant and equipment as follows:
1996 1995 ------- ------- Buildings $ 4,768 $ 4,768 Machinery and equipment 11,431 11,172 ------- ------- Total 16,199 15,940 Less accumulated depreciation 8,660 7,609 ------- ------- Net $ 7,539 $ 8,331 ======= =======
Total rental expense under operating leases amounted to $7,578, $12,106, and $9,241 for the years ended December 31, 1996, 1995, and 1994, respectively. In 1996, the Company entered into sale and leaseback arrangements that are recorded as operating leases. The gain from these sale and leaseback arrangements has been deferred and is being recognized in income as a credit against future rental expenses. At December 31, 1996, the remaining balance of the deferred gain totaling $233 is included in "Other Liabilities" in the accompanying Balance Sheets. 11. INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred taxes are recognized based on the expected future tax consequences of events that have been included in the financial statements or tax returns by applying currently enacted statutory tax rates applicable to future years to differences between the financial statement and tax bases of assets and liabilities. 27 16 The Prepress Business was treated as a partnership for Federal and state income tax purposes prior to the Offering Date and was not subject to tax. At the date of the Offering, the Company recorded the applicable deferred tax assets related to the differences between financial statement and tax basis of the assets and liabilities of the Prepress Business. These deferred tax assets were entirely offset by a valuation allowance. A provision for income taxes is included in the Company's Statement of Operations only for the period subsequent to the Offering Date. The components of the provision for income taxes were as follows:
1996 ------- Current: Federal $ 2,287 State 927 ------- Total current 3,214 ------- Deferred: Federal (2,349) ------- Total provision for income taxes $ 865 =======
The provision for income taxes varied from the Federal statutory income tax rate due to the following:
1996 ------- Taxes at statutory rate $ 3,679 State income taxes, net of Federal tax benefit 612 Change in valuation allowance for Federal deferred tax assets (3,870) Meals and entertainment expenses 252 Other - net 192 ------- Provision for income taxes $ 865 ======= Statutory rate 34% Effective rate 8%
The components of the net deferred tax asset at December 31, 1996, and April 16, 1996, were as follows:
December 31, April 16, 1996 1996 ------- ------- Deferred tax assets: Obligations under capital leases $ 639 $ 734 Property, plant, and equipment 679 220 Accrued expenses 1,414 2,092 Other liabilities 300 1,615 Other assets 198 290 ------- ------- Total deferred tax assets 3,230 4,951 Valuation allowance (881) (4,951) ------- ------- Net deferred tax asset $ 2,349 $ 0 ======= =======
28 17 There were no deferred tax liabilities at December 31, 1996, and April 16, 1996. A valuation allowance was established at the date of initially recording the deferred tax assets associated with the acquisition of the Prepress Business. Due to the Prepress Business having historically incurred losses, the valuation allowance was deemed necessary due to the uncertainty relating to the Company's ability to utilize these benefits in the future. During the period ended December 31, 1996, the Company reduced the valuation allowance by $3,870 for Federal and $200 for state deferred tax assets. Based on operating earnings during 1996 and the Company's expectations of future earnings from established contracts and relationships, the Company believes that it is more likely than not that the benefit associated with Federal deferred tax assets will be realized in the future and therefore has not established a valuation allowance for Federal deferred tax assets at December 31, 1996. Based on the uncertainty associated with the ability to utilize state benefits, the Company believes it is not more likely than not that these benefits will be realized in the future and therefore has established a valuation allowance. 12. STOCK OPTIONS In 1996, the Board of Directors and stockholders approved a Stock Option Plan. Under such plan, options are granted to key employees of the Company to purchase common stock of the Company. Options granted under the plan, which have a term of ten years, become exercisable over a five year period in varying amounts, but in no event less than 5% or more than 25% in any year for any individual optionee. On the date of the Offering, 2,375,000 options were granted with an exercise price of $12.00 per share. Additional grants were made in 1996 for 14,000 shares and 40,000 shares with an exercise price of $16.63 and $15.25, respectively. Also in 1996, the Board of Directors approved a Non-employee Directors' Nonqualified Stock Option Plan. Under such plan, options are granted to members of the Board of Directors who are not employees of the Company. Options granted under the plan become exercisable over a two year period and have a term of ten years. On the date of the Offering, 100,000 options were granted with an exercise price of $12.00. The plan also provides for an additional 5,000 options to be granted to non-employee directors on each subsequent anniversary date of having first become a member of the Board of Directors. Such future option grants will have an exercise price equal to the fair market value of the common stock on the date of grant and are fully vested at grant. The two plans call for a combined maximum of 4,200,000 shares of the Company's common stock to be available for issuance upon exercise of options. During 1996, 35,000 and 3,000 options with an exercise price of $12.00 and $16.63, respectively, were forfeited and became available for future issuance. The weighted average exercise price of options outstanding at the end of the year, options granted during the year, and options forfeited during the year was $12.07, $12.07, and $12.37, respectively. No options were exercisable as of December 31, 1996, and none expired or were exercised during 1996. The Company accounts for the issuance of stock options under the provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees", which requires compensation cost to be measured at the date of grant based on the intrinsic value of the options granted. The intrinsic value of an option is equal to the difference between the market price of the common stock on the date of grant and the exercise price of the option. There was no compensation cost recognized by the Company on the options granted in 1996. In 1995, Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", was issued. SFAS No. 123 provides for an alternative measurement of compensation cost based on the fair value of the options granted. The fair value of an option is based on the intrinsic value as well as the time value of the option. The fair value of stock options granted was estimated on the grant dates using the Black-Scholes option-pricing model and the following assumptions: a risk-free interest rate of 6.75%; an expected life of 6 years; expected volatility of 53.94%; and no expected dividends. The weighted-average fair value of the options issued by the Company in 1996 was $17,985. Had the Company elected to account for the issuance of stock options under SFAS No. 123, the compensation cost would have been $2,511 for the year ended December 31, 1996. The pro forma net income, primary earnings per share, and fully diluted earnings per share for the year ended December 31, 1996, calculated as if the Company had elected to account for the issuance of stock options under SFAS No. 123, were $8,298, $0.66, and $0.63, respectively. 29 18 13. RELATED PARTY TRANSACTIONS In addition to the business it transacts with Applied Printing, the Company also does business and shares services with entities beneficially owned by the Chairman and the CEO, including the Daily News and U.S. News. The Company also utilizes the travel-related services of ZWA, Inc., which is owned by the Chairman. DUE TO/FROM AFFILIATES - Affiliates owed the Company $46 and $1,841 at December 31, 1996 and 1995, respectively. The Company owed affiliates $400 at December 31, 1996. AFFILIATE SALES AND PURCHASES - The Company has entered into Production Services Agreements with U.S. News and the Daily News pursuant to which it will provide prepress services. The agreement with U.S. News, which expires on December 31, 2000, is renewable annually thereafter by mutual agreement of the parties. The agreement with the Daily News commenced in October 1995 and is renewable annually by mutual agreement of the parties. In 1995, the Company entered into a two-year agreement to digitize the entire library of photographs of an affiliate. In addition, the Company occasionally provides services to and purchases services from related parties that are negotiated on an arms-length basis. Sales to and purchases from related parties for the years ended December 31, 1996, 1995, and 1994 were as follows:
1996 1995 1994 ------- ------- ------- Affiliate sales $11,610 $ 7,901 $ 7,301 Affiliate purchases $ 3,097 $ 421 $ 710
ALLOCATED COSTS - Prior to the Offering Date, Applied Printing and other related parties provided to the Company certain administrative services that included cash management, financial reporting, legal, and other similar services. The costs allocated to the Company were based on either specific identification of expenses attributable to the Prepress Business, where practicable, or an allocation of the total costs incurred. For such services, the Company incurred charges of $1,534, $6,645, and $6,128 for the period ended April 16, 1996, and for the years ended December 31, 1995 and 1994, respectively. In the opinion of management, such allocated costs have been made on a basis that is considered to be reasonable; however, these costs are not necessarily indicative of the total costs that the Company would have incurred had it operated on a stand-alone basis. SHARED COSTS - Pursuant to shared services agreements, the Company receives certain legal and computer services from the Daily News and U.S. News. For such services, the Company incurred charges of $303, $150, and $198 for the years ended December 31, 1996, 1995, and 1994, respectively. In 1995 and 1994, the shared costs are included as part of the allocated costs. TECHNOLOGY DEVELOPMENT AGREEMENT - Under an arrangement with the Daily News, the Company is reimbursed for the costs incurred in the development of certain digital technologies. Such reimbursements totaled $100, $1,184, and $1,956 in the years ended December 31, 1996, 1995, and 1994, respectively. LEASES - The Company leases office space in Washington, D.C. from U.S. News. The charges incurred for the lease were $293, $281,and $281 for the years ended December 31, 1996, 1995, and 1994, respectively. In addition, the Company leases office space in New York City from Applied Printing and incurred charges of $289 for the year ended December 31, 1996. The Company also leases a facility from the Daily News and incurred charges of $53 for the year ended December 31, 1996. 30 19 VENDOR AGREEMENT - The Company is a party to an agreement originally entered into in January 1992 by Applied Printing with a vendor and its affiliate. Pursuant to such agreement, the Company and Applied Printing are obligated to purchase a specified cumulative annual minimum amount of the vendor's products provided that the prices are market competitive and that the products meet technological and customer specifications. The Company receives a significant rebate from the vendor that varies based on the volume of products purchased. In addition, in 1995, the vendor prepaid to the Company $2,745 of the rebate expected to be earned in 1997 and 1998. If the Company does not earn the full amount of the prepaid rebate in 1997 and 1998, it would be required to repay the difference to the vendor along with interest accrued since 1995. The Chairman is a guarantor of the Company's contingent repayment obligation. The Company also received prepaid rebates in March 1996 aggregating approximately $900, all of which was earned in 1996. In connection with the agreement, the vendor's affiliate loaned $15,000 to the Chairman. The loan, which matures on December 31, 1998, bears interest at the lender's commercial paper rate. If the Company and Applied Printing do not jointly satisfy the cumulative minimum purchase obligations specified in the agreement, the Chairman must repay the loan balance in full at that time. These minimum purchase obligations have been satisfied to date, and the Company expects, through its normal purchasing requirements, to continue to exceed such minimum obligation through December 31, 1998. The Company believes that the terms for its purchases of the products covered by this agreement are no less favorable to the Company than those that could be obtained from another vendor. 14. RETIREMENT PLANS The Company has a defined contribution plan in which employees are eligible to participate upon the completion of six months of service and the attainment of 21 years of age. Participants can contribute into the plan on both a pre-tax and after-tax basis. In addition, the Company can make discretionary contributions into the plan. Participants vest 100% in the Company's discretionary contribution upon the completion of five years of service. The Company did not make any discretionary contributions for the years ended December 31, 1996, 1995, and 1994. 15. COMMITMENTS AND CONTINGENT LIABILITIES The Company is contingently liable as a result of transactions arising in the ordinary course of business and is involved in certain legal proceedings in which damages and other remedies are sought. In the opinion of Company management, after review with counsel, the ultimate resolution of these matters will not have a material effect on the Company's Financial Statements. Applied Printing and its corporate general partner are defendants in litigation arising out of Applied Printing's business. The Company is not a defendant in any of such litigation, and does not believe there is a sustainable basis for the Company to be named as a defendant in any of such litigation. If the Company were to be named or held responsible in connection with any of such litigation, the Company is indemnified by Applied Printing. 16. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company maintains cash balances and cash equivalents with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. The Company provides credit to customers on an uncollateralized basis after evaluating customer credit worthiness. The Company's customers are not concentrated in any specific geographic region, but are concentrated in the publishing, advertising agency, entertainment company, and catalog retailing businesses. The Company's five largest customers, excluding related parties, comprise 35%, 37%, and 34% of sales for the years ended December 31, 1996, 1995, and 1994, respectively. In addition, amounts due from these customers represent 29% and 31% of trade accounts receivable as of December 31, 1996 and 1995, respectively. Any termination or significant disruption of the Company's relationships with any of its principal customers could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows. 31 20 17. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Payments of interest and income taxes were as follows:
1996 1995 1994 -------- -------- -------- Interest paid (net of amounts capitalized) $ 702 $ 905 $ 815 Income taxes paid $ 766 Noncash investing and financing activities were as follows: 1996 1995 1994 -------- -------- -------- Conversion of intercompany borrowing into Applied Printing Note $ 16,000 Distribution to Applied Printing in the form of increased intercompany borrowing $ 3,819 Common stock issued in exchange for the Prepress Business $ 93 Common stock issued for acquisition $ 8,500 Acquisition of property, plant, and equipment in exchange for obligations under capital leases $ 480 $ 562 Acquisition of property, plant, and equipment in exchange for notes payable $ 1,088 Additions to goodwill for contingent purchase price adjustments $ 69 $ 108 Acquisitions: Fair value of assets acquired $ 8,600 $ 1,020 Cash paid (1,000) Value of common stock issued (8,500) -------- -------- Liabilities assumed $ 100 $ 20 ======== ========
18. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. 32 21 The carrying amount and estimated fair values of financial instruments at December 31, 1996 and 1995, are summarized as follows:
1996 1995 ------------------ ------------------ Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ------ ------ ------ ASSETS: Cash and cash equivalents $2,567 $2,567 $ 666 $ 666 Marketable securities $1,600 $1,600 Other assets $1,470 $1,470 $1,125 $1,125 LIABILITIES: Applied Printing Note $1,600 $1,600 Long-term debt $6,512 $6,400 $1,564 $1,335 Obligations under capital leases $2,619 $2,557 $3,991 $3,281
The following methods and assumptions were used to estimate the fair value of financial instruments presented above: CASH AND CASH EQUIVALENTS - the carrying amount is a reasonable approximation of fair value. MARKETABLE SECURITIES - due to the short-term maturity of the investments, the carrying amount is a reasonable approximation of fair value. OTHER ASSETS - the carrying amount of non-trade accounts receivables is a reasonable approximation of fair value. APPLIED PRINTING NOTE - due to the short-term nature of the obligation, the carrying amount is a reasonable approximation of fair value. LONG-TERM DEBT - the fair value of notes payable, including the current portion, is estimated by discounting the future streams of payments using the rate at which the Company can currently obtain funds under its revolving credit line. The carrying amount of the revolving credit line is a reasonable approximation of fair value since it is a variable-rate obligation. OBLIGATIONS UNDER CAPITAL LEASES - the fair value of obligations under capital leases, including the current portion, is estimated by discounting the future streams of payments using the rate at which the Company can currently obtain funds under its revolving credit line. 19. RESTRUCTURING CHARGES During 1994 and 1995, the Company restructured its operations in response to the operational impact of acquisitions and the technological changes within the industry. As part of the restructuring, the Company consolidated several operations during 1994 and 1995 in an effort to gain operational and administrative efficiencies. The Statements of Operations include restructuring charges of $3,060 and $6,668 for the years ended December 31, 1995 and 1994, respectively. Such charges were comprised primarily of the write off of assets, including leasehold improvements, that are no longer utilized in the Company's business and contractual lease obligations for facilities and equipment that provide no further benefit to the Company. The Company utilized a discount rate of 10% to determine the present value of the contractual lease payments. The remaining balance of the restructuring liability as of December 31, 1996, was $409, which the Company expects to be paid during 1997. 33 22 20. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Prior to the date of the Offering, the Company was treated as a partnership for Federal and state income tax purposes and was not subject to tax. Had the Company been treated as a C Corporation for the periods prior to the date of the offering, the provision for income taxes, net income, and earnings per common share for the year ended December 31, 1996, would have been as follows:
1996 ---------- Provision for income taxes $ 785 Net income $ 10,035 Earnings per common share: Primary $ 0.78 Fully diluted $ 0.74
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1996 Quarter Ended March 31 June 30 September 30 December 31 -------- -------- -------- -------- (In thousands of dollars, except per-share amounts) Net sales $ 30,598 $ 30,988 $ 35,177 $ 35,962 Gross profit $ 8,269 $ 9,352 $ 11,542 $ 11,320 Income before provision for income taxes $ 146 $ 2,096 $ 4,216 $ 4,362 Net income $ 146 $ 2,033 $ 4,005 $ 3,771 Earnings per common share: Primary $ 0.01 $ 0.16 $ 0.29 $ 0.26 Fully Diluted $ 0.01 $ 0.16 $ 0.29 $ 0.25 1995 Quarter Ended March 31 June 30 September 30 December 31 -------- -------- -------- -------- (In thousands of dollars) Net sales $ 30,140 $ 29,711 $ 29,638 $ 28,313 Gross profit $ 7,614 $ 8,250 $ 8,030 $ 7,612 Net income (loss) $ (964) $ 82 $ (4,927) $ (2,003)
34 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Listed below are the documents filed as a part of this report: 1. Financial Statements and the Independent Auditors' Reports: Independent Auditors' Reports. Balance Sheets. Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994. Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. Statements of Stockholders' Equity and Owners' Equity (Deficit) for the Years Ended December 31, 1996, 1995 and 1994. Notes to Financial Statements. 2. Financial Statement Schedules: Not applicable. 3. Exhibits: 3.1 Certification 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). 3.2 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). 4 Specimen Stock Certificate (Incorporated by reference to Exhibit No. 4 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). 10.2 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). 37 24 10.4* Vendor Agreement, dated January 8, 1992, as amended (Incorporated by reference to Exhibit No. 10.1 forming part of the Registrant's Report on Form 10-Q/A (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 March 31, 1996). 10.5 Agreement, dated May 1, 1979, between WAMM Associates and Publisher Phototype International, L.P., as amended (Incorporated by reference to Exhibit No. 10.5 forming part of Amendment No. 1 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 April 1, 1996, between the Company and Diane Romano (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). (b) Employment Agreement, effective as of April 1, 1996, between the Company and Georgia L. McCabe (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). (c) Employment Agreement, effective as of March 13, 1996, between the Company and Melvin A. Ettinger (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). (d) 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). (e) Employment Agreement, effective as of June 1, 1996, between the Company and Louis Salamone, Jr. (previously filed) 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). 16 Letter regarding Change in Certifying Accountant (Incorporated by reference to 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 October 4, 1996. 23 (a) Consent of Deloitte & Touche LLP. 23 (b) Consent of Coopers & Lybrand L.L.P. 38 25 27 Financial Data Schedule (EDGAR filing only) (previously filed). 99 Form 8-K filed October 4, 1996. (previously filed). - ---------- * Omitted portions pursuant to a confidential treatment request filed separately with the Securities and Exchange Commission. (b) The Company filed the following reports on Form 8-K during the quarter ended December 31, 1996: Form 8-K filed October 4, 1996, regarding change in certifying accountants. Form 8-K filed December 17, 1996, regarding the acquisition of SpotLink. 39 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 - ----------------------------- August 29, 1997 Fred Drasner Director, Chairman, and Chief Executive Officer (Duly authorized officer) Date: August 29, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on August 29, 1997. Signature Title --------- ----- /s/ Fred Drasner Director, Chairman, and Chief Executive Officer - ------------------------- (Principal Executive Officer) Fred Drasner /s/ Melvin A. Ettinger Vice Chairman, Chief Operating - ------------------------- Officer, and Director Melvin A. Ettinger /s/ Diane Romano President - ------------------------- Diane Romano /s/ Louis Salamone, Jr. Senior Vice President and Chief Financial - ------------------------- Officer (Principal Financial and Accounting Louis Salamone, Jr. Officer) /s/ Martin D. Krall Executive Vice President, Chief Legal - ------------------------- Officer, Secretary and Director Martin D. Krall /s/ Mortimer B. Zuckerman Chairman of the Board of Directors - ------------------------- Mortimer B. Zuckerman /s/ John R. Harris Director - ------------------------- John R. Harris /s/ Edward H. Linde Director - ------------------------- Edward H. Linde /s/ Howard Stringer Director - ------------------------- Howard Stringer /s/ Linda J. Wachner Director - ------------------------- Linda J. Wachner 40 27 EXHIBIT INDEX ------------- Exhibit No. Description ----------- ----------- 23 (a) Consent of Deloitte & Touche LLP. 23 (b) Consent of Coopers & Lybrand L.L.P. EX-23.A 2 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-32121 of Applied Graphics Technologies, Inc. on Form S-3 and Registration Statement No. 333-25059 of Applied Graphics Technologies, Inc. on Form S-8 of our report dated March 12, 1997, appearing in this Annual Report on Form 10-KA of Applied Graphics Technologies, Inc. for the year ended December 31, 1996. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP New York, New York August 27, 1997 EX-23.B 3 CONSENT OF COOPERS & LYBRAND L.L.P 1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Applied Graphics Technologies, Inc. on Form S-3 (Registration No. 333-32121) and on Form S-8 (Registration No. 333-25059) of our report dated March 8, 1996 on our audits of the combined financial statements of the Predecessor Group to Applied Graphics Technologies Inc. as of December 31, 1995 and for each of the two years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-KA. Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. New York, New York August 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----