UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 33-97090
ACG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
62-1395968
(I.R.S. employer identification number)
100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SULLIVAN COMMUNICATIONS, INC.
(former name)
225 High Ridge Road, Stamford, Connecticut 06905, (203) 977-8101
(former address, including zip code, and telephone, including area code)
AMERICAN COLOR GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
16-1003976
(I.R.S. employer identification number)
100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SULLIVAN GRAPHICS, INC.
(former name)
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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
ACG Holdings, Inc. has 123,889 shares outstanding of its Common Stock, $.01 Par
Value, as of July 31, 1997 (all of which are privately owned and not traded on a
public market).
<PAGE>
INDEX
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Part I. Financial Information Page No.
--------------------- --------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997................................... 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996.......................... 5
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996.......................... 6
Notes to Condensed Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 10
Part II. Other Information
-----------------
Item 1. Legal Proceedings................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 18
Signatures........................................................ 19
Exhibit Index..................................................... 20
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
June 30, 1997 March 31, 1997
------------- --------------
(Unaudited)
Assets
Current assets:
Cash $ 0 0
Receivables:
Trade accounts, less allowance for
doubtful accounts of $6,210 and $5,879
at June 30, 1997 and March 31, 1997,
respectively 48,132 53,510
Other 2,717 3,252
------ ------
Total receivables 50,849 56,762
Inventories 11,068 9,711
Prepaid expenses and other current assets 3,725 3,604
------ ------
Total current assets 65,642 70,077
Property, plant and equipment 242,525 238,167
Less accumulated depreciation (77,850) (71,270)
------- -------
Net property, plant and equipment 164,675 166,897
Excess of cost over net assets acquired,
less accumulated amortization of
$35,619 and $33,523 at June 30, 1997
and March 31, 1997, respectively 80,957 81,964
Other assets 18,683 15,037
------ ------
Total assets $ 329,957 333,975
======= =======
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
June 30, 1997 March 31, 1997
------------- --------------
(Unaudited)
Liabilities and Stockholders' Deficit
Current liabilities:
Current installments of long-term debt
and capitalized leases $ 19,268 18,252
Trade accounts payable 29,303 29,364
Accrued expenses 31,606 30,037
Income taxes 482 1,022
-------- -------
Total current liabilities 80,659 78,675
Long-term debt and capitalized leases,
excluding current installments 290,838 294,057
Deferred income taxes 9,169 8,713
Other liabilities 30,603 28,848
------ -------
Total liabilities 411,269 410,293
Stockholders' deficit:
Common stock, voting, $.01 par value,
5,852,223 shares authorized, 123,889
shares issued and outstanding 1 1
Series A convertible preferred stock,
$.01 par value, 4,000 shares authorized,
issued and outstanding, $40,000,000
liquidation preference -- --
Series B convertible preferred stock,
$.01 par value, 1,750 shares authorized,
issued and outstanding, $17,500,000
liquidation preference -- --
Additional paid-in capital 57,499 57,499
Accumulated deficit (137,178) (132,228)
Cumulative translation adjustment (1,634) (1,590)
------ -------
Total stockholders' deficit (81,312) (76,318)
------- -------
Commitments and contingencies
Total liabilities and stockholders' deficit $ 329,957 333,975
======= =======
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
Sales $ 126,128 138,101
Cost of sales 109,100 123,332
------- -------
Gross profit 17,028 14,769
Selling, general and administrative expenses 9,906 10,008
Amortization of goodwill 2,096 2,049
Restructuring costs -- 413
------- -------
Operating income 5,026 2,299
Other expense (income):
Interest expense 9,256 8,630
Interest income (32) (47)
Other, net 215 (79)
------- -------
Total other expense 9,439 8,504
------- -------
Loss from continuing operations
before income taxes (4,413) (6,205)
Income tax expense (537) (982)
------- -------
Loss from continuing operations (4,950) (7,187)
Discontinued operations, net of tax -- (417)
------- -------
Net loss $ (4,950) (7,604)
======= =======
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
Cash flows provided (used) by operating activities:
Net loss $ (4,950) (7,604)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 6,701 5,802
Depreciation and amortization related to SMC -- 242
Amortization of goodwill and other assets 2,366 2,350
Amortiztion of deferred financing costs 464 426
Decrease in working capital and other 3,722 12,706
------- ------
Net cash provided by operating activities 8,303 13,922
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment (2,930) (2,277)
Proceeds from sales of property, plant and
equipment 152 19
Other (256) (34)
------- -------
Net cash used by investing activities (3,034) (2,292)
Cash flows provided (used) by financing activities:
Repayment of long-term debt, including
current maturities (2,869) (2,164)
Proceeds from Term Loan Facility 25,000 --
Net decrease in revolver borrowings (24,582) (9,018)
Payments under capital lease obligations (1,484) (277)
Payment of deferred financing costs (1,332) (171)
Other, net (2) --
------- -------
Net cash used by financing activities (5,269) (11,630)
------- -------
Net change in cash -- --
Cash:
Beginning of period -- --
------- -------
End of Period $ -- --
======= =======
Noncash investing activitiy:
Equipment purchases under capital leases $ 1,690 13,466
======= =======
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Description of the Company
In July 1997, Sullivan Communications, Inc. changed its name to ACG Holdings,
Inc. ("Holdings") and its wholly owned subsidiary, Sullivan Graphics, Inc.
changed its name to American Color Graphics, Inc. ("Graphics"). Holdings and
Graphics are collectively referred to in this document as (the "Company").
Holdings has no operations or significant assets other than its investment in
Graphics. Holdings is dependent upon distributions from Graphics to fund its
obligations. Under the terms of its debt agreements at June 30, 1997, Graphics'
ability to pay dividends or lend to Holdings was either restricted or
prohibited, except that Graphics may pay specified amounts to Holdings (i) to
pay the repurchase price payable to any officer or employee (or their estates)
of Holdings, Graphics or any of their respective subsidiaries in respect of
their stock or options to purchase stock in Holdings upon the death, disability
or termination of employment of such officers and employees (so long as no
default, or event of default, as defined, has occurred under the terms of the
Bank Credit Agreement, as defined below, and provided the aggregate amount of
all such repurchases does not exceed $2 million) and (ii) to fund the payment of
Holdings' operating expenses incurred in the ordinary course of business, other
corporate overhead costs and expenses (so long as the aggregate amount of such
payments does not exceed $250,000 in any fiscal year) and Holdings' obligations
pursuant to a tax sharing agreement with Graphics. Substantially all of
Graphics' long-term obligations have been fully and unconditionally guaranteed
by Holdings.
The two business sectors of the commercial printing industry in which the
Company operates are printing and digital imaging and prepress services
conducted by its American Color division ("American Color").
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and are in accordance with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The operating results for the three month
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ended March 31, 1998. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the fiscal year ended March 31, 1997 and the Company's
Post-Effective Amendment No. 3 to Registration Statement No. 33-97090 on Form
S-1.
Certain prior period amounts have been reclassified to conform with current
period presentation.
7
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Indebtedness Transactions
On June 30, 1997, the Company entered into a $25 million term loan facility with
Bankers Trust Company and a syndicate of lenders including a $5 million
participation by Morgan Stanley Senior Funding, Inc., a related party, which
matures on March 31, 2001 (the "Term Loan Facility"). Net proceeds under this
facility of approximately $23.5 million (after loan fees and other transaction
costs) were received and used to reduce outstanding borrowings under the
existing $75 million revolving credit facility maturing in 2000 (the "Revolving
Credit Facility"). Interest under the Term Loan Facility is floating based upon
existing market rates plus agreed upon margin levels which escalate over the
initial 24 months of the facility. In addition, the Company is required to pay
certain additional cash fees on the 6, 12, 18, 24 and 30 month anniversary dates
of the facility based upon the then outstanding principal amounts. The
obligations under this facility are guaranteed on the same basis and by the same
guarantors as the Company's amended Credit Agreement with BT Commercial
Corporation (the "Bank Credit Agreement") although such guarantees are secured
by second priority security interests in the tangible and intangible assets of
the Company and such guarantors. Covenants under this agreement are
substantially similar to, but in certain respects are more restrictive than,
existing covenants under the Senior Subordinated Notes Indenture. Morgan Stanley
Senior Funding, Inc. received transaction fees of approximately $0.3 million. In
connection with the Term Loan Facility, the Company obtained amendments with
respect to certain financial covenants and an amendment that decreased the
Borrowing Base through March 31, 1998. After giving effect to such amendments,
the Company is currently in compliance with all financial covenants set forth in
the Bank Credit Agreement, as amended.
3. Discontinued Operations
In February 1997, the Company made a strategic decision to shut down the
operations of its wholly-owned subsidiary Sullivan Media Corporation ("SMC").
The shut down of SMC has been accounted for as a discontinued operation, and
accordingly, its operating results are segregated and reported as a discontinued
operation in the accompanying unaudited condensed consolidated financial
statements. The assets of SMC and any resulting gain or loss on the disposal of
those assets is immaterial to the results of operations and financial position
of the Company.
4. Inventories
The components of inventories are as follows (in thousands):
June 30, 1997 March 31, 1997
------------- --------------
Paper $ 9,024 7,831
Ink 270 324
Equipment held for sale 89 60
Supplies and other 1,685 1,496
------ -----
Total Inventories $ 11,068 9,711
====== =====
8
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Restructuring Costs
In April 1995, the Company implemented a plan for its American Color division
which was designed to improve productivity, increase customer service and
responsiveness, and provide increased growth in the digital imaging and prepress
services business. The cost of this plan was accounted for in accordance with
the guidance set forth in Emerging Issues Task Force Issue 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
The pretax costs of $5 million which were incurred as a part of this plan
represent employee termination, goodwill write-down and other related costs that
were incurred as a direct result of the plan. For the quarter ended June 30,
1997, no restructuring costs were recognized. Approximately $0.9 million of
restructuring costs primarily related to relocation expenses were recognized in
Fiscal Year 1997, of which $0.4 million was incurred in the quarter ended June
30, 1996.
6. Commitments and Contingencies
The Company has employment agreements with one of its principal officers and six
other employees. Such agreements provide for minimum salary levels as well as
for incentive bonuses which are payable if specified management goals are
attained. The aggregate commitment for future salaries at June 30, 1997,
excluding bonuses, was approximately $2.6 million.
On December 21, 1989, Graphics sold to CPS its ink manufacturing operations and
facilities. Graphics remains contingently liable under $3.7 million of
industrial revenue bonds assumed by CPS. CPS assumed these liabilities and has
agreed to indemnify Graphics for any resulting obligation and has also provided
an irrevocable letter of credit in favor of the holders of such bonds.
Accordingly, management believes that any obligation of Graphics under this
contingency is unlikely.
Concurrent with the sale of its ink manufacturing facility, Graphics entered
into a long-term ink supply contract with CPS. The supply contract requires
Graphics to purchase substantially all of its ink requirements, within certain
limitations and minimums, from CPS. Graphics believes that prices for products
under this contract approximate market prices at the time of purchase of such
products.
Graphics, together with over 300 other persons, has been designated by the U.S.
Environmental Protection Agency as a potentially responsible party (a "PRP")
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA," also known as "Superfund") at one Superfund site. Although liability
under CERCLA may be imposed on a joint and several basis and the Company's
ultimate liability is not precisely determinable, the PRPs have agreed that
Graphics' share of removal costs is 0.46% and therefore Graphics believes that
its share of the anticipated remediation costs at such site will not be material
to its business or financial condition. Based upon an analysis of Graphics'
volumetric share of waste contributed to the site and the agreement among the
PRPs, the Company has recorded a reserve of approximately $0.1 million in
connection with this liability on its consolidated balance sheet at June 30,
1997. The Company believes this amount is adequate to cover such liability.
The Company has been named as a defendant in several other legal actions arising
from its normal business activities. In the opinion of management, any liability
that may arise from such actions will not have a material adverse effect on the
consolidated financial statements of the Company.
9
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q (the "Report") contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Discussions containing such forward-looking statements may
be found in this section as well as within this Report generally. In addition,
when used in this Report, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results in
the future could differ materially from those described in the forward-looking
statements as a result of many factors outside the control of ACG Holdings, Inc.
("Holdings"), together with its wholly-owned subsidiary, American Color
Graphics, Inc. ("Graphics"), collectively (the "Company"), including
fluctuations in the cost of paper and other raw materials used by the Company,
changes in the advertising and printing markets, actions by the Company's
competitors, particularly with respect to pricing, the financial condition of
the Company's customers, the financial condition and liquidity of the Company,
the general condition of the United States economy, demand for the Company's
products and services and the matters set forth in this Report generally.
Consequently, such forward-looking statements should be regarded solely as the
Company's current plans, estimates and beliefs. The Company does not undertake
and specifically declines any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
Results of Operations
General
In February of Fiscal Year 1997, the Company made a strategic decision to shut
down the operations of its wholly-owned subsidiary SMC. SMC's shut down has been
accounted for as a discontinued operation, and accordingly, SMC's operations are
segregated in the Company's unaudited condensed consolidated financial
statements. Sales, costs of sales and selling, general and administrative
expenses attributable to SMC for the three months ended June 30, 1996 (the "1996
Three Month Period") have been reclassified to discontinued operations.
10
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table summarizes the Company's results of operations for the three
months ended June 30, 1997 (the "1997 Three Month Period") and the 1996 Three
Month Period:
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
(dollars in thousands)
Sales:
Printing $ 106,604 120,342
American Color 19,524 17,759
------- -------
Total $ 126,128 138,101
Gross Profit:
Printing $ 12,160 11,312
American Color 4,869 3,380
Other (1) 77
------- -------
Total $ 17,028 14,769
Gross Margin:
Printing 11.4% 9.4%
American Color 24.9% 19.0%
Total 13.5% 10.7%
Operating Income
(Loss):
Printing $ 6,911 6,025
American Color 996 (944)(a)
Other (b) (2,881) (2,782)
------- ------
Total $ 5,026 2,299
(a) Includes the impact of restructuring costs of $0.4 million in the 1996 Three
Month Period.
(b) Consists primarily of corporate general and administrative expenses, and
amortization expense.
11
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Printing
Sales. Printing sales decreased $13.7 million to $106.6 million in the 1997
Three Month Period from $120.3 million in the 1996 Three Month Period. This
decrease is primarily the result of a decrease in paper prices.
Gross Profit. Printing gross profit increased $0.9 to $12.2 million in the 1997
Three Month Period from $11.3 million in the 1996 Three Month Period. Printing
gross margin increased to 11.4% in the 1997 Three Month Period from 9.4% in the
1996 Three Month Period. The increase in gross profit is primarily the result of
improved customer and product mix. The increase in gross profit is also impacted
by the effect of costs in the 1996 Three Month Period related to the start-up of
a plant in Hanover, Pennsylvania, Flexi-Tech. The increase in gross profit as a
percentage of sales includes the above mentioned factors and the impact of lower
paper prices.
Selling, General and Administrative Expenses. Printing selling, general and
administrative expenses remained relatively unchanged at $5.2 million, or 4.9%
of printing sales, in the 1997 Three Month Period compared to $5.3 million, or
4.4% of printing sales, in the 1996 Three Month Period.
Operating Income. As a result of these factors, operating income from the
printing business increased by 14.7% to $6.9 million in the 1997 Three Month
Period from $6 million in the 1996 Three Month Period.
American Color
Sales. American Color's sales increased $1.7 million to $19.5 million in the
1997 Three Month Period from $17.8 million in the 1996 Three Month Period. The
increase in the 1997 Three Month Period was primarily the result of higher
digital imaging and prepress production volume due to American Color's
implementation of various digital prepress technologies, including facilities
management and software and image management services and increases in digital
visual effects work.
Gross Profit. American Color's gross profit increased $1.5 million to $4.9
million in the 1997 Three Month Period from $3.4 million in the 1996 Three Month
Period. American Color's gross margin increased to 24.9% in the 1997 Three Month
Period from 19.0% in the 1996 Three Month Period. These increases are primarily
the result of increased volume and material and payroll cost savings offset in
part by facilities management costs.
Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses were $3.9 million in both the 1997 Three Month
Period and the 1996 Three Month Period or 19.8% of American Color's sales in the
1997 Three Month Period compared to 22% of American Color's sales in the 1996
Three Month Period.
12
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Income (Loss). As a result of these factors and the incurrence of
restructuring costs associated with the American Color restructuring plan of
$0.4 million in 1996 Three Month Period, operating income at American Color
increased to income of $1 million in the 1997 Three Month Period from a loss of
$0.9 million in the 1996 Three Month Period.
See discussion below and note 5 to the unaudited condensed consolidated
financial statements for information regarding the American Color restructuring
plan.
Other Operations
Other operations primarily include corporate general and administrative and
other expenses and amortization expense. Amortization expense related to other
operations, including goodwill amortization, was $2.1 million in the 1997 Three
Month Period and the 1996 Three Month Period.
Operating losses from other operations remained relatively unchanged at a loss
of $2.9 million in the 1997 Three Month Period compared to a loss of $2.8
million in the 1996 Three Month Period.
Restructuring Costs
In April 1995, the Company implemented a plan for its American Color division
which was designed to improve productivity, increase customer service and
responsiveness, and provide increased growth in the digital imaging and prepress
services business. The cost of this plan was accounted for in accordance with
the guidance set forth in Emerging Issues Task Force Issue 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
The pretax costs of $5 million which were incurred as a part of this plan
represent employee termination, goodwill write-down and other related costs that
were incurred as a direct result of the plan. For the quarter ended June 30,
1997, no restructuring costs were recognized. Approximately $0.9 million of
restructuring costs primarily related to relocation expenses were recognized in
Fiscal Year 1997, of which $0.4 million was incurred in the quarter ended June
30, 1996.
Interest Expense
Interest expense increased 7.3% to $9.3 million in the 1997 Three Month Period
from $8.6 million in the 1996 Three Month Period. This increase primarily
includes the impact of increased obligations under capital leases.
Other Expense, Net
Other expense, net increased to expense of $0.2 million in the 1997 Three Month
Period from income of $0.1 million in the 1996 Three Month Period primarily due
to a loss recognized on the sale of certain assets.
13
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Income Tax Expense
Income tax expense decreased to $0.5 million in the 1997 Three Month Period from
$1 million in the 1996 Three Month Period. This decrease is primarily due to the
smaller amounts of taxable income in foreign jurisdictions and a smaller
increase in the deferred tax valuation allowance.
Net Loss
As a result of the factors discussed above, the Company's net loss decreased to
$5 million in the 1997 Three Month Period from $7.6 million in the 1996 Three
Month Period.
Liquidity and Capital Resources
The Company's Bank Credit Agreement includes a revolving credit facility which
matures on September 30, 2000 (the "Revolving Credit Facility") providing for a
maximum of $75 million of borrowing availability, subject to a borrowing base
requirement. On June 30, 1997, the Company entered into a $25 million term loan
facility which matures on March 31, 2001 (the "Term Loan Facility") (see note 2
to the Company's unaudited condensed consolidated financial statements). Net
proceeds under this facility of approximately $23.5 million (after loan fees and
other transaction costs) were used to reduce outstanding borrowings under the
Revolving Credit Facility. As of July 31, 1997, the Company had borrowings of
$17.3 million outstanding under the Revolving Credit Facility and $24.6 million
of additional borrowing availability.
The Bank Credit Agreement also provides for a reducing term loan with a final
maturity on September 30, 2000 (the "Term Loan"). At July 31, 1997, $44.8
million of the Term Loan was outstanding. Remaining scheduled Term Loan payments
due over the upcoming fiscal year ending March 31, 1998 ("Fiscal Year 1998")
approximate $8.3 million. In addition, it is anticipated that capital lease
obligation repayments will approximate $4.5 million during the remainder of
Fiscal Year 1998.
During the 1997 Three Month Period, net cash from operating activities and
proceeds from the Term Loan Facility were used to reduce borrowings under the
Revolving Credit Facility by $24.6 million and to pay $4.4 million in scheduled
principal payments on indebtedness (including capital lease obligations).
Additionally, these cash sources were used to fund the Company's cash capital
expenditures of $2.9 million for the 1997 Three Month Period and meet additional
investing and financing needs of $1.6 million (including transaction costs
associated with the Term Loan Facility). The Company plans to continue its
program of upgrading its printing and prepress equipment and expanding
production capacity and currently anticipates that Fiscal Year 1998 cash capital
expenditures will approximate $11.1 million and equipment acquired under capital
leases will approximate $14.6 million during Fiscal Year 1998. The Company had
zero cash on hand at June 30, 1997 due to a requirement under the Bank Credit
Agreement that the Company's daily available funds be used to reduce borrowings
under the Revolving Credit Facility.
14
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
At June 30, 1997, the Company had total indebtedness outstanding of $310.1
million, including capital lease obligations. Of the total debt outstanding at
June 30, 1997, $60.9 million was outstanding under the Bank Credit Agreement at
a weighted average interest rate of 8.40% and $25 million was outstanding under
the Term Loan Facility. Indebtedness under the Bank Credit Agreement and Term
Loan Facility bears interest at floating rates, causing the Company to be
sensitive to prevailing interest rates. At June 30, 1997, the Company had
indebtedness other than obligations under the Bank Credit Agreement and Term
Loan Facility of $224.2 million (including $185 million of the Notes). In
connection with the Term Loan Facility, the Company obtained amendments with
respect to certain financial covenants and an amendment that decreased the
Borrowing Base through March 31, 1998, in the Bank Credit Agreement. The Company
is currently in compliance with all financial covenants set forth in the Bank
Credit Agreement, as amended.
15
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
EBITDA
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
(dollars in thousands)
EBITDA:
Printing $ 12,273 10,811
American Color 2,579 347(a)
Other (b) (759) (707)
------ ----
Total $ 14,093 10,451
EBITDA Margin:
Printing 11.5% 9.0%
American Color 13.2% 2.0%
Total 11.2% 7.6%
(a) Includes the impact of restructuring costs of $0.4 million in the 1996 Three
Month Period.
(b) Consists primarily of corporate general and administrative expenses.
EBITDA is presented and discussed because management believes that investors
regard EBITDA as a key measure of a leveraged company's performance and ability
to meet its future debt service requirements. "EBITDA" is defined as earnings
before net interest expense, income tax expense, depreciation, amortization,
other income (expense) and discontinued operations. "EBITDA Margin" is defined
as EBITDA as a percentage of net sales. EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
considered an alternative to net income (or any other measure of performance
under generally accepted accounting principles) as a measure of performance or
to cash flows from operating, investing or financing activities as an indicator
of cash flows or as a measure of liquidity. Certain covenants in the Notes and
the Bank Credit Agreement are based on EBITDA, subject to certain adjustments.
16
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Printing. As a result of the reasons previously described under "Printing,"
Printing EBITDA increased to $12.3 million in the 1997 Three Month Period from
$10.8 million in the 1996 Three Month Period, representing an increase of $1.5
million, and the Printing EBITDA Margin increased to 11.5% in the 1997 Three
Month Period from 9% in the 1996 Three Month Period.
American Color. As a result of the reasons previously described under "American
Color," American Color's EBITDA increased to $2.6 million in the 1997 Three
Month Period from $0.3 million in the 1996 Three Month Period, representing an
increase of $2.3 million, and the American Color EBITDA Margin increased to
13.2% in the 1997 Three Month Period from 2% in the 1996 Three Month Period.
American Color EBITDA in the 1996 Three Month Period included restructuring
costs of $0.4 million.
Other. As a result of the reasons previously described under "Other Operations"
(excluding changes in amortization expense), other operations negative EBITDA
increased to $0.8 million in the 1997 Three Month Period from negative EBITDA of
$0.7 million in the 1996 Three Month Period.
17
<PAGE>
ACG HOLDINGS, INC.
Part II Other Information
Item 1. (a) Legal Proceedings
Reference is made to Item 3 (Legal Proceedings) disclosure in the
Company's Form 10-K filed for the fiscal year ended March 31,
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None filed in the three month period ended June 30, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Holdings and Graphics have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.
ACG Holdings, Inc.
American Color Graphics, Inc.
Date August 13,1997 By /s/ Joseph M. Milano
----------------------- ---------------------
Joseph M. Milano
Senior Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Date August 13, 1997 By /s/ Patrick W. Kellick
------------------------ -----------------------
Patrick W. Kellick
Vice President - Controller
(Chief Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27.0 Financial Data Schedule 21
20
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ACG HOLDINGS, INC.'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<NAME> ACG HOLDINGS, INC.
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<FISCAL-YEAR-END> MAR-31-1998
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