PROSPECTUS SUPPLEMENT THIS PROSPECTUS SUPPLEMENT IS FILED UNDER
(TO PROSPECTUS DATED JULY 8, 1998) RULE 424(B)(3) AND RELATES TO REGISTRATION
STATEMENT NO. 33-97090
ACG HOLDINGS, INC.
AMERICAN COLOR GRAPHICS, INC.
12 3/4% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2005
RECENT DEVELOPMENTS
Attached hereto and incorporated by reference herein is the
Form 10-Q Quarterly Report of ACG Holdings, Inc. for the quarterly period
ended June 30, 1998.
This Prospectus Supplement, together with the Prospectus, is to
be used by Morgan Stanley & Co. Incorporated in connection with offers and
sales of the above-referenced securities in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale.
Morgan Stanley & Co. Incorporated may act as principal or agent in such
transactions.
August 13, 1998
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, 1998
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 62-1395968
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
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)
AMERICAN COLOR GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
New York 16-1003976
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
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)
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__
ACG Holdings, Inc. has 134,812 shares outstanding of its Common Stock, $.01
Par Value, as of August 3, 1998 (all of which are privately owned and not
traded on a public market).
INDEX
Part I. Financial Information Page No.
--------------------- --------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II. Other Information
-----------------
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
Assets
Current assets:
Cash $ 0 0
Receivables:
Trade accounts, less allowance for
doubtful accounts of $1,565 and $2,112
at June 30, 1998 and March 31, 1998,
respectively 50,448 63,185
Other 1,668 2,605
-------- -------
Total receivables 52,116 65,790
Inventories 9,707 10,795
Prepaid expenses and other current assets 3,689 3,578
-------- -------
Total current assets 65,512 80,163
Property, plant and equipment 258,123 256,317
Less accumulated depreciation (103,694) (96,684)
-------- -------
Net property, plant and equipment 154,429 159,633
Excess of cost over net assets acquired, less
accumulated amortization of $42,696 and $42,060
at June 30, 1998 and March 31, 1998,
respectively 73,920 74,556
Other assets 13,311 15,606
-------- -------
Total assets $307,172 329,958
======== =======
See accompanying notes to condensed consolidated financial statements.
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
Liabilities and Stockholders' Deficit
- -------------------------------------
Current liabilities:
Current installments of long-term debt and
capitalized leases $ 8,976 9,131
Trade accounts payable 25,962 27,381
Accrued expenses 31,645 31,539
Income taxes 659 502
-------- -------
Total current liabilities 67,242 68,553
Long-term debt and capitalized leases,
excluding current installments 295,266 310,526
Deferred income taxes 9,526 9,443
Other liabilities 46,957 47,521
-------- -------
Total liabilities 418,991 436,043
Stockholders' deficit
Common stock, voting, $.01 par value,
5,852,223 shares authorized, 134,812 shares
issued and outstanding at June 30, 1998 and
March 31, 1998 1 1
Preferred Stock, $.01 par value, 15,823 shares
authorized, 3,631 shares Series AA convertible
preferred stock issued and outstanding at
June 30, 1998 and March 31, 1998, $40,000,000
liquidation preference, 1,606 shares Series BB
convertible preferred stock issued and
outstanding at June 30, 1998 and March 31, 1998,
$17,500,000 liquidation preference -- --
Additional paid-in capital 58,249 58,249
Accumulated deficit (167,693) (162,250)
Cumulative translation adjustment (2,376) (2,085)
-------- --------
Total stockholders' deficit (111,819) (106,085)
-------- --------
Commitments and contingencies
Total liabilities and stockholders'
deficit $307,172 329,958
======== =======
See accompanying notes to condensed consolidated financial statements.
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended June 30,
---------------------------
1998 1997
-------- -------
Sales $127,813 126,128
Cost of sales 109,251 109,100
-------- -------
Gross profit 18,562 17,028
Selling, general and administrative expenses 9,017 9,906
Amortization of goodwill 636 2,096
-------- -------
Operating income 8,909 5,026
Other expense (income):
Interest expense 9,417 9,256
Interest income (23) (32)
Other, net 63 215
-------- -------
Total other expense 9,457 9,439
Loss from continuing operations before
income taxes and extraordinary item (548) (4,413)
Income tax expense (875) (537)
Loss from continuing operations before
extraordinary item (1,423) (4,950)
Extraordinary loss on early extinguishment of
debt, net of tax (4,020) --
-------- -------
Net loss $ (5,443) (4,950)
======== =======
See accompanying notes to condensed consolidated financial statements.
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
June 30,
--------------------------
1998 1997
-------- -------
Cash flows provided (used) by operating
activities:
Net loss $ (5,443) (4,950)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 7,296 6,701
Amortization of goodwill and other assets 935 2,366
Amortization of deferred financing costs 413 464
Extraordinary non-cash charges from early
retirement of debt, net 4,020 --
Decrease in working capital and other 12,694 3,722
-------- -------
Net cash provided by operating activities 19,915 8,303
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment (1,910) (2,930)
Proceeds from sales of property, plant and
equipment 7 152
Other 37 (256)
-------- -------
Net cash used by investing activities (1,866) (3,034)
Cash flows provided (used) by financing activities:
Repayment of long-term debt, including current
maturities (61,678) (2,869)
Proceeds from Term Loan Facilities 75,000 25,000
Net decrease in revolver borrowings (27,257) (24,582)
Repayment of capital lease obligations (1,719) (1,484)
Payment of deferred financing costs (2,358) (1,332)
Other, net (36) (2)
-------- -------
Net cash used by financing activities (18,048) (5,269)
Effect of exchange rates on cash and cash
equivalents (1) --
-------- -------
Net change in cash -- --
Cash:
Beginning of period -- --
-------- -------
End of period $ -- --
======== =======
Noncash investing activity:
Equipment purchases under capital leases $ 501 1,690
======== =======
See accompanying notes to condensed consolidated financial statements.
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,
1998, 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 and 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. A
significant portion 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 (i) printing and (ii) 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, 1998 are not
necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 1999. 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, 1998 and the Company's Post-
Effective Amendment No. 4 to Registration Statement No. 33-97090 on Form S-1.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
2. Indebtedness Transactions
June 30, 1997 Term Loan Facility
On June 30, 1997, the Company entered into a $25 million term loan facility
which included a $5 million participation by Morgan Stanley Senior Funding,
Inc., a related party, which was to mature on March 31, 2001 (the "Old Term
Loan Facility"). Net proceeds of approximately $23.5 million (after loan
fees and other transaction costs) were received and used to reduce
outstanding borrowings under the then existing revolving credit facility
maturing in 2000 (the "Old Revolving Credit Facility"). Interest under the
Old Term Loan Facility was floating based upon existing market rates plus
agreed upon margin levels which escalated over the initial 24 months of the
facility. The obligations under this facility were guaranteed on the same
basis and by the same guarantors as the Company's previous credit agreement
with BT Commercial Corporation, as amended (the "Old Bank Credit
Agreement") although such guarantees were secured by second priority
security interests in the tangible and intangible assets of the Company and
such guarantors. Morgan Stanley Senior Funding, Inc. received fees of
approximately $0.3 million as part of this transaction.
May 8, 1998 Refinancing
On May 8, 1998, the Company completed a refinancing transaction (the "1998
Refinancing") which included the following: (1) the Company entered into a
$145 million credit facility with Bankers Trust Company, Morgan Stanley
Senior Funding, Inc., General Electric Capital Corporation and a syndicate
of lenders (the "Bank Credit Agreement") providing for a $70 million
revolving credit facility which is not subject to a borrowing base
limitation (the "Revolving Credit Facility") maturing on March 31, 2004, a
$25 million amortizing term loan facility maturing on March 31, 2004 (the
"A Term Loan Facility") and a $50 million amortizing term loan facility
maturing on March 31, 2005 (the "B Term Loan Facility"); (2) the repayment
of all $57.0 million of indebtedness outstanding under the Old Bank Credit
Agreement (plus accrued interest to the date of repayment); (3) the
repayment of all $25.0 million of indebtedness outstanding under the Old
Term Loan Facility (plus accrued interest to the date of repayment) and (4)
the payment of fees and expenses associated with the 1998 Refinancing. In
addition, the Company recorded an extraordinary loss related to early
extinguishment of debt of $4.0 million, net of taxes associated with the
write-off of deferred financing costs related to refinanced indebtedness in
the quarter ended June 30, 1998.
Interest under the Bank Credit Agreement is floating based upon existing
market rates plus agreed upon margin levels. In addition, the Company is
obligated to pay specific commitment and letter of credit fees. Such
margin levels and fees reduce over the term of the agreement subject to the
achievement of certain Leverage Ratio measures.
Borrowings under the Bank Credit Agreement are secured by substantially all
of the Company's assets. In addition, Holdings has guaranteed the
indebtedness under the Bank Credit Agreement, which guarantee is secured by
a pledge of all of Graphics' and its subsidiaries' stock. The new
agreement (1) requires satisfaction of certain financial covenants
including Minimum Consolidated EBITDA, Consolidated Interest Coverage Ratio
and Leverage Ratio requirements, (2) requires prepayments in certain
circumstances including excess cash flows, proceeds from asset dispositions
in excess of prescribed levels and certain capital structure transactions
and (3) contains various restrictions and limitations on the following
items: (a) the level of capital spending, (b) the incurrence of additional
indebtedness, (c) mergers, acquisitions, investments and similar
transactions and (d) dividends and other distributions. In addition, the
agreement includes various other customary affirmative and negative
covenants.
3. Inventories
The components of inventories are as follows (in thousands):
June 30, 1998 March 31, 1998
------------- --------------
Paper $ 7,938 9,161
Ink 247 227
Supplies and other 1,522 1,407
------- ------
Total Inventories $ 9,707 10,795
======= ======
4. Commitments and Contingencies
The Company has employment agreements with two of its principal officers
and five 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, 1998, excluding bonuses, was approximately $3.5
million.
On December 21, 1989, Graphics sold to CPS Corp. ("CPS") its ink
manufacturing operations and facilities. Graphics remains contingently
liable under $2.7 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 a significant portion 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.
In the quarter ending December 31, 1997, the Company entered into multi-
year contracts to purchase a portion of the Company's raw materials to be
used in its normal operations. In connection with such purchase
agreements, pricing for a portion of the Company's raw materials is
adjusted for certain movements in market prices, changes in raw material
costs and other specific price increases. The Company is deferring certain
contractual provisions over the life of the contracts which are being
recognized as the purchase commitments are achieved. The amount deferred
at June 30, 1998 is $18.6 million and is included within other liabilities
in the Condensed Consolidated Balance Sheets.
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, 1998. 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.
5. Comprehensive Income (Loss)
Effective April 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires foreign currency translation adjustments, minimum
pension liability adjustments and unrealized gains or losses on available
for-sale securities to be included in new disclosures related to
comprehensive income. Prior to adoption of SFAS 130, the Company disclosed
such items when applicable separately in Stockholders' deficit. The
adoption of SFAS 130 had no impact on the Company's Net loss or
Stockholders' deficit. Total comprehensive loss for the three months ended
June 30, 1998 and 1997 are as follows in thousands:
Three Months Ended June 30,
---------------------------
1998 1997
-------- --------
Net loss $ (5,443)(a) (4,950)
Foreign currency translation adjustment (291) (44)
-------- ------
Total comprehensive loss $ (5,734) (4,994)
======== ======
(a) Includes $4.0 million extraordinary loss related to early extinguishment
of debt associated with the May 1998 Refinancing (see note 2 to the
unaudited condensed consolidated financial statements).
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 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.
The following table summarizes the Company's results of operations for the
three months ended June 30, 1998 (the "1998 Three Month Period"), and for
the three months ended June 30, 1997 (the "1997 Three Month Period"),
Three Months Ended June 30,
---------------------------
1998 1997
-------- --------
(dollars in thousands)
Sales:
Printing $106,447 106,604
American Color 21,366 19,524
-------- -------
Total $127,813 126,128
Gross Profit:
Printing $ 13,388 12,160
American Color 5,176 4,869
Other (2) (1)
-------- -------
Total $ 18,562 17,028
Gross Margin:
Printing 12.6% 11.4%
American Color 24.2% 24.9%
Total 14.5% 13.5%
Operating Income (Loss):
Printing $ 8,928 6,911
American Color 1,140 996
Other (a) (1,159) (2,881)
-------- -------
Total $ 8,909 5,026
(a) Consists primarily of corporate general and administrative expenses, and
amortization expense.
Printing
Sales. Printing sales remained relatively the same at $106.4 million in
the 1998 Three Month Period from $106.6 million in the 1997 Three Month
Period. Printing production volume increased approximately 9.2% in the
1998 Three Month Period. This increase was offset by an increase in sales
to customers that supply their own paper and certain changes in customer
and product mix.
Gross Profit. Printing gross profit increased $1.2 million to $13.4
million in the 1998 Three Month Period from $12.2 million in the 1997 Three
Month Period. Printing gross margin increased to 12.6% in the 1998 Three
Month Period from 11.4% in the 1997 Three Month Period. The increase in
gross profit includes reduced manufacturing costs and increased production
volume offset in part by certain changes in customer and product mix. The
increase in gross margin includes the above mentioned factors and an
increase in sales to customers that supply their own paper.
Selling, General and Administrative Expenses. Printing selling, general
and administrative expenses decreased $0.7 million to $4.5 million, or 4.2%
of printing sales, in the 1998 Three Month Period compared to $5.2 million,
or 4.9% of printing sales, in the 1997 Three Month Period. This decrease
includes the impact of certain general and administrative cost saving
initiatives.
Operating Income. As a result of these factors, operating income from the
printing business increased by 29% to $8.9 million in the 1998 Three Month
Period from $6.9 million in the 1997 Three Month Period.
American Color
Sales. American Color's sales increased $1.9 million to $21.4 million in
the 1998 Three Month Period from $19.5 million in the 1997 Three Month
Period. The increase in the 1998 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, packaging prepress and consulting
services.
Gross Profit. American Color's gross profit increased $0.3 million to $5.2
million in the 1998 Three Month Period from $4.9 million in the 1997 Three
Month Period. American Color's gross margin decreased to 24.2% in the 1998
Three Month Period from 24.9% in the 1997 Three Month Period. This
increase in gross profit includes the impact of increased sales and
consulting revenue coupled with reduced payroll costs. These benefits were
offset in part by (1) increased costs associated with new operations
servicing the packaging industry, and (2) increased manufacturing costs
related to digital visual effects work.
Selling, General and Administrative Expenses. American Color's selling,
general and administrative expenses increased to $4.0 million, or 18.9% of
American Color's sales in the 1998 Three Month Period from $3.9 million, or
19.8% of American Color's sales in the 1997 Three Month Period. This
increase includes increased sales and marketing expenses, including the
costs of the new packaging sales group.
Operating Income. As a result of the above factors, operating income at
American Color increased to $1.1 million in the 1998 Three Month Period
from $1.0 million in the 1997 Three Month Period.
Other Operations
Other operations primarily include corporate general and administrative and
other expenses and amortization expense. Amortization expense from other
operations, which primarily includes goodwill amortization, was $0.6
million in the 1998 Three Month Period and $2.1 million in the 1997 Three
Month Period.
Operating losses from other operations decreased to a loss of $1.2 million
in the 1998 Three Month Period from a loss of $2.9 million in the 1997
Three Month Period. This decrease is primarily attributable to reduced
goodwill amortization expense.
Interest Expense
Interest expense increased 1.7% to $9.4 million in the 1998 Three Month
Period from $9.3 million in the 1997 Three Month Period.
Other, Net
Other, net decreased to expense of $0.1 million in the 1998 Three Month
Period from expense of $0.2 million in the 1997 Three Month Period.
Income Tax Expense
Income tax expense increased to $0.9 million in the 1998 Three Month Period
from $0.5 million in the 1997 Three Month Period. This increase is
primarily due to larger amounts of taxable income in foreign jurisdictions
and changes in the deferred tax valuation allowance.
Extraordinary Loss on Early Extinguishment of Debt, Net of Tax
As part of the 1998 Refinancing (see note 2 to the unaudited condensed
consolidated financial statements), the Company recorded an extraordinary
loss related to early extinguishment of debt of $4.0 million, net of $0.1
million taxes. This extraordinary loss consisted of the write-off of
deferred financing costs related to refinanced indebtedness.
Net Loss
As a result of the factors discussed above, including the $4.0 million
extraordinary loss related to the early extinguishment of debt in the 1998
Three Month Period, the Company's net loss increased to $5.4 million in the
1998 Three Month Period from $5.0 million in the 1997 Three Month Period.
Liquidity and Capital Resources
On May 8, 1998, the Company refinanced all of its existing bank
indebtedness in the 1998 Refinancing (see note 2 to the Company's unaudited
condensed consolidated financial statements). The primary objectives of
the 1998 Refinancing were to gain greater financial and operating
flexibility, reduce the Company's overall cost of capital and provide
greater opportunity for internal growth and growth through acquisitions.
The 1998 Refinancing included the following (1) the Company entered into a
$145 million credit facility providing for a $70 million Revolving Credit
Facility, which is not subject to a borrowing base limitation, maturing on
March 31, 2004, a $25 million amortizing A Term Loan Facility maturing on
March 31, 2004 and a $50 million amortizing B Term Loan Facility maturing
on March 31, 2005; (2) the repayment of all $57.0 million of indebtedness
outstanding under the Old Bank Credit Agreement (plus accrued interest to
the date of repayment); (3) the repayment of all $25.0 million of
indebtedness outstanding under the Old Term Loan Facility (plus accrued
interest to the date of repayment) and (4) the payment of fees and expenses
associated with the refinancing transaction.
The Revolving Credit Facility provides for a maximum of $70 million
borrowing availability and includes a $40 million letter of credit sub-limit.
At July 31, 1998, the Company had total borrowings and letters of credit
outstanding under the Revolving Credit Facility of approximately $19.1
million, and therefore, additional borrowing availability of approximately
$50.9 million.
At June 30, 1998, $25 million of the A Term Loan Facility and $49.9 million
of the B Term Loan Facility remained outstanding. Scheduled A Term Loan
Facility and B Term Loan Facility payments due over the remainder of the
fiscal year ending March 31, 1999 ("Fiscal Year 1999") are $0 and $0.4
million, respectively. In addition, it is anticipated that repayments of
capital lease obligations and other senior indebtedness during the
remainder of Fiscal Year 1999 will approximate $5.4 million and $1.7
million, respectively.
During the 1998 Three Month Period, net cash provided by operating
activities of $19.9 million (see Condensed Consolidated Statements of Cash
Flows) and proceeds from the 1998 Refinancing of $84.8 million ($75 million
from the A Term Loan and B Term Loan facilities and $9.8 million of initial
net borrowings under the Revolving Credit Facility) were used to (1) repay
$84.2 million of indebtedness outstanding under the Old Bank Credit
Agreement and Old Term Loan Facility (including related transaction fees),
(2) fund scheduled principal repayments of indebtedness of $2.4 million
(including capital lease obligations), (3) fund cash capital expenditures
of $1.9 million, and (4) further reduce outstanding revolver borrowings by
$16.2 million. The Company plans to continue its program of upgrading its
printing and prepress equipment and currently anticipates that full year
Fiscal Year 1999 cash capital expenditures will approximate $8 million and
equipment acquired under capital leases will approximate $7 million.
At June 30 1998, the Company had total indebtedness outstanding of $304.2
million, including capital lease obligations. Of the total indebtedness
outstanding at June 30, 1998, $76.9 million was outstanding under the Bank
Credit Agreement at a weighted average interest rate of 8.29%.
Indebtedness under the Bank Credit Agreement bears interest at floating
rates, causing the Company to be sensitive to prevailing market interest
rates. At June 30, 1998, the Company had indebtedness other than
obligations under the Bank Credit Agreement of $227.3 million (including
$185 million of the 12 3/4% Senior Subordinated Notes Due 2005, the
"Notes"). The Company is currently in compliance with all financial
covenants set forth in the Bank Credit Agreement.
EBITDA
Three Months Ended
June 30,
--------------------------
1998 1997
-------- -------
(dollars in thousands)
EBITDA:
Printing $ 14,495 12,273
American Color 3,163 2,579
Other (a) (518) (759)
-------- -------
Total $ 17,140 14,093
EBITDA Margin:
Printing 13.6% 11.5%
American Color 14.8% 13.2%
Total 13.4% 11.2%
(a) 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
extraordinary items. "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.
Printing. As a result of the reasons previously described under "Printing"
(excluding changes in depreciation and amortization expense), printing
EBITDA increased $2.2 million, or 18%, to $14.5 million in the 1998 Three
Month Period from $12.3 million in the 1997 Three Month Period. Printing
EBITDA Margin increased to 13.6% in the 1998 Three Month Period from 11.5%
in the 1997 Three Month Period.
American Color. As a result of the reasons previously described under
"American Color" (excluding changes in depreciation and amortization
expense), American Color's EBITDA increased $0.6 million, or 23%, to $3.2
million in the 1998 Three Month Period from $2.6 million in the 1997 Three
Month Period. American Color EBITDA Margin increased to 14.8% in the 1998
Three Month Period from 13.2% in the 1997 Three Month Period.
Other. As a result of the reasons previously described under "Other
Operations" (excluding changes in depreciation and amortization expense),
other operations decreased to negative EBITDA of $0.5 million in the 1998
Three Month Period from negative EBITDA of $0.8 million in the 1997 Three
Month Period.
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,
1998.
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 quarter ended June 30, 1998.
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, 1998 By /s/ Joseph M. Milano
----------------------- ----------------------------------
Joseph M. Milano
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Date August 13, 1998 By /s/ Patrick W. Kellick
----------------------- ----------------------------------
Patrick W. Kellick
Senior Vice President --
Corporate Controller
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27.0 Financial Data Schedule 20
