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 December 31, 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
incorporation or organization) 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)
AMERICAN COLOR GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
New York 16-1003976
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) 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)
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 January 31, 1999 (all of which are privately owned and not traded
on a public market).
<PAGE>
INDEX
Part I. Financial Information Page No.
--------------------- --------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the
three months ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Operations for the
nine months ended December 31, 1998 and 1997 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
-----------------
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
2
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 0 0
Receivables:
Trade accounts, less allowance for
doubtful accounts of $2,885
and $2,112 at December 31, 1998
and March 31, 1998, respectively 60,614 63,185
Other 2,706 2,605
--------- -------
Total receivables 63,320 65,790
Inventories 9,889 10,795
Prepaid expenses and other current assets 2,639 3,578
--------- -------
Total current assets 75,848 80,163
Property, plant and equipment 263,091 256,317
Less accumulated depreciation (116,580) (96,684)
--------- -------
Net property, plant and equipment 146,511 159,633
Excess of cost over net assets acquired, less
accumulated amortization of $43,968
and $42,060 at December 31, 1998 and March
31, 1998, respectively 72,648 74,556
Other assets 11,950 15,606
--------- -------
Total assets $ 306,957 329,958
========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities:
Current installments of long-term debt and
capitalized leases $ 9,998 9,131
Trade accounts payable 26,384 27,381
Accrued expenses 29,570 31,539
Income taxes 1,354 502
--------- --------
Total current liabilities 67,306 68,553
Long-term debt and capitalized leases, excluding
current installments 290,925 310,526
Deferred income taxes 9,768 9,443
Other liabilities 49,035 47,521
--------- --------
Total liabilities 417,034 436,043
Stockholders' deficit:
Common stock, voting, $.01 par value, 5,852,223
shares authorized, 134,812 shares issued and
outstanding 1 1
Preferred Stock, $.01 par value, 15,823 shares
authorized, 3,631 shares Series AA convertible
preferred stock issued and outstanding,
$40,000,000 liquidation preference, 1,606
shares Series BB convertible preferred
stock issued and outstanding,
$17,500,000 liquidation preference -- --
Additional paid-in capital 58,480 58,249
Accumulated deficit (165,708) (162,250)
Cumulative translation adjustment (2,850) (2,085)
--------- --------
Total stockholders' deficit (110,077) (106,085)
--------- --------
Commitments and contingencies
Total liabilities and stockholders' deficit $ 306,957 329,958
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended December 31,
1998 1997
---- ----
Sales $ 144,296 145,748
Cost of sales 118,296 125,378
--------- ---------
Gross profit 26,000 20,370
Selling, general and administrative expenses 11,930 10,498
Amortization of goodwill 636 2,147
--------- ---------
Operating income 13,434 7,725
Other expense (income):
Interest expense 8,960 9,811
Interest income (60) (25)
Other, net 232 185
--------- ---------
Total other expense 9,132 9,971
--------- ---------
Income (loss) from continuing operations
before income taxes 4,302 (2,246)
Income tax expense (745) (39)
--------- ---------
Net income (loss) $ 3,557 (2,285)
========= =========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1998 1997
---- ----
<S> <C> <C>
Sales $ 399,074 407,485
Cost of sales 334,498 352,224
--------- ---------
Gross profit 64,576 55,261
Selling, general and administrative expenses 31,826 31,636
Amortization of goodwill 1,908 6,391
--------- ---------
Operating income 30,842 17,234
Other expense (income):
Interest expense 27,512 29,158
Interest income (106) (111)
Other, net 808 547
--------- ---------
Total other expense 28,214 29,594
--------- ---------
Income (loss) from continuing operations
before income taxes and extraordinary item 2,628 (12,360)
Income tax expense (2,066) (929)
--------- ---------
Income (loss) from continuing operations before
extraordinary item 562 (13,289)
Discontinued operations:
Estimated loss on shut down, net of tax -- (350)
--------- ---------
Income (loss) before extraordinary item 562 (13,639)
Extraordinary loss on early extinguishment of debt,
net of tax (4,020) --
--------- ---------
Net loss $ (3,458) (13,639)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net loss $ (3,458) (13,639)
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation 22,088 20,780
Amortization of goodwill and other assets 2,981 7,481
Amortization of deferred financing costs 1,076 1,681
Extraordinary non-cash charges from early retirement of debt, net 4,020 --
Decrease in working capital and other 4,575 1,639
-------- --------
Net cash provided by operating activities 31,282 17,942
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment (6,682) (8,825)
Proceeds from sales of property, plant and equipment 765 225
Other 75 (209)
-------- --------
Net cash used by investing activities (5,842) (8,809)
Cash flows provided (used) by financing activities:
Repayment of long-term debt, including current maturities (63,402) (9,337)
Proceeds from Term Loan Facilities 75,000 25,000
Net decrease in revolver borrowings (29,257) (18,248)
Repayment of capital lease obligations (5,152) (4,555)
Payment of deferred financing costs (2,548) (2,513)
Other, net (84) 539
-------- --------
Net cash used by financing activities (25,443) (9,114)
Effect of exchange rates on cash and cash equivalents 3 (19)
-------- --------
Net change in cash -- --
Cash:
Beginning of period -- --
-------- --------
End of period $ -- --
======== ========
Noncash investing activity:
Equipment purchases under capital leases $ 4,121 12,366
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<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 December 31, 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 and nine
month periods ended December 31, 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.
8
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Refinancing Transaction
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 Company's previous credit agreement with BT Commercial
Corporation, as amended (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 $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")
(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):
December 31, 1998 March 31, 1998
----------------- --------------
Paper $ 8,140 9,161
Ink 232 227
Supplies and other 1,517 1,407
------- -----
Total Inventories $ 9,889 10,795
======= ======
9
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. 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 income (loss) or Stockholders' deficit. Total comprehensive
income (loss) for the three and nine months ended December 31, 1998 and 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 3,557 (2,285) (3,458)(a) (13,639)
Foreign currency translation
Adjustment (167) (262) (765) (369)
------- ------- ------- -------
Total comprehensive income (loss) $ 3,390 (2,547) (4,223) (14,008)
======= ======= ======= =======
</TABLE>
(a) Includes $4.0 million extraordinary loss related to early
extinguishment of debt associated with the 1998 Refinancing (see note
2 to the unaudited condensed consolidated financial statements).
5. Commitments and Contingencies
The Company has employment agreements with one 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 December 31, 1998,
excluding bonuses, was approximately $3.4 million.
On December 21, 1989, Graphics sold to CPS Corp. ("CPS") its ink manufacturing
operations and facilities. Graphics remains contingently liable under $1.5
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 December 31, 1998 is $22.5 million and is included within
Other liabilities in the Condensed Consolidated Balance Sheets.
10
<PAGE>
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 maintains a balance sheet reserve of approximately $0.1
million in connection with this liability on its consolidated balance sheets at
March 31, 1998 and December 31, 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
liabilities that may arise from such actions will not, individually or in the
aggregate, have a material adverse effect on the consolidated financial
statements of the Company.
11
<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. Forward-looking
statements include, without limitation, the Company's expectation as to when it
will complete the remediation and testing phases of its Year 2000 program as
well as any Year 2000 contingency plans, its estimated cost of achieving Year
2000 readiness and the Company's belief that its internal systems and equipment
will be Year 2000 compliant in a timely manner. Forward-looking 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, but
not limited to, 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, the availability of qualified personnel and
other information technology resources, the ability to identify and remediate
all date sensitive lines of computer code, the ability to replace embedded
computer chips in systems or equipment affected by Year 2000 issues, the actions
of government agencies or other third parties with respect to Year 2000 issues
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.
12
<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 December 31, 1998 (the "1998 Three Month Period"), the three months
ended December 31, 1997 (the "1997 Three Month Period"), the nine months ended
December 31, 1998 (the "1998 Nine Month Period") and the nine months ended
December 31, 1997 (the "1997 Nine Month Period"):
<TABLE>
<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Sales:
Printing $ 120,499 122,547 330,587 343,442
American Color 23,797 23,201 68,487 64,043
--------- --------- --------- ---------
Total $ 144,296 145,748 399,074 407,485
Gross Profit:
Printing $ 19,967 14,950 48,515 39,727
American Color 6,029 5,421 16,048 15,538
Other 4 (1) 13 (4)
--------- --------- --------- ---------
Total $ 26,000 20,370 64,576 55,261
Gross Margin:
Printing 16.6% 12.2% 14.7% 11.6%
American Color 25.3% 23.4% 23.4% 24.3%
Total 18.0% 14.0% 16.2% 13.6%
Operating Income (Loss):
Printing $ 13,762 9,562 32,337 23,417
American Color 1,310 1,300 2,864 2,964
Other (a) (1,638) (3,137) (4,359) (9,147)
--------- --------- --------- ---------
Total $ 13,434 7,725 30,842 17,234
</TABLE>
(a) Consists primarily of corporate general and administrative expenses, and
amortization expense.
13
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Printing
Sales. Printing sales decreased $12.8 million to $330.6 million in the 1998 Nine
Month Period from $343.4 million in the 1997 Nine Month Period. Printing
production volume increased approximately 5% in the 1998 Nine Month Period. This
increase was offset by an increase in sales to customers that supply their own
paper.
Printing sales decreased $2.0 million to $120.5 million in the 1998 Three Month
Period from $122.5 million in the 1997 Three Month Period. The 1998 Three Month
Period included an increase in printing production volume of approximately 4%
and certain favorable changes in customer and product mix. These increases were
offset by an increase in sales to customers that supply their own paper.
Gross Profit. Printing gross profit increased $8.8 million to $48.5 million in
the 1998 Nine Month Period from $39.7 million in the 1997 Nine Month Period.
Printing gross margin increased to 14.7% in the 1998 Nine Month Period from
11.6% in the 1997 Nine Month Period. The increase in gross profit is primarily
the result of reduced manufacturing costs and increased production volume. The
increase in gross margin includes the above mentioned factors and an increase in
sales to customers that supply their own paper.
Printing gross profit increased $5.1 million to $20.0 million in the 1998 Three
Month Period from $14.9 million in the 1997 Three Month Period. Printing gross
margin increased to 16.6% in the 1998 Three Month Period from 12.2% in the 1997
Three Month Period. The increase in gross profit is primarily the result of
reduced manufacturing costs, increased production volume and favorable 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 $0.1 million to $16.2 million, or 4.9% of
printing sales, in the 1998 Nine Month Period compared to $16.3 million, or 4.7%
of printing sales, in the 1997 Nine Month Period.
Printing selling, general and administrative expenses increased $0.8 million to
$6.2 million, or 5.2% of printing sales, in the 1998 Three Month Period from
$5.4 million, or 4.4% of printing sales, in the 1997 Three Month Period. This
change primarily results from increases in certain selling expenses during the
1998 Three Month Period.
Operating Income. As a result of the factors discussed above, operating income
from the printing business increased by 38.1% to $32.3 million in the 1998 Nine
Month Period from $23.4 million in the 1997 Nine Month Period and increased by
43.9% to $13.8 million in the 1998 Three Month Period from $9.6 million in the
1997 Three Month Period.
American Color
Sales. American Color's sales increased $4.5 million to $68.5 million in the
1998 Nine Month Period from $64.0 million in the 1997 Nine Month Period. The
increase in the 1998 Nine Month Period was primarily the result of higher
digital imaging and prepress production volume due to American Color's expansion
of facilities management, packaging prepress and consulting services.
14
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
American Color's sales increased $0.6 million to $23.8 million in the 1998 Three
Month Period from $23.2 million in the 1997 Three Month Period. The increase in
the 1998 Three Month Period was primarily the result of increased digital visual
effects work.
Gross Profit. American Color's gross profit increased $0.5 million to $16.0
million in the 1998 Nine Month Period from $15.5 million in the 1997 Nine Month
Period. Gross profit for the 1998 Nine Month Period includes the above noted
increase in volume offset in part by (1) increased costs associated with new
operations servicing the packaging prepress industry, (2) increased
manufacturing costs related to digital visual effects work and (3) $0.9 million
of non recurring costs, incurred in the 1998 Nine Month Period, associated with
the consolidation of certain production facilities. American Color's gross
margin decreased to 23.4% in the 1998 Nine Month Period from 24.3% in the 1997
Nine Month Period. This decrease in gross margin results primarily from the $0.9
million of non recurring facility consolidation costs.
American Color's gross profit increased $0.6 million to $6.0 million in the 1998
Three Month Period from $5.4 million in the 1997 Three Month Period. American
Color's gross margin increased to 25.3% in the 1998 Three Month Period from
23.4% in the 1997 Three Month Period. The increase in gross profit and the
increase in gross margin for the 1998 Three Month Period is primarily the result
of an increase in digital visual effects work.
Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses increased $0.6 million to $13.2 million, or 19.3% of
American Color's sales in the 1998 Nine Month Period from $12.6 million, or
19.6% of American Color's sales in the 1997 Nine Month Period. The 1998 Nine
Month Period includes increased sales and marketing expenses, including
increased costs associated with the packaging prepress sales group. The 1997
Nine Month Period includes relocation costs associated with moving American
Color's corporate office from Phoenix to Nashville.
American Color's selling, general and administrative expenses increased $0.6
million to $4.7 million, or 19.8% of American Color's sales in the 1998 Three
Month Period from $4.1 million, or 17.8% of American Color's sales in the 1997
Three Month Period. This increase is due in large part to increased selling
expenses as a result of expanding the sales force and increased costs associated
with the packaging prepress sales group.
Operating Income. As a result of the factors discussed above and excluding the
$0.9 million of non recurring facility consolidation costs incurred during the
1998 Nine Month Period and the $0.7 million of non recurring relocation costs
incurred during the 1997 Nine Month Period, operating income at American Color
increased to $3.8 million in the 1998 Nine Month Period from $3.7 million in the
1997 Nine Month Period and was $1.3 million in both the 1998 and the 1997 Three
Month Periods.
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 $2.0 million,
$6.5 million, $0.7 million and $2.2 million in the 1998 Nine Month Period, the
1997 Nine Month Period, the 1998 Three Month Period and the 1997 Three Month
Period, respectively.
15
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating losses from other operations improved to a loss of $4.4 million in the
1998 Nine Month Period from a loss of $9.1 million in the 1997 Nine Month
Period. Operating losses from other operations improved to a loss of $1.6
million in the 1998 Three Month Period from a loss of $3.1 million in the 1997
Three Month Period. These decreases are primarily attributable to reduced
goodwill amortization expense. The reduction in goodwill amortization expense is
attributable to full amortization of the original 1993 acquisition goodwill
related to American Color as of March 31, 1998.
Interest Expense
Interest expense decreased 5.6% to $27.5 million in the 1998 Nine Month Period
from $29.2 million in the 1997 Nine Month Period and interest expense decreased
8.7% to $9.0 million in the 1998 Three Month Period from $9.8 million in the
1997 Three Month Period. These decreases include the impact of both lower levels
of indebtedness and reduced borrowing costs associated with the Company's 1998
Refinancing.
Other, Net
Other, net increased to expense of $0.8 million in the 1998 Nine Month Period
from expense of $0.5 million in the 1997 Nine Month Period. Other, net was $0.2
million in both the 1998 Three Month Period and 1997 Three Month Period.
Income Tax Expense
Income tax expense increased to $2.1 million in the 1998 Nine Month Period from
$0.9 million in the 1997 Nine Month Period and increased to $0.7 million in the
1998 Three Month Period from $0 million in the 1997 Three Month Period. The
increase in the 1998 Nine Month Period is primarily due to larger amounts of
taxable income in foreign jurisdictions and changes in the deferred tax
valuation allowance. The increase in the 1998 Three Month Period is primarily
due to 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 Income (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 Nine
Month Period, the Company's net loss decreased to $3.5 million in the 1998 Nine
Month Period from $13.6 million in the 1997 Nine Month Period. In the 1998 Three
Month Period, the Company's net income (loss) increased to income of $3.6
million from a loss of $2.3 million in the 1997 Three Month Period.
16
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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, to reduce
the Company's overall cost of capital and to 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) a $70 million Revolving Credit
Facility which matures on March 31, 2004, and is not subject to a borrowing base
limitation, (b) a $25 million amortizing A Term Loan Facility which matures on
March 31, 2004 and (c) a $50 million amortizing B Term Loan Facility which
matures 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 January
31, 1999, the Company had total borrowings and letters of credit outstanding
under the Revolving Credit Facility of approximately $21.7 million and,
therefore, additional borrowing availability of approximately $48.3 million.
At December 31, 1998, $24.9 million of the A Term Loan Facility and $49.5
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 $0.1 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 $1.9 million and $0.5 million, respectively.
During the 1998 Nine Month Period, net cash provided by operating activities of
$31.3 million (see Condensed Consolidated Statements of Cash Flows), proceeds
from sales of property, plant and equipment of $0.8 million 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 and financing costs of $7.9 million (including capital lease
obligations), (3) fund cash capital expenditures of $6.7 million, and (4)
further reduce outstanding revolver borrowings by $18.1 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 $10 million and equipment acquired under capital
leases will approximate $6 million. The Company's cash on hand of approximately
$18.5 million is presented net of outstanding checks within trade accounts
payable at December 31, 1998. Accordingly, cash is presented at a balance of
$0 in the December 31, 1998 balance sheet.
The Company's primary sources of liquidity are cash provided by operating
activities and borrowings under the Revolving Credit Facility. The Company
anticipates that its primary needs for liquidity will be to conduct its
business, meet its debt service requirements, make capital expenditures and, if
elected by the Company repay, redeem or repurchase outstanding indebtedness.
17
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
At December 31, 1998, the Company had total indebtedness outstanding of $300.9
million, including capital lease obligations, as compared to $318.2 million at
December 31, 1997. Of the total indebtedness outstanding at December 31, 1998,
$74.4 million was outstanding under the Bank Credit Agreement at a weighted
average interest rate of 7.98%. Indebtedness under the Bank Credit Agreement
bears interest at floating rates, causing the Company to be sensitive to
prevailing market interest rates. At December 31, 1998, the Company had
indebtedness other than obligations under the Bank Credit Agreement of $226.5
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
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Printing $ 19,467 15,306 49,236 39,979
American Color 3,449 3,179 9,317 8,195
Other (a) (963) (965) (2,395) (2,679)
-------- -------- -------- --------
Total $ 21,953 17,520 56,158 45,495
EBITDA Margin:
Printing 16.2% 12.5% 14.9% 11.6%
American Color 14.5% 13.7% 13.6% 12.8%
Total 15.2% 12.0% 14.1% 11.2%
</TABLE>
(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), discontinued operations 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 to $49.2 million in the 1998 Nine Month Period from $40.0 million in
the 1997 Nine Month Period, representing an increase of $9.2 million or 23.2%,
and the Printing EBITDA Margin increased to 14.9% in the 1998 Nine Month Period
from 11.6% in the 1997 Nine Month Period. Printing EBITDA increased to $19.5
million in the 1998 Three Month Period from $15.3 million in the 1997 Three
Month Period, representing an increase of $4.2 million or 27.2%, and the
Printing EBITDA Margin increased to 16.2% in the 1998 Three Month Period from
12.5% in the 1997 Three Month Period.
18
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
American Color. As a result of the reasons previously described under "American
Color" (excluding changes in depreciation, amortization and other non-cash
expenses), American Color's EBITDA increased to $9.3 million in the 1998 Nine
Month Period from $8.2 million in the 1997 Nine Month Period, representing an
increase of $1.1 million or 13.7%, and the American Color EBITDA Margin
increased to 13.6% in the 1998 Nine Month Period from 12.8% in the 1997 Nine
Month Period. American Color's EBITDA increased to $3.4 million in the 1998
Three Month Period from $3.2 million in the 1997 Three Month Period,
representing an increase of $0.2 million or 8.5%. American Color EBITDA Margin
increased to 14.5% in the 1998 Three Month Period from 13.7% 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
negative EBITDA decreased to $2.4 million in the 1998 Nine Month Period from
negative EBITDA of $2.7 million in the 1997 Nine Month Period. Other Operations
negative EBITDA remained relatively unchanged at approximately $1.0 million in
both the 1998 and 1997 Three Month Periods.
Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000 which could result in
a system failure or miscalculations causing disruptions of operations. In the
spring of 1997 the Company initiated its review of the Company's Year 2000
information and manufacturing systems compliance ("Y2K Project"). The Company's
Y2K Project includes four phases: assessment, remediation, testing, and
implementation. Over the past year the Company has made significant progress in
each of these areas and believes it will complete the Y2K Project by September
of 1999.
Information Technology Systems. To date, the Company has fully completed its
assessment of all information technology systems that could be significantly
affected by the Year 2000. The Company has completed 80% of the remediation
phase of its information technology systems and expects to complete software
reprogramming and replacement no later than April of 1999. To date, the Company
has completed 80% of its testing and has implemented 50% of its remediated
systems. Completion of the testing phase for all significant systems is expected
by May of 1999, with all remediated systems anticipated to be fully tested by
June of 1999, with 100% implementation targeted for September of 1999.
Production and Manufacturing Systems. The Company's strategy includes an
on-going program that focuses on the need to upgrade and maintain its production
and manufacturing systems. As such, the Company believes its production and
manufacturing systems to be reasonably current and does not anticipate
significant Year 2000 issues in this area. The Company is 90% complete with the
assessment phase in this area and 60% complete in the remediation phase of its
operating equipment. To date, the required remediation has been minimal and
costs associated with such remediation have been de minimus. The Company does
not expect full remediation of its operating equipment to be costly or
extensive. The Company is 50% complete with the testing of its remediated
operating equipment. Once testing is complete, the operating equipment in most
cases will be ready for immediate use. The Company expects to complete its
remediation efforts by March 31, 1999. Testing and implementation of affected
equipment is expected to be 100% completed by June 30, 1999.
19
<PAGE>
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company is in the process of gathering information about the Year 2000
compliance of its significant suppliers and subcontractors (external agents). To
date, the Company is not aware of any external agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. In addition, as a printer and graphics prepress supplier, the
Company's products and services are not generally impacted by the Year 2000
issue.
The Company is utilizing both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment necessary for
Year 2000 compliance. The total cost of the Y2K Project is estimated at $3.5
million and is being funded through operating cash flows and the Company's
Revolving Credit Facility. To date, the Company has incurred approximately $1.3
million, relating to all phases of the Y2K Project. Of the remaining project
costs, approximately $1.7 million is attributable to the purchase of new
software and operating equipment, which will be capitalized. The remaining $0.5
million relates to repair of hardware and software and will be expensed as
incurred.
Management of the Company believes it has an effective project in place to
resolve the Year 2000 compliance issue in a timely manner and is monitoring the
progress of its Y2K Project closely. Moreover, the Company is not presently
aware of any reasonably likely worst case Year 2000 scenarios which could
materially impact its financial statements. As noted above, the Company has not
yet completed all necessary phases of the Y2K Project. The Company plans to
evaluate the status of completion of all phases of the Y2K Project in June of
1999 and determine if and when contingency plans are necessary.
20
<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,
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.0(b) February 3, 1999, Second Amendment to Amended
and Restated Credit Agreement dated as of May 8,
1998, among Holdings, Graphics, GE Capital
Corporation as Documentation Agent, Morgan Stanley
Senior Funding, Inc. as Syndication Agent, Bankers
Trust Company as Administrative Agent and the
parties signatory thereto
12.1 Statement Re: Computation of Ratio of Earnings to
Fixed Charges
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None filed in the quarter ended December 31, 1998.
21
<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 February 11, 1999 By /s/ Joseph M. Milano
----------------------- -----------------------------------
Joseph M. Milano
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Date February 11, 1999 By /s/ Patrick W. Kellick
---------------------- -----------------------------------
Patrick W. Kellick
Senior Vice President - Corporate
Controller
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
10.0(b) February 3, 1999, Second Amendment to Amended and
Restated Credit Agreement dated as of May 8, 1998,
among Holdings, Graphics, GE Capital Corporation as
Documentation Agent, Morgan Stanley Senior Funding,
Inc. as Syndication Agent, Bankers Trust Company as
Administrative Agent and the parties signatory thereto 24
12.1 Statement Re: Computation of Ratio of Earnings to
Fixed Charges 31
27.0 Financial Data Schedule 32
23
SECOND AMENDMENT
SECOND AMENDMENT (this "Amendment"), dated as of February 3,
1999, among ACG HOLDINGS, INC., a Delaware corporation ("Holdings"), AMERICAN
COLOR GRAPHICS, INC., a New York corporation (the "Borrower"), the lenders party
to the Credit Agreement referred to below (the "Lenders"), GENERAL ELECTRIC
CAPITAL CORPORATION, as Documentation Agent (in such capacity, the
"Documentation Agent"), MORGAN STANLEY SENIOR FUNDING, INC., as Syndication
Agent (in such capacity, the "Syndication Agent"), and BANKERS TRUST COMPANY, as
Administrative Agent (in such capacity, the "Administrative Agent"). All
capitalized terms used herein and not otherwise defined herein shall have the
respective meanings provided such terms in the Credit Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Lenders, the
Documentation Agent, the Syndication Agent and the Administrative Agent are
parties to a Credit Agreement, dated as of August 15, 1995 and amended and
restated as of May 8, 1998 and further amended as of June 8, 1998 (the "Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 8.1 of the Credit Agreement is hereby amended by
(i) deleting the word "and" at the end of clause (h) appearing in said Section,
(ii) deleting the period at the end of clause (i) appearing in said Section and
inserting the text "; and" in lieu thereof and (iii) inserting the following new
clause (j) after clause (i) appearing in said Section:
"(j) so long as no Default or Event of Default then
exists or would exist after giving effect to the respective
sale, the Borrower may sell on the open-market Senior
Subordinated Notes acquired by the Borrower in accordance with
the requirements of Section 8.12."
2. Section 8.12 of the Credit Agreement is hereby amended by
(i) inserting the text "(x)" immediately following the text "except that, so
long as no Default or Event of Default then exists or would exist after giving
effect thereto," and (ii) inserting the following text immediately after proviso
appearing in clause (i) of said Section:
<PAGE>
"and (y) the Borrower may repurchase on the open-market Senior
Subordinated Notes in an aggregate principal amount not to
exceed $5,000,000 for all such repurchases pursuant to this
clause (y)".
3. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
4. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the
"Second Amendment Effective Date") when (i) Holdings, the Borrower, the
Administrative Agent, the Documentation Agent, the Syndication Agent and the
Lenders constituting the Required Lenders shall have signed a counterpart hereof
(whether the same or different counterparts) and shall have delivered (including
by way of facsimile transmission) the same to the Administrative Agent at its
Notice Office.
7. From and after the Second Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
ACG HOLDINGS, INC.
By: /s/ Joseph Milano
----------------------------------------
Name: Joseph Milano
Title: EVP & CFO
AMERICAN COLOR GRAPHICS, INC.
By: /s/ Joseph Milano
----------------------------------------
Name: Joseph Milano
Title: EVP & CFO
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /s/ David J. Bell
----------------------------------------
Name: David J. Bell
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
Individually and as Documentation Agent
By: /s/ Anne Kennelly Kratky
----------------------------------------
Name: Anne Kennelly Kratky
Title: Manager-Operations
<PAGE>
MORGAN STANLEY SENIOR FUNDING, INC.,
Individually and as Syndication Agent
By: /s/ Michael Hart
----------------------------------------
Name: Michael Hart
Title: Principal
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.,
as Attorney-in-Fact and on behalf of
First Allmerica Financial Life Insurance
Company, as Portfolio Manager
By: /s/ Peter K. Merrill
----------------------------------------
Name: Peter K. Merrill
Title: Managing Director
CYPRESSTREE INVESTMENT
PARTNERS 1, LTD.,
By: CypressTree Investment Management
Company, Inc., as Portfolio Manager
By: /s/ Peter K. Merrill
----------------------------------------
Name: Peter K. Merrill
Title: Managing Director
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Stephen D. Metts
----------------------------------------
Name: Stephen D. Metts
Title: Vice President
<PAGE>
FINOVA CAPITAL CORPORATION
By: /s/ Brian Rujawutz
----------------------------------------
Name: Brian Rujawutz
Title: AVP
FREMONT FINANCIAL CORPORATION
By: /s/ Maria Chachere
----------------------------------------
Name: Maria Chachere
Title: Vice President
OAK HILL SECURITIES FUND, L.P.
By:
----------------------------------------
Name:
Title:
PILGRIM AMERICA PRIME RATE TRUST
By: Pilgrim America Investments, Inc.,
as its Investment Manager
By:
----------------------------------------
Name:
Title:
<PAGE>
PPM AMERICA SPECIAL INVESTMENTS FUND, L.P.
By: PPM America, Inc.
By:
----------------------------------------
Name:
Title:
PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P.
By: PPM America, Inc.
By:
----------------------------------------
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Michael J. Cox
----------------------------------------
Name: Michael J. Cox
Title: 1st V.P.
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Perry Vavoules
----------------------------------------
Name: Perry Vavoules
Title: Senior Vice President
<PAGE>
KZH CYPRESSTREE-1 LLC
By: /s/ Virginia Conway
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH HIGHLAND-2 LLC
By: /s/ Virginia Conway
----------------------------------------
Name: Virginia Conway
Title: Authorized Agent
EXHIBIT 12.1
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, 1998 March 31, 1998 March 31, 1997 March 31, 1996 March 31, 1995 March 31, 1994
------------------ --------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated pretax income
(loss) from continuing
operations 2,628 (27,122) (26,005) (21,431) (1,869) (20,296)
Net amortization of debt
issuance expense 1,076 2,292 1,784 2,139 2,174 1,837
Interest expense 26,436 36,664 34,505 30,549 23,578 22,212
Interest portion of
rental expense 1,598 2,130 1,799 1,618 1,392 1,229
--------- --------- -------- -------- ------- -------
Earnings 31,738 13,964 12,083 12,875 25,275 4,982
========= ========= ======== ======== ======= =======
Interest expense 26,436 36,664 34,505 30,549 23,578 22,212
Net amortization of
debt issuance Expense 1,076 2,292 1,784 2,139 2,174 1,837
Interest portion of
rental expense 1,598 2,130 1,799 1,618 1,392 1,229
--------- --------- -------- -------- ------- -------
Fixed Charges 29,110 41,086 38,088 34,306 27,144 25,278
========= ========= ======== ======== ======= =======
Ratio of Earnings to
Fixed Charges 1.09 (a) (a) (a) (a) (a)
========= ========= ======== ======== ======= =======
</TABLE>
(a) The deficiency in earnings required to cover fixed charges for the
fiscal years ended March 31, 1998, 1997, 1996, 1995 and 1994 was $27,122,
$26,005, $21,431, $1,869 and $20,296, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACG
HOLDINGS, INC.'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTH PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000856710
<NAME> ACG HOLDINGS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 66,205
<ALLOWANCES> 2,885
<INVENTORY> 9,889
<CURRENT-ASSETS> 75,848
<PP&E> 263,091
<DEPRECIATION> 116,580
<TOTAL-ASSETS> 306,957
<CURRENT-LIABILITIES> 67,306
<BONDS> 185,000
0
0
<COMMON> 1
<OTHER-SE> (110,077)
<TOTAL-LIABILITY-AND-EQUITY> 306,957
<SALES> 399,074
<TOTAL-REVENUES> 399,074
<CGS> 334,498
<TOTAL-COSTS> 334,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,125
<INTEREST-EXPENSE> 27,512
<INCOME-PRETAX> 2,628
<INCOME-TAX> 2,066
<INCOME-CONTINUING> 562
<DISCONTINUED> 0
<EXTRAORDINARY> (4,020)
<CHANGES> 0
<NET-INCOME> (3,458)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
