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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended March 31, 2000
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Aggregate market value of the voting and non-voting common stock of ACG
Holdings, Inc. held by non-affiliates: Not applicable.
ACG Holdings, Inc. has 143,399 shares outstanding of its common stock, $.01 Par
Value, as of May 31, 2000 (all of which are privately owned and not traded on
a public market).
DOCUMENTS INCORPORATED BY REFERENCE
None
INDEX
Page
Referenced
Form 10-K
----------
PART I
Item 1. Business....................................................... 2
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to A Vote of Security Holders............ 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................... 9
Item 6. Selected Financial Data....................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 22
Item 8. Financial Statements and Supplementary Data................... 23
Item 9. Changes In And Disagreements With Accountants on
Accounting and Financial Disclosure........................... 51
PART III
Item 10. Directors and Executive Officers ............................ 52
Item 11. Executive Compensation....................................... 53
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 58
Item 13. Certain Relationships and Related Transactions............... 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 61
Signatures.................................................... 70
PART I
Special Note Regarding Forward Looking Statements
This Annual Report on Form 10-K (this "Report") contains forward-looking
statements within the meaning of Section 21E of the Securities Act of 1934.
Discussions containing such forward-looking statements may be found in Items 1,
3, 7 and 7A hereof, 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 are subject to a number of risks and uncertainties. Actual results in
the future could differ materially from those described in the forward-looking
statements as a result of many factors outside the control of ACG Holdings, Inc.
("Holdings") formerly Sullivan Communications, Inc. ("Communications"), together
with its wholly-owned subsidiary, American Color Graphics, Inc. ("Graphics")
formerly Sullivan Graphics, Inc., including, but not limited to:
- fluctuations in the cost of paper and other raw materials used,
- changes in the advertising and print markets,
- actions by our competitors, particularly with respect to pricing,
- the financial condition of our customers,
- our financial condition and liquidity,
- the general condition of the United States economy,
- demand for our products and services, and
- the matters set forth in this Report generally.
Consequently, such forward-looking statements should be regarded solely as our
current plans, estimates and beliefs. We do not undertake and specifically
decline 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.
ITEM 1. BUSINESS
General
We are a successor to a business that commenced operations in 1926, and are one
of the largest national diversified commercial printers in North America with
ten print plants in eight states and Canada, nine prepress facilities located
throughout the United States and one digital visual effects facility, that
provides special effects services for the motion picture industry, located in
California. We operate primarily in two business segments of the commercial
printing industry: print, (which accounted for approximately 84% of total sales
during the fiscal year ended March 31, 2000 ("Fiscal Year 2000")) and digital
imaging and prepress services conducted through our American Color division
(which accounted for approximately 15% of total sales in Fiscal Year 2000). Our
print business and our digital imaging and prepress services business are both
headquartered in Nashville, Tennessee. Partnerships affiliated with Morgan
Stanley Dean Witter & Co. ("MSDW") currently own 57.7% of the outstanding common
stock and 72.7% of the outstanding preferred stock of Holdings.
Market data used throughout this Report was obtained from industry publications
and internal company estimates. While we believe such information is reliable,
the accuracy of such information has not been independently verified and cannot
be guaranteed.
Financial Information About Industry Segments
See disclosure in note 16 of our consolidated financial statements appearing
elsewhere in this Report.
2
Print
Our print business, which accounted for approximately 84%, 83% and 84% of our
sales in Fiscal Year 2000, the fiscal year ended March 31, 1999 ("Fiscal Year
1999") and the fiscal year ended March 31, 1998 ("Fiscal Year 1998"),
respectively, produces retail advertising inserts, comics (newspaper Sunday
comics, comic insert advertising and comic books), and other publications.
Retail Advertising Inserts (83% of print sales in Fiscal Year 2000, 81% in
Fiscal Year 1999 and 80% in Fiscal Year 1998). We believe that we are one of the
largest printers of retail advertising inserts in the United States. We print
advertising inserts for approximately 300 retailers. Retail advertising inserts
are preprinted advertisements, generally in color, that display products sold by
a particular retailer or manufacturer. Advertising inserts are used extensively
by many different retailers, including discount, department, supermarket, home
center, drug and automotive stores. Inserts are an important and cost effective
means of advertising for these merchants. Advertising inserts are primarily
distributed through insertion in newspapers but are also distributed by direct
mail or in-store by retailers. They generally advertise for a specific, limited
sale period. As a result, advertising inserts are both time sensitive and
seasonal.
Comics (11% of print sales in Fiscal Year 2000, 13% in Fiscal Year 1999 and 14%
in Fiscal Year 1998, includes newspaper Sunday comics, comic insert advertising
and comic books). We believe that we are one of the largest printers of comics
in the United States. We print Sunday comics for over 200 newspapers in the
United States and Canada and print a significant share of the annual comic book
requirements of Marvel Entertainment Group, Inc.
Other Publications (6% of print sales in Fiscal Year 2000, Fiscal Year 1999 and
Fiscal Year 1998). We print local newspapers, TV guide listings and other
publications.
Print Production
Our network of ten print plants in the United States and Canada are
strategically well positioned to service major metropolitan centers, providing
us with distribution efficiencies and shorter turnaround times, two factors that
we believe will allow our continuing success in servicing large national and
regional accounts. There are primarily three printing processes used to produce
advertising inserts and newspaper supplements: offset lithography (heatset and
cold), rotogravure and flexography. We principally use heatset offset and
flexographic web printing equipment in our print operations. We own a
substantial majority of our printing equipment, which currently consists of 40
heatset offset presses, 5 coldset offset presses and 11 flexographic presses.
Most of our advertising inserts, publications and comic books are printed using
the offset process, while substantially all of our newspaper Sunday comics and
comic advertising inserts are printed using the flexographic process.
In the heatset offset process, the desired printed images are distinguished
chemically from non-image areas of a metal plate which allow the image area to
attract the ink which is then transferred from the plate to a rubber blanket and
then to the paper surface. Once printed, the web goes through an oven which
evaporates the solvents from the ink, thereby setting the ink on the paper. In
the cold offset process, inks are set by the absorption and oxidation of
solvents into the paper. Due to the drying process, the heatset offset process
can be utilized on a wide variety of papers. Generally, heatset offset presses
have the ability to provide a more colorful and attractive product than cold
offset presses.
The flexographic process differs from offset printing in that it utilizes relief
image plates and rapid-drying, water-based (as opposed to solvent-based) inks.
The flexographic image area results from application of ink to the raised image
surface on the plate, which is transferred directly to the paper. Our
flexographic printing generally can provide vibrant color reproduction at a
lower cost than heatset offset printing. The strengths of flexography compared
with the rotogravure and offset processes are faster press set up times, reduced
paper waste, reduced energy use and maintenance costs, and environmental
advantages due to the use of water-based inks and the use of less paper. Faster
press set up times make the process particularly attractive to commercial
customers with shorter runs and extensive regional versioning. Recent
technological advancements have greatly reduced the gap in reproduction quality
between flexography and heatset offset.
3
In addition to press capacity, certain equipment parameters are critical to
competing in the advertising insert market, including cut-off size, folder
capabilities and certain in-line and off-line finishing capabilities. Cut-off
size is one of the determinants of the size of the printed page, the other being
web width. Folder capabilities for advertising inserts must include a wide
variety of page sizes, page counts and page layouts. Finally, some advertising
inserts require gluing or stitching of the product, adding cards, trimming and
numbering. These production activities generally are done in-line with the press
to meet the expedited delivery schedules and pricing required by many customers.
We believe that our mix and configuration of presses and press services allows
for efficient tailoring of printing services to customers' product needs.
Digital Imaging and Prepress Services
Our digital imaging and prepress services business is conducted by our American
Color division ("American Color") which accounted for approximately 15%, 16% and
15% of our Fiscal Year 2000, Fiscal Year 1999 and Fiscal Year 1998 sales,
respectively. We believe we are one of the largest full-service providers of
digital imaging, prepress and color separation services in the United States and
a technological leader in this industry. Our digital imaging and prepress
services business commenced operations in 1975 and maintains nine full service
locations nationwide.
We assist customers in the capture, manipulation, transmission and distribution
of images. The majority of this work leads to the production of a four-color
image in a format appropriate for use by printers. We make page changes,
including type changes, and combine digital page layout information with
electronically captured and color-corrected four-color images. From these
digital files, proofs, final corrections, and finally, four-color films or
digital files are produced for each advertising or editorial page. The final
four-color films or digital files enable printers to prepare plates for each
color resulting in the appearance of full color on the printed page. Our revenue
from these traditional services is being supplemented by new revenue sources
from electronic prepress services such as digital image storage, facilities
management (operating digital imaging and prepress service facilities at a
customer location), computer-to-plate services, creative services, consulting
and training services, multimedia and internet services, and software and
data-base management. We have been a leader in implementing these new
technologies, which enables us to reduce unit costs and effectively service the
increasingly complex demands of our customers more quickly than many of our
competitors. We have also been one of the leaders in the integration of
electronic page make-up, microcomputer-based design and layout, and digital
cameras into prepress production.
The digital imaging and prepress services industry is highly fragmented,
primarily consisting of smaller local and regional companies, with only a few
national full-service digital imaging and prepress service companies such as
American Color, none of which has a significant nationwide market share. Many
smaller digital imaging and prepress service companies have left the industry in
recent years due to their inability to keep pace with technological advances in
the industry.
Competitive Advantages and Strategy
Competitive Advantages. We believe that we have the following competitive
advantages in our print and digital imaging and prepress services businesses:
Modern Equipment. We believe that our web heatset offset and flexographic web
printing equipment is generally among the most advanced in the industry and that
the average age of our equipment is significantly less than the majority of our
regional competitors and is comparable to our major national competitors. We are
also committed to a comprehensive, long-term maintenance program, which enhances
the reliability and extends the life of our presses and other production
equipment. We also believe that our digital imaging and prepress equipment is
significantly more advanced than many of our smaller regional competitors, many
of whom have not incorporated digital prepress technologies and
computer-to-plate services to the same extent as we have, nor adopted an open
systems environment which allows greater flexibility and more efficient
maintenance.
Strong Customer Base. We provide printing services to a diverse base of
customers, including approximately 300 retailers and over 200 newspapers in the
United States and Canada. Our print services customer base includes a
significant number of the major national retailers and larger newspaper chains
as well as numerous smaller regional retailers. Our consistent focus on
providing high quality print products and strong customer service at competitive
prices has resulted in long-term relationships with many of these customers. Our
digital imaging and prepress services' customer base includes large and
medium-sized customers in the publishing, retail and catalog businesses, many of
whom also have long-term relationships with our print segment. Although the
digital imaging and prepress services business has generally been on a spot bid
basis in the past, we have been successful in continuing to increase the
proportion of our business under long-term contracts.
4
Competitive Cost Structure. We have reduced the variable and fixed costs of
production at our print facilities over the past several years and believe we
are well positioned to maintain our competitive cost structure in the future due
to economies of scale. We have also reduced both labor and material costs (the
principal variable production costs) and selling, general and administrative
expenses in our digital imaging and prepress services business primarily through
the adoption of new digital prepress production methodologies and continued cost
containment focus.
Strong Management Team. We have strengthened our print management group by
hiring experienced managers with a clear focus on growth, quality and continued
cost reduction, resulting in an improved cost structure and a well-defined
strategy for future expansion. We have also strengthened our management group in
our digital imaging and prepress services business, filling a number of senior,
regional and plant management positions with individuals who we believe will
manage the digital imaging and prepress services business for growth and
profitability and will continue to upgrade our capabilities.
National Presence. Our nine print plants in the United States and one plant in
Canada provide us with distribution efficiencies, strong customer service,
flexibility and short turnaround times, all of which are instrumental in our
continued success in servicing our large national and regional retail accounts.
Our expanded sales and marketing groups provide greater customer coverage and
enable us to more successfully penetrate regional markets. We believe that our
nine digital imaging and prepress service facilities provide us with contingency
capabilities, increased capacity during peak periods, access to top quality
internal technical personnel throughout the country, short turnaround time and
other customer service advantages.
Strategy. Our objective is to increase shareholder value by growing our
revenues, increasing our market share and reducing costs. Our strategy to
achieve this objective is as follows:
Grow Unit Volume. Management believes that our level of national sales coverage,
when coupled with our significant industry experience and customer-focused sales
force, will result in continued unit growth. In an effort to stimulate unit
volume growth, we have strengthened our print sales group. Unit volume growth is
also expected to result from continued capital expansion and selective print
acquisitions. In addition, in our digital imaging and prepress services
business, we have strengthened our sales force, provided expanded training, and
more closely focused our marketing efforts on new, larger customers.
Continue to Improve Product Mix. We intend to increase our share of the retail
advertising insert market. In addition, we expect to continue to adjust the mix
of our customers and products within the retail advertising insert market to
those that are more profitable and less seasonable and to maximize the use of
our equipment. We are also continuing expansion of our print facilities'
capabilities for in-plant prepress and postpress services. Our digital imaging
and prepress services business will continue to focus on high value-added new
business opportunities, particularly large-scale projects that will best utilize
the breadth of services and technologies we have to offer. Additionally, we will
continue to pursue large facilities management opportunities as well as national
and large regional customers that require more sophisticated levels of service
and technologies.
Continue to Reduce Manufacturing Costs and Improve Quality. We intend to further
reduce our production costs at our print facilities through our Total Quality
Management Process, an ongoing cost reduction and continuous quality improvement
process. Additionally, we plan to continue to maximize scale advantages in the
purchasing, technology and engineering areas. We also intend to continue to gain
variable cost efficiencies in our digital imaging and prepress services business
by using our technical resources to improve digital prepress workflows at our
various facilities. In addition, we believe we will be able to reduce our per
unit technical, sales and management costs as we increase sales in this
business.
Continue to Make Opportunistic Acquisitions. An integral part of our long-term
growth strategy includes a plan to selectively assess and acquire other print
and digital imaging and prepress services companies that we believe will enhance
our leadership position in these industries.
5
Customers and Distribution
Customers. We sell our print products and services to a large number of
customers, primarily retailers and newspapers, and all of the products are
produced in accordance with customer specifications. We perform a portion of our
print work, primarily the printing of Sunday comics and comic books, under
long-term contracts with our customers. The contracts vary in length and many of
the contracts automatically extend for one year unless there has been notice to
the contrary from either of the contracting parties within a certain number of
days before the end of any term. For the balance of our print work, we obtain
varying time commitments from our customers ranging from job to job to annual
allocations. Print prices are generally fixed during such commitments; however,
our standard terms of trade call for the pass-through of changes in the price of
raw materials, primarily paper and ink.
Our digital imaging and prepress services' customers consist of magazine and
newspaper publishers, retailers, catalog sales organizations, printers, consumer
products companies, advertising agencies and direct mail advertisers. Our
customers typically have a need for high levels of technical expertise, short
turnaround times and responsive customer service. In addition to our historical
regional customer base, our digital imaging and prepress services business is
increasingly focused on larger, national accounts that have a need for a broad
range of fully integrated services and communication capabilities requiring
leading edge technology. This trend has resulted in an increase in the volume
related to facilities management arrangements with customers over the past
several years. These contracts typically extend from three to five years in
length.
The print and digital imaging and prepress services businesses have historically
had certain common customers and our ability to cross-market is an increasingly
valuable tool as computer-to-plate, regional versioning, electronic digital
imaging, facilities management and speed to market become more important to our
customers. This enables us to provide more comprehensive solutions to our
customers' digital imaging and prepress and printing needs.
No single customer accounted for sales in excess of 10% of our consolidated
sales in Fiscal Year 2000. Our top ten customers accounted for approximately 40%
of consolidated sales in Fiscal Year 2000.
Distribution. We distribute our print products primarily by truck to customer
designated locations, primarily newspapers, customer retail stores and via mail.
Costs of distribution are generally paid by the customers, and most shipping is
by common carrier. Our digital imaging and prepress services business generally
distributes its products via electronic transmission, overnight express, or
other methods of personal delivery.
Competition
Commercial printing in the United States is a large, highly fragmented,
capital-intensive industry and we compete with numerous national, regional and
local printers. A trend of industry consolidation in recent years can be
attributed to (1) customer preferences for larger printers with a greater range
of services, (2) capital requirements and (3) competitive pricing pressures. We
believe that competition in the print business is based primarily on quality and
service at a competitive price.
American Color competes with numerous digital imaging and prepress service firms
on both a national and regional basis. The industry is highly fragmented,
primarily consisting of smaller local and regional companies, with only a few
national full-service digital imaging and prepress companies such as American
Color, none of which has a significant nationwide market share. Many smaller
digital imaging and prepress companies have left the industry in recent years
due to their inability to keep pace with the technological advances required to
service increasingly complex customer demands. We believe that the digital
imaging and prepress services sector will continue to be subject to high levels
of ongoing technological change and the need for capital expenditures to keep up
with such change.
6
Raw Materials
The primary raw materials used in our print business are paper and ink. During
Fiscal Year 1998, paper prices increased slightly through mid year and then
declined to near beginning of the year levels. In Fiscal Year 1999, as most
grades of paper became more plentiful, paper prices declined. During Fiscal Year
2000, paper prices were on average at lower levels than comparable periods in
Fiscal Year 1999. Management expects that, as a result of our strong
relationships with key suppliers, our material costs will remain competitive
within the industry. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. We purchase substantially all of our ink and related products under
long-term ink supply contracts. The primary inputs in prepress service processes
are film and proofing materials.
In both of our business segments, there is an adequate supply of the necessary
materials available from multiple vendors. We are not dependent on any single
supplier and have had no significant problems in the past obtaining necessary
raw materials.
Seasonality
Some of our print and digital imaging and prepress services business is seasonal
in nature, particularly those revenues derived from advertising inserts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - - Seasonality" appearing elsewhere in this Report.
Backlog
Because our print, digital imaging and prepress services products are required
to be delivered soon after final customer orders are received, we do not
experience any backlog of unfilled customer orders.
Employees
As of April 30, 2000, we had a total of approximately 2,835 employees, of which
approximately 240 employees are represented by a collective bargaining agreement
that will expire on December 31, 2004. We consider our relations with our
employees to be excellent.
Governmental and Environmental Regulations
We are subject to regulation under various federal, state and local laws
relating to employee safety and health, and to the generation, storage,
transportation, disposal and emission into the environment of hazardous
substances. We believe that we are in material compliance with such laws and
regulations. Although compliance with such laws and regulations in the future is
likely to entail additional capital expenditures, we do not anticipate that such
expenditures will be material. See "Legal Proceedings - Environmental Matters"
appearing elsewhere in this Report.
ITEM 2. PROPERTIES
We operate in 20 locations in 13 states and Canada. We own seven print plants in
the United States and one in Canada and lease two print plants, one in
California and one in Pennsylvania. Our American Color division has nine
production locations, all of which are leased. Our American Color division also
operates digital imaging and prepress facilities on the premises of several of
our customers ("facilities management"). In addition, we maintain one small
executive office in Connecticut, a digital visual effects facility in California
and our headquarter facility in Nashville, Tennessee, all of which are leased.
We believe that our plants and facilities are adequately equipped and maintained
for present and planned operations.
7
ITEM 3. LEGAL PROCEEDINGS
We have been named as a defendant in several legal actions arising from our
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 our financial condition or results of operations.
Environmental Matters
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 our ultimate
liability is not precisely determinable, the PRPs have agreed that Graphics'
share of removal costs is approximately 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, we maintain a reserve of approximately $0.1 million in
connection with this liability on our consolidated balance sheet at March 31,
2000. We believe this amount is adequate to cover such liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established public market for the common stock of either
Holdings or Graphics.
Holders
As of May 31, 2000, there were approximately 96 record holders of
Holdings' common stock. Holdings is the sole shareholder of Graphics'
common stock.
Dividends
There have been no cash dividends declared on any class of common
equity for the two most recent fiscal years. See restrictions on
Holdings' ability to pay dividends and Graphics' ability to transfer
funds to Holdings in note 1 to our consolidated financial statements
appearing elsewhere in this Report.
Recent Sales of Unregistered Securities
During the first and third quarters of Fiscal Year 2000, certain
officers exercised options to purchase an aggregate of 8,143 and 1,106
shares of Holdings stock, respectively, for $.01/share. The securities
that were sold were exempt from registration on the basis that all such
officers are "accredited investors" as defined by the rules of the
Securities Act of 1933, as amended.
During the fourth quarter of Fiscal Year 1998, certain officers
exercised options to purchase an aggregate of 8,254 shares of Holdings'
common stock for $.01/share. The securities that were sold were exempt
from registration on the basis that all such officers are "accredited
investors" as defined by the rules of the Securities Act of 1933, as
amended.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data for and as of the fiscal years ended
March 31, 2000, 1999, 1998, 1997 and 1996. The balance sheet data as of March
31, 2000, 1999, 1998, 1997 and 1996 and the statement of operations data for the
fiscal years ended March 31, 2000, 1999, 1998, 1997 and 1996 are derived from
the audited consolidated financial statements for such periods and at such
dates. The selected financial data below also reflects our discontinued
wholly-owned subsidiary, Sullivan Media Corporation ("SMC") and our coupon free
standing insert ("FSI") operation previously conducted by our discontinued
wholly-owned subsidiary Sullivan Marketing, Inc. ("SMI").
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements appearing elsewhere in this Report.
9
Selected Financial Data
ACG Holdings, Inc.
Fiscal Year Ended March 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------
Statement of Operations Data: (dollars in thousands)
Sales $ 546,710 520,343 533,335 524,551 529,523
Cost of Sales 456,445 439,091 461,407 459,880 465,110
--------- --------- --------- --------- ---------
Gross Profit 90,265 81,252 71,928 64,671 64,413
Selling, general and administrative expenses (a) 44,181 46,333 54,227 51,418 44,164
Restructuring costs and other special charges (b) -- 5,464 5,598 2,881 7,533
--------- --------- --------- --------- ---------
Operating income 46,084 29,455 12,103 10,372 12,716
Interest expense, net 33,798 36,077 38,813 36,132 32,425
Other expense 627 1,217 412 245 1,722
Income tax expense 2,189 523 2,106 2,591 4,874
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before
extraordinary items 9,470 (8,362) (29,228) (28,596) (26,305)
--------- --------- --------- --------- ---------
Discontinued operations: (c)
Loss from operations, net of tax -- -- -- (1,557) (1,364)
Estimated (loss) gain on shut down, net of tax -- -- (667) (1,550) 2,868
Extraordinary loss on early extinguishment of debt (d) -- (4,106) -- -- (4,526)
--------- --------- --------- --------- ---------
Net income (loss) $ 9,470 (12,468) (29,895) (31,703) (29,327)
========= ========= ========= ========= =========
Balance Sheet Data (at end of period):
Working capital (deficit) $ (2,973) (5,451) 11,610 (8,598) 9,612
Total assets $ 303,812 299,000 329,958 333,975 351,181
Long-term debt and capitalized leases, including
current installments $ 277,344 289,589 319,657 312,309 297,617
Stockholders' deficit $(109,389) (119,306) (106,085) (76,318) (44,396)
Other Data:
Net cash provided (used) by operating activities $ 38,774 48,137 18,257 24,313 (4,187)
Net cash used by investing activities $ (24,145) (10,364) (10,100) (10,997) (24,436)
Net cash (used) provided by financing activities $ (14,576) (37,812) (8,143) (13,312) 23,982
Capital expenditures (including lease obligations
entered into) $ 22,724 16,238 23,713 37,767 28,022
EBITDA (e) $ 80,007 64,286 52,367 46,972 46,847
10
NOTES TO SELECTED FINANCIAL DATA
(a) Fiscal Year 1998 selling, general and administrative expense includes
$1.5 million of non-recurring American Color charges associated with
the relocation of American Color's corporate office and various
severance related expenses and $0.6 million of non-cash charges
associated with an employee benefit program.
The fiscal year ended March 31, 1997 ("Fiscal Year 1997") selling,
general and administrative expense includes $2.5 million of
non-recurring employee termination expenses.
(b) In March 1999, we approved a restructuring plan for our American Color
division, which was designed to consolidate certain facilities in order
to improve asset utilization and operational efficiency, modify the
organizational structure as a result of facility consolidation and
other changes and reduce overhead and other costs. We recorded $4.6
million of costs under this plan in Fiscal Year 1999.
In January 1998, we approved a restructuring plan for our print
division designed to improve responsiveness to customer requirements,
increase asset utilization and reduce overhead costs. We recorded $3.9
million of costs under this plan in Fiscal Year 1998.
In April 1995, we implemented a restructuring plan for our American
Color division, which was designed to improve productivity, increase
customer service and responsiveness and provide increased growth in the
business. We recorded $0.9 million and $4.1 million of costs under this
plan in Fiscal Year 1997 and the fiscal year ended March 31, 1996
("Fiscal Year 1996"), respectively.
In addition, we recorded $0.9 million, $1.7 million, $1.9 million and
$3.4 million of other special charges related to asset write-offs and
write-downs in our print and American Color divisions in Fiscal Year
1999, Fiscal Year 1998, Fiscal Year 1997 and Fiscal Year 1996,
respectively. See note 14 to our consolidated financial statements
appearing elsewhere in this Report.
(c) In February of Fiscal Year 1997, we made a strategic decision to shut
down the operation of our wholly-owned subsidiary SMC. This resulted in
an estimated net loss on shut down of approximately $1.5 million, which
is net of zero income tax benefits. SMC's shut down has been accounted
for as a discontinued operation, and accordingly, SMC's operations are
segregated in our consolidated financial statements. Sales, costs of
sales and selling, general and administrative expenses attributable to
SMC for Fiscal Years 1997 and 1996 have been reclassified to
discontinued operations.
In Fiscal Year 1996, we recognized settlement of a complaint naming our
subsidiary, SMI, News America FSI, Inc. and two packaged goods
companies as defendants (the "EPI lawsuit") and reversed certain
accruals related to the estimated loss on shut down of SMI. The
resulting effect reflected in the Fiscal Year 1996 consolidated
statement of operations was $2.9 million income in discontinued
operations.
(d) As part of a refinancing transaction entered into on May 8, 1998 (the
"1998 Refinancing"), we recorded an extraordinary loss related to early
extinguishment of debt of $4.1 million, net of zero taxes. This
extraordinary loss primarily consisted of the write-off of deferred
financing costs related to refinanced indebtedness in the quarter ended
June 30, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
In August 1995, as part of Shakopee Valley Printing, Inc. merging with
and into Graphics (the "Shakopee Merger") and the refinancing
transactions (the "1995 Refinancing"), collectively (the "1995
Transactions"), we recorded an extraordinary loss related to early
extinguishment of debt of $4.5 million, net of zero taxes. This
extraordinary loss primarily consisted of the early redemption premium
on Graphics' 15% Senior Subordinated Notes due 2000 (the "15% Notes")
and the write-off of deferred financing costs related to refinanced
indebtedness partially offset by the write-off of a bond premium
associated with the 15% Notes.
11
(e) EBITDA is included in the Selected Financial Data 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 special
charges related to asset write-offs and write-downs, other income
(expense), discontinued operations and extraordinary items. 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
Indenture dated as of August 15, 1995 and the bank credit agreement
entered into in May 1998 (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources") are based on EBITDA, subject to certain adjustments.
EBITDA in Fiscal Year 2000 includes $0.5 million of non-recurring costs
associated with the consolidation of certain production facilities at
the American Color division.
EBITDA in Fiscal Year 1999 includes $4.6 million in restructuring costs
related to the American Color division, $0.6 million of non-recurring
costs associated with the consolidation of certain production
facilities at the American Color division, $0.3 million of
non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program.
EBITDA in Fiscal Year 1998 includes $3.9 million in restructuring costs
related to the print division, $1.5 million of non-recurring charges
associated with the relocation of American Color's corporate office and
various severance related expenses, and $0.7 million of certain charges
associated with employee benefit programs.
EBITDA in Fiscal Year 1997 includes $0.9 million of restructuring costs
related to the American Color division and non-recurring employee
termination expenses of $2.5 million.
EBITDA in Fiscal Year 1996 includes $4.1 million of restructuring costs
related to the American Color division.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
On May 8, 1998, we refinanced all of our existing bank indebtedness in the 1998
Refinancing (see note 6 to our consolidated financial statements appearing
elsewhere in this Report and "Liquidity and Capital Resources" below). The
primary objectives of the refinancing were to gain greater financial and
operating flexibility, to reduce our overall cost of capital and to provide
greater opportunity for internal growth and growth through acquisitions.
Print. Commercial printing in the United States is highly competitive. The
significant capital required to keep pace with changing technology and
competitive pricing trends has led to a trend of industry consolidation in
recent years. In addition, customers' preference for larger printers, such as
our company, with a wider variety of services, greater distribution
capabilities, critical scale and more flexibility have also contributed to
consolidation within the industry. The industry is expected to remain
competitive in the near future and our sales will continue to be subject to
changes in retailers' demands for printed products.
The cost of paper is a principal factor in our overall pricing to our customers.
The level of paper costs also has a significant impact on our reported sales.
During Fiscal Year 1998, paper prices increased slightly through mid year and
then declined to near beginning of the year levels. In Fiscal Year 1999, as most
grades of paper became more plentiful, paper prices declined. During Fiscal Year
2000, paper prices were on average at lower levels than comparable periods in
Fiscal Year 1999. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers.
In recent years, comprehensive quality improvement and cost reduction programs
have been implemented for all our printing processes. As a result of these
measures, we have been successful in lowering our manufacturing costs within the
print sector, while improving product quality. Additionally, in order to grow
sales and improve gross margins, we increased the geographic and industry scope
of our sales force and shifted the mix of our business toward retail customers
and away from the printing of certain lower margin publications. Furthermore,
management believes that continued strong demand for the retail advertising
insert product has resulted in less excess industry capacity and therefore an
improved supply/demand position within the marketplace. This dynamic has
resulted in a greater stabilization of printing prices which in conjunction with
our cost reduction programs and increased unit volume has had a favorable impact
on print gross profit levels.
In January 1998, we approved a plan for our print division which was designed to
improve responsiveness to customer requirements, increase asset utilization and
reduce overhead costs. The cost of this plan was accounted for in accordance
with the guidance set forth in Emerging Issues Task Force Issue 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3")
(see "Restructuring Costs and Other Special Charges" below).
American Color (Digital Imaging and Prepress Services). The digital imaging and
prepress services industry has experienced significant technological advances as
electronic digital prepress systems have replaced the more manual and
photography-based methods utilized in the past. This shift in technology, which
improved process efficiencies and decreased processing costs, produced increased
unit growth for American Color as the demand for color pages increased. American
Color's selling price levels per page, however, have declined because of greater
efficiencies resulting from technological advancements. American Color's revenue
from traditional services are now supplemented by new revenue sources such as
digital image storage, facilities management, computer-to-plate services,
creative services, consulting and training services, multimedia and internet
services, and software and data-base management.
In March 1999, we approved a plan for our digital imaging and prepress services
business, which was designed to consolidate certain facilities in order to
improve asset utilization and operational efficiency, modify the organizational
structure as a result of facility consolidation and other changes, and reduce
overhead and other costs. The cost of this plan is being accounted for in
accordance with the guidelines set forth in EITF 94-3 (see "Restructuring Costs
and Other Special Charges" below).
13
The following table summarizes our historical results of continuing operations
for Fiscal Years 2000, 1999 and 1998:
Fiscal Year Ended March 31,
------------------------------------------
2000 1999 1998
--------- --------- ---------
(dollars in thousands)
Sales
Print $ 462,886 431,936 446,350
American Color 80,240 83,816 82,384
Other (a) 3,584 4,591 4,601
--------- --------- ---------
Total $ 546,710 520,343 533,335
========= ========= =========
Gross Profit
Print $ 73,572 62,025 51,278
American Color 17,971 19,128 19,249
Other (a) (1,278) 99 1,401
--------- --------- ---------
Total $ 90,265 81,252 71,928
========= ========= =========
Gross Margin
Print 15.9% 14.4% 11.5%
American Color 22.4% 22.8% 23.4%
Total 16.5% 15.6% 13.5%
Operating Income (Loss)
Print (b) (c) $ 49,446 38,994 22,612
American Color (b) (c) 4,883 (2,542) 2,404
Other (a) (d) (e) (8,245) (6,997) (12,913)
--------- --------- ---------
Total $ 46,084 29,455 12,103
========= ========= =========
(a) Other operations primarily include revenues and expenses associated
with our digital visual effects business ("Digiscope").
(b) Print operating income includes the impact of $1.7 million in Fiscal
Year 1998 of other special charges related to asset write-offs and
write-downs. American Color's operating loss includes the impact of
other special charges related to asset write-offs and write-downs of
$0.9 million in Fiscal Year 1999. See "Restructuring Costs and Other
Special Charges" below.
(c) Print operating income includes the impact of $3.9 million of
restructuring costs in Fiscal Year 1998. American Color's operating
loss includes the impact of restructuring costs of $4.6 million in
Fiscal Year 1999. See "Restructuring Costs and Other Special Charges"
below. American Color's operating income (loss) also includes $0.6
million and $0.9 million of non-recurring charges in Fiscal Year 2000
and Fiscal Year 1999, respectively, associated with the consolidation
of certain production facilities and $1.5 million of non-recurring
charges in Fiscal Year 1998 associated with the relocation of its
corporate office and various severance related expenses.
(d) Also includes corporate general and administrative expenses, and
amortization expense.
(e) Other operations also reflects the impact of $0.3 million of
non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program in Fiscal
Year 1999 and certain charges associated with employee benefit programs
of $0.7 million in Fiscal Year 1998.
14
Historical Results of Operations
Fiscal Year 2000 vs. Fiscal Year 1999
Total sales increased 5.1% to $546.7 million in Fiscal Year 2000 from $520.3
million in Fiscal Year 1999. This increase includes an increase in print sales
of $31.0 million, or 7.2%, offset in part by a decrease in American Color sales
of $3.6 million, or 4.3%. Total gross profit increased to $90.3 million or 16.5%
of sales in Fiscal Year 2000 from $81.3 million or 15.6% of sales in Fiscal Year
1999. Total operating income increased to $46.1 million or 8.4% of sales in
Fiscal Year 2000 from $29.5 million or 5.7% of sales in Fiscal Year 1999. See
the discussion of these changes by segment below.
Print
Sales. Print sales increased $31.0 million to $462.9 million in Fiscal Year 2000
from $431.9 million in Fiscal Year 1999. The increase in Fiscal Year 2000
includes the impact of an approximate 5% increase in production volume,
favorable changes in customer and product mix and an increase in paper sales to
customers. These increases were offset in part by declining paper prices.
Gross Profit. Print gross profit increased $11.6 million to $73.6 million in
Fiscal Year 2000 from $62.0 million in Fiscal Year 1999. Print gross margin
increased to 15.9% in Fiscal Year 2000 from 14.4% in Fiscal Year 1999. The
increase in gross profit was primarily the result of increased production
volume, reduced manufacturing costs and favorable changes in customer and
product mix. The increase in gross margin includes the above mentioned factors
and declining paper prices, offset in part by an increase in paper sales to
customers.
Selling, General and Administrative Expenses. Print selling, general and
administrative expenses increased to $24.1 million, or 5.2% of print sales, in
Fiscal Year 2000 from $23.0 million, or 5.3% of print sales, in Fiscal Year
1999. This increase includes increases in employee related expenses, offset in
part by decreases in certain selling expenses.
Operating Income. As a result of the above factors, operating income from the
print business increased to $49.4 million in Fiscal Year 2000 from $39.0 million
in Fiscal Year 1999.
American Color (Digital Imaging and Prepress Services)
Sales. American Color's sales decreased $3.6 million, or 4.3%, to $80.2 million
in Fiscal Year 2000 from $83.8 million in Fiscal Year 1999. The decrease in
Fiscal Year 2000 was primarily the result of reduced prepress production volume.
Gross Profit. American Color's gross profit decreased $1.1 million to $18.0
million in Fiscal Year 2000 from $19.1 million in Fiscal Year 1999. American
Color's gross margin decreased to 22.4% in Fiscal Year 2000 from 22.8% in Fiscal
Year 1999. These decreases are primarily the result of reduced sales volume and
related margins, offset in part by material and payroll savings associated with
various cost containment measures implemented during Fiscal Year 2000. Fiscal
Year 2000 and Fiscal Year 1999 included $0.6 million and $0.9 million,
respectively, of non-recurring costs associated with the consolidation of
certain production facilities.
Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses decreased to $13.1 million, or 16.3% of American
Color's sales in Fiscal Year 2000 from $16.2 million, or 19.3% of American
Color's sales in Fiscal Year 1999. This decrease is attributable to various cost
containment measures implemented during Fiscal Year 2000.
Operating Income (Loss). As a result of the above factors and the incurrence of
restructuring costs associated with the American Color restructuring plan of
$4.6 million in Fiscal Year 1999 and other special charges related to asset
write-offs and write-downs of $0.9 million in Fiscal Year 1999 (see
"Restructuring Costs and Other Special Charges" below), operating income (loss)
at American Color increased to income of $4.9 million in Fiscal Year 2000 from a
loss of $2.5 million in Fiscal Year 1999.
15
Fiscal Year 1999 vs. Fiscal Year 1998
Total sales decreased 2.4% to $520.3 million in Fiscal Year 1999 from $533.3
million in Fiscal Year 1998. This decrease includes a decrease in print sales of
$14.5 million, or 3.2%, offset in part by an increase in American Color's sales
of $1.4 million or 1.7%. Total gross profit increased to $81.3 million or 15.6%
of sales in Fiscal Year 1999 from $71.9 million or 13.5% of sales in Fiscal Year
1998. Total operating income increased to $29.5 million or 5.7% of sales in
Fiscal Year 1999 from $12.1 million or 2.3% of sales in Fiscal Year 1998. See
the discussion of these changes by segment below.
Print
Sales. Print sales decreased $14.5 million to $431.9 million in Fiscal Year 1999
from $446.4 million in Fiscal Year 1998. Print production volume increased
approximately 4%. This increase was offset by an increase in sales to customers
that supply their own paper and the impact of declining paper prices.
Gross Profit. Print gross profit increased $10.7 million to $62.0 million in
Fiscal Year 1999 from $51.3 million in Fiscal Year 1998. Print gross margin
increased to 14.4% in Fiscal Year 1999 from 11.5% in Fiscal Year 1998. 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 coupled with the impact of an increase in sales to customers
that supply their own paper and declining paper prices.
Selling, General and Administrative Expenses. Print selling, general and
administrative expenses decreased slightly to $23.0 million, or 5.3% of print
sales, in Fiscal Year 1999 compared to $23.1 million, or 5.2% of print sales, in
Fiscal Year 1998.
Operating Income. As a result of the above factors and the incurrence of costs
associated with the print restructuring plan of $3.9 million in Fiscal Year 1998
and other special charges related to asset write-offs and write-downs of $1.7
million in Fiscal Year 1998 (see "Restructuring Costs and Other Special Charges"
below), operating income from the print business increased to $39.0 million in
Fiscal Year 1999 from $22.6 million in Fiscal Year 1998.
American Color (Digital Imaging and Prepress Services)
Sales. American Color's sales increased $1.4 million, or 1.7%, to $83.8 million
in Fiscal Year 1999 from $82.4 million in Fiscal Year 1998. The increase in
Fiscal Year 1999 was primarily the result of higher packaging prepress sales and
increased digital imaging and prepress production volume.
Gross Profit. American Color's gross profit decreased $0.1 million to $19.1
million in Fiscal Year 1999 from $19.2 million in Fiscal Year 1998. American
Color's gross margin decreased to 22.8% in Fiscal Year 1999 from 23.4% in Fiscal
Year 1998. The decreases resulted from increased costs associated with new
operations servicing the packaging prepress industry and $0.9 million of
non-recurring costs associated with the consolidation of certain production
facilities, offset in part by an increase in volume and other material and
payroll savings.
Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses decreased to $16.2 million, or 19.3% of American
Color's sales in Fiscal Year 1999 from $16.8 million, or 20.4% of American
Color's sales in Fiscal Year 1998. This decrease is primarily a result of $1.5
million of non-recurring charges associated with the relocation of American
Color's corporate office and various severance related expenses in Fiscal Year
1998, partially offset by increased selling expenses for packaging prepress and
other operations in Fiscal Year 1999.
Operating (Loss) Income. As a result of the above factors and the incurrence of
restructuring costs associated with the American Color restructuring plan of
$4.6 million in Fiscal Year 1999 and other special charges related to asset
write-offs and write-downs of $0.9 million in Fiscal Year 1999 (see
"Restructuring Costs and Other Special Charges" below), operating (loss) income
at American Color decreased to a loss of $2.5 million in Fiscal Year 1999 from
income of $2.4 million in Fiscal Year 1998.
16
Other Operations (Fiscal Year 2000 vs. Fiscal Year 1999 and Fiscal Year 1999 vs.
Fiscal Year 1998)
Other operations consist primarily of revenues and expenses associated with
Digiscope, corporate general and administrative expenses, other expenses and
amortization expense. Amortization expenses for other operations, including
goodwill amortization (see below), were $2.8 million, $2.6 million and $8.7
million in Fiscal Years 2000, 1999 and 1998, respectively.
Operating losses from other operations increased to a loss of $8.2 million in
Fiscal Year 2000 from a loss of $7.0 million in Fiscal Year 1999. This change
includes $0.9 million of increased operating losses at Digiscope due primarily
to lower digital visual effects sales volume in Fiscal Year 2000.
Operating losses from other operations improved to a loss of $7.0 million in
Fiscal Year 1999 from a loss of $12.9 million in Fiscal Year 1998. This decrease
is primarily attributable to a $6.0 million reduction in goodwill amortization
expense. This reduction results from full amortization of the original 1993
acquisition goodwill related to American Color as of March 31, 1998.
Goodwill Amortization
Amortization expense associated with goodwill was $2.6 million, $2.5 million and
$8.5 million for Fiscal Years 2000, 1999 and 1998, respectively.
Restructuring Costs and Other Special Charges
Restructuring Costs
American Color (Digital Imaging and Prepress Services). In March 1999, we
approved a plan for our American Color division, which was designed to
consolidate certain facilities in order to improve asset utilization and
operational efficiency, modify the organizational structure as a result of
facility consolidation and other changes and reduce overhead and other costs.
The cost of this plan is being accounted for in accordance with the guidance set
forth in EITF 94-3. The pretax costs of $4.6 million which were incurred as a
direct result of this plan (excluding other special charges related to asset
write-offs and write-downs - see below) included $2.5 million of employee
termination costs, $1.2 million of lease settlement costs and $0.9 million of
other transition and restructuring expenses. This restructuring charge was
recorded in the quarter ended March 31, 1999. The majority of these costs were
paid or settled before March 31, 2000. The $1.5 million balance in the related
restructuring reserve at March 31, 2000 primarily includes remaining payouts of
involuntary employee termination costs and remaining payouts under lease
commitments.
Print. In January 1998, we approved a plan for our print division which was
designed to improve responsiveness to customer requirements, increase asset
utilization and reduce overhead costs. The cost of this plan was accounted for
in accordance with the guidance set forth in EITF 94-3. The pretax costs of $3.9
million which were incurred as a direct result of this plan (excluding other
special charges related to asset write-offs and write-downs - see below)
included $3.3 million of employee termination costs and $0.6 million of
relocation and other transition expenses. This restructuring charge was recorded
in the quarter ended March 31, 1998. These costs were paid or settled before
March 31, 1999.
Other Special Charges
During the quarter ended March 31, 1999, we recorded special charges totaling
$0.9 million to adjust the carrying values of idle, disposed and
under-performing assets of the American Color division to estimated fair values.
The provision was based on a review of our long-lived assets in accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). Fair value was based on our estimate of held and used and idle
assets based on current market conditions using the best information available.
17
During the quarter ended March 31, 1998, we recorded special charges totaling
$1.7 million to adjust the carrying values of idle, disposed and
under-performing assets of the print segment to estimated fair values. The
provision was based on a review of our long-lived assets in accordance with SFAS
121. Fair value was based on our estimate of held and used and idle assets based
on current market conditions using the best information available.
These special charges are classified within restructuring costs and other
special charges in the consolidated statements of operations.
Interest Expense
Interest expense decreased 6.3% to $34.0 million in Fiscal Year 2000 from $36.2
million in Fiscal Year 1999. This decrease includes the impact of both lower
levels of indebtedness and lower weighted average interest rates. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.
Interest expense decreased 7.0% to $36.2 million in Fiscal Year 1999 from $39.0
million in Fiscal Year 1998. This decrease includes the impact of both lower
levels of indebtedness and lower weighted average interest rates. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.
Other Expense (Income) and Taxes
Other expenses, net decreased to $0.6 million in Fiscal Year 2000 from $1.2
million in Fiscal Year 1999. Other expenses, net increased to $1.2 million in
Fiscal Year 1999 from $0.4 million in Fiscal Year 1998. Other expenses, net in
Fiscal Year 1999 include various non-recurring legal settlements and related
fees of approximately $0.8 million.
Our effective tax rate for Fiscal Year 2000 was less than the federal statutory
rate due primarily to decreases in the valuation allowance, partially offset by
amortization of nondeductible goodwill and foreign tax expense. Our effective
tax rates for Fiscal Years 1999 and 1998 exceeded the federal statutory rate due
primarily to increases in the valuation allowance, amortization of nondeductible
goodwill, and foreign tax expense.
Discontinued Operations
Our Fiscal Year 1998 net loss includes the estimated net loss on shut down of
approximately $0.4 million, related to our discontinued wholly-owned subsidiary
SMC. See note 2 to our consolidated financial statements appearing elsewhere in
this Report.
Extraordinary Loss on Early Extinguishment of Debt
As part of the 1998 Refinancing which was completed in Fiscal Year 1999 (see
note 6 to our consolidated financial statements appearing elsewhere in this
Report), we recorded an extraordinary loss related to early extinguishment of
debt of $4.1 million, net of zero taxes. This extraordinary loss primarily
consisted of the write-off of deferred financing costs related to refinanced
indebtedness in the quarter ended June 30, 1998.
Net Income (Loss)
As a result of the factors discussed above, our net income (loss) improved to
income of $9.5 million in Fiscal Year 2000 from a loss of $12.5 million in
Fiscal Year 1999. The Fiscal Year 1999 net loss includes the $4.1 million
extraordinary loss related to early extinguishment of debt, $4.6 million of
restructuring costs and $0.9 million of other special charges related to asset
write-offs and write-downs associated with our American Color division. Our net
loss improved to a loss of $12.5 million in Fiscal Year 1999 from a loss of
$29.9 million in Fiscal Year 1998. The Fiscal Year 1998 net loss includes $3.9
million of restructuring costs and $1.7 million of other special charges related
to asset write-offs and write-downs associated with our print division. In
addition, Fiscal Year 1998 includes $1.5 million of non-recurring charges
related to the relocation of American Color's corporate office and various
severance related expenses, certain charges associated with employee benefit
programs of $0.7 million and an approximate $0.7 million loss from discontinued
operations.
18
Liquidity and Capital Resources
On May 8, 1998, we refinanced all of our existing bank indebtedness in the 1998
Refinancing (see note 6 to our consolidated financial statements appearing
elsewhere in this Report). The primary objectives of the refinancing were to
gain greater financial and operating flexibility, to reduce our overall cost of
capital and to provide greater opportunity for internal growth and growth
through acquisitions.
The 1998 Refinancing transaction included the following:
(1) We entered into a $145 million credit facility with 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, maturing on March 31, 2004 (the
"Revolving Credit Facility"),
- 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
our previous credit agreement 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 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. This availability includes a provision for up to $40 million of
letters of credit. At March 31, 2000, we had total borrowings and letters of
credit outstanding under the Revolving Credit Facility of approximately $33.8
million, and therefore, additional borrowing availability of approximately $36.2
million.
During Fiscal Year 2000, we voluntarily prepaid $15 million of our
bank indebtedness, reducing the A Term Loan Facility by $10.9 million and
the B Term Loan Facility by $4.1 million. At March 31, 2000, $9.6 million of the
A Term Loan Facility and $39.6 million of the B Term Loan Facility remained
outstanding. As a result of the voluntary prepayments, we have no scheduled
maturities due under either the A Term Loan Facility or B Term Loan Facility
until March 31, 2002. Scheduled repayments of existing capital lease obligations
and other senior indebtedness during the fiscal year ending March 31, 2001
("Fiscal Year 2001") will approximate $6.7 million and $1.0 million,
respectively.
In Fiscal Year 2000, net cash provided by operating activities of $38.8 million
(see consolidated statements of cash flows appearing elsewhere in this Report),
net revolver borrowings of $8.8 million, proceeds from long-term debt of $0.4
million and $0.1 million of proceeds from sales of property, plant and equipment
were primarily used to fund the following expenditures:
(1) $23.8 million in principal repayments of indebtedness and financing
costs (including capital lease obligations of $7.5 million and
voluntary prepayments of $10.9 million on our A Term Loan Facility and
$4.1 million on our B Term Loan Facility),
(2) $21.5 million in cash capital expenditures, and
(3) $2.8 million for the acquisition of business.
We plan to continue our program of upgrading our print and prepress equipment
and currently anticipate that Fiscal Year 2001 cash capital expenditures will
approximate $18.2 million and equipment acquired under capital leases will
approximate $8.5 million. Our cash on hand of approximately $2.8 million is
presented net of outstanding checks within trade accounts payable at March 31,
2000. Accordingly, cash is presented at a balance of $0 in the March 31, 2000
balance sheet.
Our primary sources of liquidity are cash provided by operating activities and
borrowings under the Revolving Credit Facility. We anticipate that our primary
needs for liquidity will be to conduct our business, meet our debt service
requirements and make capital expenditures, including repurchases of Notes in
privately negotiated transactions or in open market purchases to the extent
permitted by our Bank Credit Agreement.
19
At March 31, 2000, we had total indebtedness outstanding of $277.3 million,
including capital lease obligations, as compared to $289.6 million at March 31,
1999, representing a net reduction of indebtedness during Fiscal Year 2000 of
$12.3 million. Of the total debt outstanding at March 31, 2000, $58.0 million
was outstanding under the Bank Credit Agreement at a weighted-average interest
rate of 8.3%. Indebtedness under the Bank Credit Agreement bears interest at
floating rates. At March 31, 2000, we had indebtedness other than obligations
under the Bank Credit Agreement of $219.3 million (including $185 million of the
Senior Subordinated Notes (the "Notes")). We are currently in compliance with
all financial covenants set forth in the Bank Credit Agreement. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.
A significant portion of Graphics' long-term obligations, including indebtedness
under the Bank Credit Agreement, has been fully and unconditionally guaranteed
by Holdings. Holdings is subject to certain restrictions under its guarantee of
indebtedness under the Bank Credit Agreement, including among other things,
restrictions on mergers, acquisitions, incurrence of additional debt and payment
of cash dividends. See note 1 to our consolidated financial statements appearing
elsewhere in this Report.
EBITDA
Fiscal Year Ended March 31,
--------------------------------------------------------------------------------------
2000 1999 1998
------------------- ------------------ -----------------
(dollars in thousands)
EBITDA
Print (a) $ 72,543 61,627 46,838
American Color (a) 11,003 5,283 8,405
Other (b) (c) (3,539) (2,624) (2,876)
------------------- ------------------ ------------------
Total $ 80,007 64,286 52,367
=================== ================== ==================
EBITDA Margin
Print 15.7% 14.3% 10.5%
American Color 13.7% 6.3% 10.2%
Total 14.6% 12.4% 9.8%
(a) Print EBITDA includes the impact of $3.9 million of restructuring costs
in Fiscal Year 1998. American Color EBITDA for Fiscal Year 1999
includes the impact of restructuring costs of $4.6 million. See
"Restructuring Costs and Other Special Charges" above. American Color
EBITDA also includes $0.5 million and $0.6 million of non-recurring
charges in Fiscal Year 2000 and Fiscal Year 1999, respectively,
associated with the consolidation of certain production facilities and
$1.5 million of non-recurring charges in Fiscal Year 1998 associated
with the relocation of American Color's corporate office and various
severance related expenses.
(b) Other operations include revenues and expenses associated with our
digital visual effects business and corporate general and
administrative expenses.
(c) Other operations also reflects the impact of $0.3 million of
non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program in Fiscal
Year 1999, and certain charges associated with employee benefit
programs of $0.7 million in Fiscal Year 1998.
20
EBITDA is presented and discussed because we believe 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 special
charges related to asset write-offs and write-downs, 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 Indenture
and the Bank Credit Agreement are based on EBITDA, subject to certain
adjustments.
Print. As a result of the reasons previously described under "--Print,"
(excluding changes in depreciation and amortization expense and other special
charges related to asset write-offs and write-downs), print EBITDA increased
$10.9 million to $72.5 million in Fiscal Year 2000 from $61.6 million in Fiscal
Year 1999. Print EBITDA increased $14.8 million to $61.6 million in Fiscal Year
1999 from $46.8 million in Fiscal Year 1998. Print EBITDA Margin increased to
15.7% in Fiscal Year 2000 from 14.3% in Fiscal Year 1999. Print EBITDA Margin
increased to 14.3% in Fiscal Year 1999 from 10.5% in Fiscal Year 1998. Included
in the Fiscal Year 1998 EBITDA and EBITDA Margin is $3.9 million of
restructuring costs related to the print restructuring plan (see discussion
above).
American Color (Digital Imaging and Prepress Services). As a result of the
reasons previously described under "--American Color," (excluding changes in
depreciation, amortization expense, other non-cash expenses and other special
charges related to asset write-offs and write-downs), American Color EBITDA
increased $5.7 million to $11.0 million in Fiscal Year 2000 from $5.3 million in
Fiscal Year 1999. American Color EBITDA decreased $3.1 million to $5.3 million
in Fiscal Year 1999 from $8.4 million in Fiscal Year 1998. American Color EBITDA
Margin increased to 13.7% in Fiscal Year 2000 from 6.3% in Fiscal Year 1999.
American Color EBITDA Margin decreased to 6.3% in Fiscal Year 1999 from 10.2% in
Fiscal Year 1998. Included in the Fiscal Year 2000 and Fiscal Year 1999 EBITDA
and EBITDA Margin is the impact of $0.5 million and $0.6 million of
non-recurring charges associated with the consolidation of certain production
facilities and $4.6 million of restructuring costs in Fiscal Year 1999 (see
discussion above). American Color EBITDA and EBITDA Margin in Fiscal Year 1998
includes $1.5 million of non-recurring charges associated with the relocation of
its corporate office and various severance related expenses.
Other Operations. As a result of the reasons previously described under "--Other
Operations," (excluding changes in depreciation and amortization expense), other
operations negative EBITDA increased to negative EBITDA of $3.5 million in
Fiscal Year 2000 from negative EBITDA of $2.6 million in Fiscal Year 1999. Other
operations negative EBITDA improved to negative EBITDA of $2.6 million in Fiscal
Year 1999 from negative EBITDA of $2.9 million in Fiscal Year 1998. Other
operations negative EBITDA for Fiscal Year 1999 includes the impact of $0.3
million of non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program and negative EBITDA
for Fiscal Year 1998 includes the impact of $0.7 million of certain charges
associated with employee benefit programs.
Amortization of Goodwill
Our goodwill is amortized on a straight-line basis by business segment. Goodwill
amortization expense will be approximately $3.1 million in Fiscal Year 2001.
Impact of Inflation
In accordance with industry practice, we generally pass through increases in our
costs (primarily paper and ink) to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. During Fiscal Year 1998, paper prices increased slightly through mid
year and then declined to near beginning of the year levels. In Fiscal Year
1999, as most grades of paper became more plentiful, paper prices declined.
During Fiscal Year 2000, paper prices were on average at lower levels than
comparable periods in Fiscal Year 1999. Management expects that, as a result of
our strong relationship with key suppliers, our material costs will remain
competitive within the industry.
21
Seasonality
Some of our print and digital imaging and prepress services business is seasonal
in nature, particularly those revenues derived from advertising inserts.
Generally, our sales from advertising inserts are highest during periods prior
to the following advertising periods: Spring advertising season (March - May);
Back-to-School (July - August); and Thanksgiving/Christmas (October - December).
Sales of newspaper Sunday comics are not subject to significant seasonal
fluctuations. Our strategy has been and will continue to include the mitigation
of the seasonality of our print business by increasing our sales to customers
whose own sales are less seasonal (i.e., food and drug companies) and who
utilize advertising inserts on a higher frequency basis.
Environmental
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
period revenue generation are expensed. Environmental liabilities are recorded
when assessments and/or remedial efforts are probable and the related costs can
be reasonably estimated. We believe that environmental liabilities, currently
and in the prior periods discussed herein, are not material. We maintain a
reserve of approximately $0.1 million in connection with a Superfund site in our
consolidated statement of financial position at March 31, 2000, which we believe
to be adequate. See "Legal Proceedings - Environmental Matters" appearing
elsewhere in this Report. We do not anticipate receiving insurance proceeds
related to this potential settlement. Management does not expect that any
identified matters, individually or in the aggregate, will have a material
adverse effect on our consolidated financial position or results of operations.
Accounting
There are no pending accounting pronouncements that, when adopted, are expected
to have a material effect in our results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative Information. In the ordinary course of business, our exposure to
market risks is limited as is described below. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as interest and
foreign currency exchange rates. Currently, we do not utilize derivative
financial instruments such as forward exchange contracts, future contracts,
options and swap agreements.
Interest Rate Risk for us primarily relates to interest rate fluctuations on
variable rate debt.
Foreign Currency Exchange Rate Risk is minimal as we have only one print
facility outside the United States (in Canada) and any fluctuations in net asset
values as a result of changes in foreign currency exchange rates associated with
activity at this one facility would be immaterial to the company as a whole.
Quantitative Information. At March 31, 2000 and March 31, 1999, we had both
fixed rate and variable rate debt. The carrying value of our total variable rate
debt approximated the fair value of such debt at March 31, 2000 and March 31,
1999. At our March 31, 2000 and March 31, 1999 borrowing levels, a hypothetical
10% adverse change in interest rates on the variable rate debt would have been
immaterial. Approximately 76% and 75% of our long-term debt (excluding
capitalized lease obligations) was fixed rate at March 31, 2000 and March 31,
1999, respectively.
The above market risk discussions are forward-looking statements of market risk
assuming the occurrence of certain adverse market conditions. Actual results in
the future may differ materially from those projected as a result of actual
developments in the market.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page No.
The following consolidated financial statements of ACG Holdings, Inc.
are included in this Report:
Report of Independent Auditors...............................................24
Consolidated balance sheets - March 31, 2000 and 1999........................25
For the Years Ended March 31, 2000, 1999 and 1998:
Consolidated statements of operations......................27
Consolidated statements of stockholders' deficit...........28
Consolidated statements of cash flows......................29
Notes to Consolidated Financial Statements...................................31
The following consolidated financial statement schedules of ACG Holdings, Inc.
are included in Part IV, Item 14:
I. Condensed Financial Information:
Condensed Consolidated Financial Statements (parent company only)
for the years ended March 31, 2000, 1999, and 1998, and as of March
31, 2000 and 1999
II. Valuation and qualifying accounts
All other schedules specified under Regulation S-X for ACG Holdings, Inc. have
been omitted because they are either not applicable, not required, or because
the information required is included in the financial statements or notes
thereto.
23
Report of Independent Auditors
Board of Directors
ACG Holdings, Inc.
We have audited the accompanying consolidated balance sheets of ACG Holdings,
Inc. as of March 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for each of the three fiscal
years in the period ended March 31, 2000. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACG
Holdings, Inc. at March 31, 2000 and 1999, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Nashville, Tennessee
May 15, 2000
24
ACG HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
-----------------------------------
March 31,
-----------------------------------
2000 1999
------------- ------------
Assets
Current assets:
Cash $ 0 0
Receivables:
Trade accounts, less allowance
for doubtful accounts of $2,945
and $2,860 at March 31, 2000
and 1999, respectively 65,432 57,895
Other 2,447 2,082
------------- ------------
Total receivables 67,879 59,977
Inventories 11,062 8,343
Prepaid expenses and other current assets 3,329 3,271
------------- ------------
Total current assets 82,270 71,591
Property, plant and equipment:
Land and improvements 2,923 2,907
Buildings and improvements 19,464 18,895
Machinery and equipment 191,378 177,851
Furniture and fixtures 9,265 6,549
Leased assets under capital leases 53,640 52,843
Equipment installations in process 5,815 4,146
------------- ------------
282,485 263,191
Less accumulated depreciation (145,993) (119,576)
------------- ------------
Net property, plant and equipment 136,492 143,615
Excess of cost over net assets acquired,
less accumulated amortization of
$47,206 and $44,587 at March 31, 2000
and 1999, respectively 72,781 72,029
Other assets 12,269 11,765
------------- ------------
Total assets $ 303,812 299,000
============= ============
See accompanying notes to consolidated financial statements.
25
ACG HOLDINGS, INC.
Consolidated Balance Sheets
(Dollars in thousands, except par values)
------------------------------------
March 31,
------------------------------------
2000 1999
-------------- -------------
Liabilities and Stockholders' Deficit
Current liabilities:
Current installments of long-term debt and capitalized leases $ 7,727 7,994
Trade accounts payable 45,802 37,096
Accrued expenses 31,658 30,756
Income taxes 56 1,196
------------ ------------
Total current liabilities 85,243 77,042
Long-term debt and capitalized leases, excluding current installments 269,617 281,595
Deferred income taxes 8,031 7,916
Other liabilities 50,310 51,753
------------ ------------
Total liabilities 413,201 418,306
Stockholders' deficit:
Common stock, voting, $.01 par value, 5,852,223 shares
authorized, 143,399 shares and 134,250 shares issued and
outstanding at March 31, 2000 and 1999, respectively 1 1
Preferred stock, $.01 par value, 15,823 shares
authorized, 3,617 shares and 3,622 shares Series AA
convertible preferred stock issued and outstanding at
March 31, 2000 and 1999, respectively, $39,425,000 and
$39,475,000 liquidation preference at March 31, 2000
and 1999, respectively, 1,606 shares Series BB convertible
preferred stock issued and outstanding at March 31, 2000 and
1999, $17,500,000 liquidation preference at March 31, 2000 and 1999 -- --
Additional paid-in capital 58,303 58,286
Accumulated deficit (165,485) (174,905)
Other accumulated comprehensive loss, net of tax (2,208) (2,688)
------------ ------------
Total stockholders' deficit (109,389) (119,306)
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' deficit $ 303,812 299,000
============ ============
See accompanying notes to consolidated financial statements.
26
ACG HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands)
Year ended March 31,
----------------------------------------------------
2000 1999 1998
---------------- --------------- -----------------
Sales $ 546,710 520,343 533,335
Cost of sales 456,445 439,091 461,407
---------------- --------------- -----------------
Gross profit 90,265 81,252 71,928
Selling, general and administrative expenses 41,562 43,806 45,690
Amortization of goodwill 2,619 2,527 8,537
Restructuring costs and other special charges -- 5,464 5,598
---------------- --------------- -----------------
Operating income 46,084 29,455 12,103
---------------- --------------- -----------------
Other expense (income):
Interest expense 33,963 36,242 38,956
Interest income (165) (165) (143)
Other, net 627 1,217 412
---------------- --------------- -----------------
Total other expense 34,425 37,294 39,225
---------------- --------------- -----------------
Income (loss) from continuing operations
before income taxes and extraordinary item 11,659 (7,839) (27,122)
Income tax expense (2,189) (523) (2,106)
---------------- --------------- -----------------
Income (loss) from continuing operations
before extraordinary item 9,470 (8,362) (29,228)
Discontinued operations:
Estimated loss on shut down, net of tax -- -- (667)
---------------- --------------- -----------------
Income (loss) before extraordinary item 9,470 (8,362) (29,895)
Extraordinary loss on early extinguishment of debt -- (4,106) --
---------------- --------------- -----------------
Net income (loss) $ 9,470 (12,468) (29,895)
================ =============== =================
See accompanying notes to consolidated financial statements.
27
ACG HOLDINGS, INC.
Consolidated Statements of Stockholders' Deficit
(In thousands)
Series AA
and BB Other
Voting convertible Additional accumulated
common preferred paid-in Accumulated comprehensive
stock stock capital deficit income (loss) Total
---------- ------------- ------------ ------------- ---------------- -------------
Balances, March 31, 1997 $ 1 -- 57,499 (132,228) (1,590) $ (76,318)
-------------
Net loss -- -- -- (29,895) -- (29,895)
Other comprehensive loss, net of tax:
Change in cumulative
translation adjustment -- -- -- -- (410) (410)
Unfunded pension liability -- -- -- -- (85) (85)
-------------
Comprehensive loss (30,390)
Treasury stock -- -- -- (127) -- (127)
Exercise of stock options -- -- 176 -- -- 176
Executive stock compensation -- -- 574 -- -- 574
---------- ------------- ------------ ------------- ---------------- -------------
Balances, March 31, 1998 $ 1 -- 58,249 (162,250) (2,085) $ (106,085)
-------------
Net loss -- -- -- (12,468) -- (12,468)
Other comprehensive loss, net of tax:
Change in cumulative
translation adjustment -- -- -- -- (504) (504)
Unfunded pension liability -- -- -- -- (99) (99)
-------------
Comprehensive loss (13,071)
Treasury stock -- -- -- (187) -- (187)
Executive stock compensation -- -- 37 -- -- 37
---------- ------------- ------------ ------------- ---------------- -------------
Balances, March 31, 1999 $ 1 -- 58,286 (174,905) (2,688) $ (119,306)
-------------
Net income -- -- -- 9,470 -- 9,470
Other comprehensive income, net of tax:
Change in cumulative
translation adjustment -- -- -- -- 296 296
Unfunded pension liability -- -- -- -- 184 184
-------------
Comprehensive income 9,950
Treasury stock -- -- -- (50) -- (50)
Executive stock compensation -- -- 17 -- -- 17
---------- ------------- ------------ ------------- ---------------- -------------
Balances, March 31, 2000 $ 1 -- 58,303 (165,485) (2,208) $ (109,389)
========== ============= ============ ============= ================ =============
See accompanying notes to consolidated financial statements.
28
ACG HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year ended March 31,
--------------------------------------------------
2000 1999 1998
-------------- ------------- --------------
Cash flows from operating activities:
Net income (loss) $ 9,470 (12,468) (29,895)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Extraordinary item - non-cash -- 4,106 --
Other special charges - non-cash -- 908 1,727
Depreciation 30,067 29,651 28,124
Amortization of goodwill 2,619 2,527 8,537
Amortization of other assets 1,100 1,498 1,876
Amortization of deferred financing costs 1,326 1,412 2,292
Loss on shut down -- -- 667
Loss (gain) on disposals of property, plant and equipment 286 501 (37)
Deferred income tax expense (benefit) 115 (1,303) 930
Changes in assets and liabilities, net of effects of shut down of SMC and
acquisition of business:
(Increase) decrease in receivables (7,832) 4,108 (9,079)
(Increase) decrease in inventories (2,676) 2,388 (1,122)
Increase (decrease) in trade accounts payable 8,611 9,846 (1,887)
(Decrease) increase in accrued expenses (178) (753) 1,172
(Decrease) increase in current income taxes payable (1,140) 694 (520)
(Decrease) increase in other liabilities (1,459) 4,133 18,588
Other (1,535) 889 (3,116)
-------------- ------------- --------------
Total adjustments 29,304 60,605 48,152
-------------- ------------- --------------
Net cash provided by operating activities 38,774 48,137 18,257
-------------- ------------- --------------
29
ACG HOLDINGS, INC.
Consolidated Statements of Cash Flows - Continued
(In thousands)
Year ended March 31,
--------------------------------------------------
2000 1999 1998
-------------- ------------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment (21,462) (11,143) (10,902)
Acquisition of business (2,829) -- --
Proceeds from sales of property, plant and equipment 169 765 1,067
Other (23) 14 (265)
-------------- ------------- --------------
Net cash used by investing activities (24,145) (10,364) (10,100)
-------------- ------------- --------------
Cash flows from financing activities:
Debt:
Proceeds 9,215 75,000 25,000
Payments (15,893) (103,185) (24,899)
Increase in deferred financing costs (371) (2,608) (2,467)
Repayment of capital lease obligations (7,504) (6,938) (6,349)
Other (23) (81) 572
-------------- ------------- --------------
Net cash used by financing activities (14,576) (37,812) (8,143)
-------------- ------------- --------------
Effect of exchange rates on cash (53) 39 (14)
-------------- ------------- --------------
Decrease in cash 0 0 0
Cash:
Beginning of period 0 0 0
-------------- ------------- --------------
End of period $ 0 0 0
============== ============= ==============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 32,639 35,546 35,931
Income taxes, net of refunds $ 3,111 1,201 1,751
Exchange rate adjustment to long-term debt $ (23) (81) (67)
Non-cash investing activities:
Lease obligations $ 1,262 5,095 12,811
See accompanying notes to consolidated financial statements.
30
ACG HOLDINGS, INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
ACG Holdings, Inc. ("Holdings"), together with its wholly-owned
subsidiary, American Color Graphics, Inc. ("Graphics"),
(collectively the "Company"), was formed in April 1989 under the
name GBP Holdings, Inc. to effect the purchase of all the capital
stock of GBP Industries, Inc. from its stockholders in a leveraged
buyout transaction. In October 1989, GBP Holdings, Inc. changed its
name to Sullivan Holdings, Inc. and GBP Industries, Inc. changed
its name to Sullivan Graphics, Inc. Effective June 1993, Sullivan
Holdings, Inc. changed its name to Sullivan Communications, Inc.
Effective July 1997, Sullivan Communications, Inc. changed its name
to ACG Holdings, Inc. and Sulli