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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to ___________________
Commission file number 33-97090
ACG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1395968
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
AMERICAN COLOR GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1003976
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
ACG Holdings, Inc. has 143,399 shares outstanding of its Common Stock, $.01 Par
Value, as of October 31, 2002 (all of which are privately owned and not traded
on a public market).
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2002 and March 31, 2002 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Income for the
Six Months Ended September 30, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Certifications 26
Exhibit Index 28
2
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
SEPTEMBER 30, 2002 MARCH 31, 2002
------------------ --------------
(Unaudited)
ASSETS
Current assets:
Cash $ 0 4,547
Receivables:
Trade accounts, less allowance for
doubtful accounts of $2,844 and $2,557
at September 30, 2002 and March 31,
2002, respectively 56,391 50,870
Other 3,116 3,075
----------- --------
Total receivables 59,507 53,945
Inventories 12,662 9,137
Deferred income taxes 7,564 7,564
Prepaid expenses and other current assets 4,553 3,839
----------- --------
Total current assets 84,286 79,032
Property, plant and equipment 322,498 303,166
Less accumulated depreciation (189,739) (180,676)
----------- --------
Net property, plant and equipment 132,759 122,490
Excess of cost over net assets acquired, less
accumulated amortization of $53,274 at
September 30, 2002 and March 31, 2002 66,548 66,548
Other assets 11,870 12,443
----------- --------
Total assets $ 295,463 280,513
=========== ========
See accompanying notes to condensed consolidated financial statements.
3
ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values and liquidation preference)
SEPTEMBER 30, 2002 MARCH 31, 2002
------------------ --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt and
capitalized leases $ 25,972 19,946
Trade accounts payable 47,651 25,906
Accrued expenses 29,038 34,045
---------- --------
Total current liabilities 102,661 79,897
Long-term debt and capitalized leases,
excluding current installments 223,112 232,846
Deferred income taxes 3,122 2,933
Other liabilities 56,706 60,857
---------- --------
Total liabilities 385,601 376,533
Commitments and contingencies (Note 4)
Stockholders' deficit:
Common stock, voting, $.01 par value, 5,852,223
shares authorized, 143,399 shares issued and
outstanding 1 1
Preferred stock, $.01 par value, 15,823 shares
authorized, 3,617 shares Series AA convertible
preferred stock issued and outstanding, $39,442,551
liquidation preference, and 1,606 shares Series BB
convertible preferred stock issued and
outstanding, $17,500,000 liquidation preference -- --
Additional paid-in capital 58,615 58,500
Accumulated deficit (134,759) (140,340)
Other accumulated comprehensive loss, net of tax (13,995) (14,181)
---------- --------
Total stockholders' deficit (90,138) (96,020)
---------- --------
Total liabilities and stockholders' deficit $ 295,463 280,513
========== ========
See accompanying notes to condensed consolidated financial statements.
4
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2002 2001
---- ----
Sales $ 131,022 133,740
Cost of sales 113,661 115,660
---------- -------
Gross profit 17,361 18,080
Selling, general and administrative expenses 8,688 8,220
Amortization of goodwill -- 765
---------- -------
Operating income 8,673 9,095
Other expense (income):
Interest expense 7,096 7,656
Interest income (21) (30)
Other, net 178 230
---------- -------
Total other expense 7,253 7,856
---------- -------
Income before income taxes 1,420 1,239
Income tax expense 298 294
---------- -------
Net income $ 1,122 945
========== =======
See accompanying notes to condensed consolidated financial statements.
5
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------
2002 2001
---- ----
Sales $ 259,203 273,855
Cost of sales 221,446 234,865
---------- -------
Gross profit 37,757 38,990
Selling, general and administrative expenses 16,586 14,978
Amortization of goodwill -- 1,530
---------- -------
Operating income 21,171 22,482
Other expense (income):
Interest expense 14,305 15,410
Interest income (77) (75)
Other, net 447 61
---------- -------
Total other expense 14,675 15,396
---------- -------
Income before income taxes 6,496 7,086
Income tax expense 915 1,101
---------- -------
Net income $ 5,581 5,985
========== =======
See accompanying notes to condensed consolidated financial statements.
6
ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------
2002 2001
---------- ----------
Cash flows provided (used) by operating activities:
Net income $ 5,581 5,985
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 11,424 13,447
Amortization of goodwill and other assets 269 2,155
Amortization of deferred financing costs 769 709
Decrease (increase) in working capital and other 2,867 (441)
-------- -------
Net cash provided by operating activities 20,910 21,855
Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment (20,845) (15,309)
Proceeds from sales of property, plant and equipment 49 214
Other 40 (67)
-------- -------
Net cash used by investing activities (20,756) (15,162)
Cash flows provided (used) by financing activities:
Repayment of long-term debt, net (9,766) (5,679)
Net increase in revolver borrowings 9,290 2,663
Repayment of capital lease obligations (3,959) (3,490)
Payment of deferred financing costs, net (264) (179)
Other, net (2) (8)
-------- -------
Net cash used by financing activities (4,701) (6,693)
-------- -------
Net change in cash (4,547) --
Cash:
Beginning of period 4,547 --
-------- -------
End of period $ -- --
======== =======
Non-cash investing activity:
Equipment purchases under capital leases $ 725 1,107
======== =======
See accompanying notes to condensed consolidated financial statements.
7
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
DESCRIPTION OF THE COMPANY
ACG Holdings, Inc. ("Holdings") has no operations or significant assets other
than its investment in American Color Graphics, Inc. ("Graphics"), (collectively
the "Company"). Holdings owns 100% of the outstanding voting shares of Graphics.
The two business segments of the commercial printing industry in which the
Company operates are (i) print and (ii) premedia services conducted by its
American Color division ("American Color").
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and are in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The operating results for the three and six-month periods ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2003. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the fiscal year ended March 31, 2002 and the Company's
Post-Effective Amendment No. 8 to Registration Statement No. 33-97090 on Form
S-1.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. INVENTORIES
The components of inventories are as follows (in thousands):
SEPTEMBER 30, MARCH 31,
2002 2002
------------ ----------
Paper $ 10,584 7,158
Ink 170 169
Supplies and other 1,908 1,810
--------- -----
Total inventories $ 12,662 9,137
========= =====
8
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. NOTES PAYABLE AND LONG-TERM DEBT
The Company is currently in compliance with the financial covenants contained in
the bank credit agreement. The Company, however, is currently projecting that it
will be unable to meet the required Minimum EBITDA covenant level included
within the bank credit agreement beginning in the quarter ending March 31, 2003
and continuing through the quarter ending September 30, 2003. EBITDA includes
the impact of certain unusual expenses associated with the Company's capacity
expansion efforts, including the start-up of 12 printing presses, five of which
were recently purchased and seven relocated from other Company printing
facilities.
The Company has initiated discussions with the banks to seek the appropriate
amendment to the Minimum EBITDA covenant levels within the bank credit
agreement. In the absence of such an amendment, a breach of financial covenants
would constitute an event of default under the bank credit agreement, which
would permit the Company's banks to accelerate the maturity of the indebtedness
thereunder, prohibit borrowing under the Company's revolving credit facility and
to enforce their security interests in the assets of the Company. An
acceleration under the bank credit agreement which could result from a default
thereunder would result in a default under the indenture related to the 12 3/4%
Senior Subordinated Notes due 2005. Although no assurances can be given that the
banks will grant such amendment, the Company believes it will be successful in
obtaining the necessary amendment to the bank credit agreement.
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" requires foreign currency translation adjustments, minimum pension
liability adjustments and unrealized gains or losses on available-for-sale
securities to be included in comprehensive income. Total comprehensive income
for the three and six months ended September 30, 2002 and 2001 are as follows
(in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------
2002 2001 2002 2001
------- ------ ----- ------
Net income $ 1,122 945 5,581 5,985
Foreign currency translation adjustment (462) (361) 186 (61)
Minimum pension liability -- -- -- (179)
-------- ----- ----- ------
Total comprehensive income $ 660 584 5,767 5,745
======== ===== ===== ======
5. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with one of its principal officers and
four other employees. Such agreements provide for minimum salary levels as well
as for incentive bonuses, which are payable if specified management goals are
attained. In addition, the Company has consulting agreements with three former
employees. The aggregate commitment for future compensation at September 30,
2002, excluding bonuses, was approximately $2.5 million.
In the quarter ended December 31, 1997, the Company entered into multi-year
contracts to purchase a portion of the Company's raw materials to be used in its
normal operations. In connection with such purchase agreements, pricing for a
portion of the Company's raw materials is adjusted for certain movements in
market prices, changes in raw material costs and other specific price increases.
The Company is deferring certain
9
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
contractual provisions over the life of the contracts, which are being
recognized as the purchase commitments are achieved. The amount deferred at
September 30, 2002 is $31.9 million and is included within Other liabilities in
the Company's condensed consolidated balance sheet.
Graphics, together with over 300 other persons, has been designated by the U.S.
Environmental Protection Agency as a potentially responsible party (a "PRP")
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA," also known as "Superfund") at one Superfund site. Although liability
under CERCLA may be imposed on a joint and several basis and the Company's
ultimate liability is not precisely determinable, the PRPs have agreed that
Graphics' share of removal costs is 0.46% and therefore Graphics believes that
its share of the anticipated remediation costs at such site will not be material
to its business or financial condition. Based upon an analysis of Graphics'
volumetric share of waste contributed to the site and the agreement among the
PRPs, the Company maintains a reserve of approximately $0.1 million in
connection with this liability on its condensed consolidated balance sheet at
September 30, 2002. The Company believes this amount is adequate to cover such
liability.
The Company has been named as a defendant in several legal actions arising from
its normal business activities. In the opinion of management, any liabilities
that may arise from such actions will not, individually or in the aggregate,
have a material adverse effect on the condensed consolidated financial
statements of the Company.
6. RESTRUCTURING COSTS
In January 2002, the Company's Board of Directors approved a restructuring plan
for the print and premedia services segments designed to improve asset
utilization, operating efficiency and profitability. This plan included the
closing of a print facility in Hanover, Pennsylvania and a premedia services
facility in West Palm Beach, Florida, the downsizing of a Buffalo, New York
premedia services facility and the elimination of certain administrative
personnel. This action resulted in the elimination of 189 positions within the
Company.
As a result of this plan, the Company recorded a pre-tax restructuring charge of
approximately $8.6 million in the fourth quarter of the fiscal year ended March
31, 2002. This charge was classified within restructuring costs and other
special charges in the consolidated statement of income in the fiscal year ended
March 31, 2002. The cost of this restructuring plan was accounted for in
accordance with the guidance set forth in Emerging Issues Task Force Issue 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
("EITF 94-3"). The restructuring charge included severance and related
termination benefits, lease termination costs primarily related to future lease
commitments, equipment deinstallation costs directly associated with the
disassembly of certain printing presses and other equipment, and other costs
primarily including legal fees, site clean-up costs and the write-off of certain
press related parts that provide no future use or functionality.
The following table summarizes the activity related to this restructuring plan
for the six months ended September 30, 2002 (in thousands):
03/31/02 CURRENT 09/30/02
RESTRUCTURING SIX MONTHS RESTRUCTURING
RESERVE PAYMENTS RESERVE
------------- ---------- -------------
Severance and other employee costs $ 3,519 (1,622) 1,897
Lease termination costs 1,289 (382) 907
Other costs 423 (281) 142
-------- ------ -----
$ 5,231 (2,285) 2,946
======== ====== =====
10
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2002, the Company believes the restructuring reserve of $2.9
million is adequate. The process of closing two facilities and downsizing one
facility, including equipment deinstallation and relocation of that equipment to
other facilities within the Company, was completed by March 31, 2002. The
majority of all remaining costs will be paid or settled before March 31, 2003.
These costs will be funded through cash generated from operations and borrowings
under the Company's revolving credit facility.
7. INDUSTRY SEGMENT INFORMATION
The Company has significant operations principally in two industry segments: (1)
print and (2) premedia services. All of the Company's print business and assets
are attributed to the print division and all of the Company's premedia services
business and assets are attributed to the American Color division. The Company's
digital visual effects operations ("Digiscope") and corporate expenses have been
aggregated and do not constitute a reportable segment of the Company as
contemplated by Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information".
The Company has two reportable segments: (1) print and (2) premedia services.
The print business produces retail advertising inserts, comics (newspaper Sunday
comics, comic insert advertising and comic books) and other publications. The
Company's premedia services business assists customers in the capture,
manipulation, transmission and distribution of images. The majority of the
premedia services work leads to the production of four-color separations in a
format appropriate for use by printers.
The accounting policies of the segments are the same as those used by the
Company in its consolidated financial statements. The Company evaluates
performance based on segment EBITDA which is defined as earnings before net
interest expense, income tax expense, depreciation, amortization and other
expense (income). The Company generally accounts for intersegment revenues and
transfers as if the revenues or transfers were to third parties, that is, at
current market prices. Certain reclassifications have been made to prior year
balances to conform with the current year presentation.
The Company's reportable segments are business units that offer different
products and services. They are managed separately because each segment requires
different technology and marketing strategies. A substantial portion of the
revenue, long-lived assets and other assets of the Company's reportable segments
are attributed to or located in the United States.
PREMEDIA CORPORATE
(In thousands) PRINT SERVICES AND OTHER TOTAL
- ------------------------------------------- ---------- -------- --------- ---------
SIX MONTHS ENDED SEPTEMBER 30, 2002
Segment revenues $ 227,595 29,936 1,672 259,203
EBITDA $ 29,849 5,096 (2,081) 32,864
Depreciation and amortization 9,349 2,107 237 11,693
Interest expense -- -- 14,305 14,305
Interest income -- -- (77) (77)
Other, net 201 184 62 447
---------- ------ ------- -------
Income (loss) before income taxes $ 20,299 2,805 (16,608) 6,496
Total assets $ 261,314 20,784 13,365 295,463
Total goodwill $ 64,656 1,892 -- 66,548
Total capital expenditures $ 20,456 1,114 -- 21,570
11
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
PREMEDIA CORPORATE
(In thousands) PRINT SERVICES AND OTHER TOTAL
- --------------------------------------------- ------------- -------------- -------------- -----------
SIX MONTHS ENDED SEPTEMBER 30, 2001
Segment revenues $ 234,134 37,393 2,328 273,855
EBITDA $ 31,849 7,358 (1,123) 38,084
Depreciation and amortization 10,853 2,764 1,985 15,602
Interest expense -- -- 15,410 15,410
Interest income -- -- (75) (75)
Other, net 24 195 (158) 61
----------- ---------- ---------- ---------
Income (loss) before income taxes $ 20,972 4,399 (18,285) 7,086
Total assets $ 252,472 27,225 16,026 295,723
Total goodwill $ 65,696 2,334 -- 68,030
Total capital expenditures $ 14,653 1,532 231 16,416
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002
Segment revenues $ 115,020 15,056 946 131,022
EBITDA $ 12,923 2,580 (1,057) 14,446
Depreciation and amortization 4,626 1,033 114 5,773
Interest expense -- -- 7,096 7,096
Interest income -- -- (21) (21)
Other, net 149 68 (39) 178
----------- ---------- ---------- ---------
Income (loss) before income taxes $ 8,148 1,479 (8,207) 1,420
Total assets $ 261,314 20,784 13,365 295,463
Total goodwill $ 64,656 1,892 -- 66,548
Total capital expenditures $ 10,749 886 -- 11,635
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2001
Segment revenues $ 114,882 18,173 685 133,740
EBITDA $ 14,809 3,162 (1,039) 16,932
Depreciation and amortization 5,475 1,366 996 7,837
Interest expense -- -- 7,656 7,656
Interest income -- -- (30) (30)
Other, net 13 104 113 230
----------- ---------- ---------- ---------
Income (loss) before income taxes $ 9,321 1,692 (9,774) 1,239
Total assets $ 252,472 27,225 16,026 295,723
Total goodwill $ 65,696 2,334 -- 68,030
Total capital expenditures $ 4,755 556 -- 5,311
12
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
8. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Goodwill was amortized on a straight-line basis by business segment through the
fiscal year ended March 31, 2002. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), is effective for
fiscal years beginning after December 15, 2001. In compliance with this
pronouncement, the Company adopted SFAS 142 on April 1, 2002. For the six-month
period ended September 30, 2001, excluding the effect of goodwill amortization,
operating income and net income would have been $24.0 million and $7.5 million,
respectively. In the quarter ended September 30, 2001, excluding the effect of
goodwill amortization, operating income and net income would have been $9.9
million and $1.7 million, respectively. Application of the non-amortization
provisions of SFAS 142 is expected to result in an increase in pre-tax income of
approximately $2.8 million in the fiscal year ending March 31, 2003. In the
quarter ended September 30, 2002, the Company performed its initial assessment
of impairment and noted no impairment. The Company expects to perform the first
of the required annual impairment tests of goodwill during the quarter ending
December 31, 2002. The Company does not anticipate that these tests will have a
material effect on its results of operations or financial position.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144") which provides
clarifications of certain implementation issues within Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"), along with
additional guidance on the accounting for the impairment or disposal of
long-lived assets. SFAS 144 supercedes SFAS 121 and applies to all long-lived
assets. SFAS 144 develops one accounting model (based on the model in SFAS 121)
for long-lived assets that are to be disposed of by sale, as well as addresses
the principal implementation issues. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. In
compliance with this pronouncement, the Company adopted SFAS 144 on April 1,
2002. The adoption of SFAS 144 will not have a material effect on the Company's
results of operations or financial position.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" ("SFAS 4"), which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. As a result, the
criteria in Accounting Principles Board Opinion No. 30 will now be used to
classify those gains and losses. SFAS 145 amends Statement of Financial
Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13") to require that
certain lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
SFAS 145 also makes technical corrections to existing pronouncements. While
those corrections are not substantive in nature, in some instances, they may
change accounting practice. The provisions of SFAS 145 are effective for
financial statements issued for fiscal years beginning after May 15, 2002, and
interim periods within those fiscal years. The Company does not anticipate that
the adoption of SFAS 145 will have a material effect on the Company's results of
operations or financial position.
13
ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF 94-3. SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost as generally defined in EITF 94-3 was recognized at
the date of an entity's commitment to an exit plan. The provisions of SFAS 146
are effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. The Company does not anticipate
that the adoption of SFAS 146 will have a material effect on the Company's
results of operations or financial position.
14
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Report") contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Discussions containing such forward-looking statements may be found in
this section, as well as within this Report generally. In addition, when used in
this Report, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements 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 of our control, including, but
not limited to:
- a failure to achieve improvements in operating efficiency or
income from the consolidation of our operations,
- 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.
15
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table, including certain reclassifications in prior year results
to conform with current year presentation, summarizes our results of operations
for the three months ended September 30, 2002 (the "2002 Three-Month Period"),
the three months ended September 30, 2001 (the "2001 Three-Month Period"), the
six months ended September 30, 2002 (the "2002 Six-Month Period") and the six
months ended September 30, 2001 (the "2001 Six-Month Period"):
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands)
SALES:
Print $ 115,020 114,882 227,595 234,134
American Color 15,056 18,173 29,936 37,393
Other (a) 946 685 1,672 2,328
------------- ------------- ------------- -------------
Total $ 131,022 133,740 259,203 273,855
GROSS PROFIT:
Print $ 13,539 13,925 30,668 29,279
American Color 3,820 4,491 7,331 9,639
Other (a) 2 (336) (242) 72
------------- ------------- ------------- -------------
Total $ 17,361 18,080 37,757 38,990
GROSS MARGIN:
Print 11.8% 12.1% 13.5% 12.5%
American Color 25.4% 24.7% 24.5% 25.8%
Total 13.3% 13.5% 14.6% 14.2%
OPERATING INCOME (LOSS):
Print $ 8,297 9,334 20,500 20,996
American Color 1,547 1,796 2,989 4,594
Other (a) (b) (1,171) (2,035) (2,318) (3,108)
------------- ------------- ------------- -------------
Total $ 8,673 9,095 21,171 22,482
(a) Other operations primarily include revenues and expenses associated
with Digiscope, our digital visual effects operation.
(b) Also includes corporate general and administrative expenses, and
amortization expense.
16
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PRINT
SALES. In the 2002 Six-Month Period, print sales decreased $6.5 million to
$227.6 million from $234.1 million in the 2001 Six-Month Period. The decrease in
the 2002 Six-Month Period is primarily attributable to the impact of decreased
paper prices and an increase in customer supplied paper. These decreases were
offset in part by an approximate 8% increase in print production volume.
In the 2002 Three-Month Period, print sales increased $0.1 million to $115.0
million from $114.9 million in the 2001 Three-Month Period. The increase in the
2002 Three-Month Period is primarily attributable to an approximate 10% increase
in print production volume. This increase was offset in part by the impact of
decreased paper prices, certain changes in product and customer mix and an
increase in customer supplied paper.
GROSS PROFIT. In the 2002 Six-Month Period, print gross profit increased $1.4
million to $30.7 million from $29.3 million in the 2001 Six-Month Period. In the
2002 Six-Month Period, print gross margin increased to 13.5% from 12.5% in the
2001 Six-Month Period. The increase in gross profit includes the increased print
production volume, offset in part by the impact of competitive pricing, certain
changes in product and customer mix and approximately $2.4 million of unusual
expenses incurred during the 2002 Six-Month Period associated with the
installation and start-up of 12 printing presses including seven presses
relocated from our other print facilities. The increase in gross margin includes
these items and the impact of decreased paper prices and increased levels of
customer supplied paper reflected in sales.
In the 2002 Three-Month Period, print gross profit decreased $0.4 million to
$13.5 million from $13.9 million in the 2001 Three-Month Period. In the 2002
Three-Month Period, print gross margin decreased to 11.8% from 12.1% in the 2001
Three-Month Period. The decrease in gross profit includes the impact of
competitive pricing, certain changes in product and customer mix and $2.4
million of unusual expenses incurred during the 2002 Three-Month Period
associated with the installation and start-up of 12 printing presses, including
seven presses relocated from our other print facilities. These decreases in
gross profit were offset in part by the increased print production volume. The
decrease in gross margin includes these items and the impact of decreased paper
prices and increased levels of customer supplied paper reflected in sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the 2002 Six-Month Period,
print selling, general and administrative expenses increased $1.9 million to
$10.2 million, or 4.5% of print sales, from $8.3 million, or 3.5% of print sales
in the 2001 Six-Month Period. The increase in the 2002 Six-Month Period includes
the impact of increases in various selling expense categories and other employee
related expenses.
In the 2002 Three-Month Period, print selling, general and administrative
expenses increased $0.6 million to $5.2 million, or 4.6% of print sales, from
$4.6 million, or 4.0% of print sales in the 2001 Three-Month Period. The
increase in the 2002 Three-Month Period primarily includes the impact of
increases in various selling expense categories.
OPERATING INCOME. As a result of the factors discussed above, print operating
income decreased to $20.5 million in the 2002 Six-Month Period from $21.0
million in the 2001 Six-Month Period and decreased to $8.3 million in the 2002
Three-Month Period from $9.3 million in the 2001 Three-Month Period.
17
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
AMERICAN COLOR (Premedia Services)
SALES. In the 2002 Six-Month Period, American Color's sales decreased $7.5
million to $29.9 million from $37.4 million in the 2001 Six-Month Period. The
decrease in the 2002 Six-Month Period was primarily the result of reduced
premedia production volume associated with weak market conditions, including the
impact of certain premedia facility closures.
In the 2002 Three-Month Period, American Color's sales decreased $3.1 million to
$15.1 million from $18.2 million in the 2001 Three-Month Period. The decrease in
the 2002 Three-Month Period was primarily the result of reduced premedia
production volume associated with weak market conditions, including the impact
of certain premedia facility closures.
GROSS PROFIT. In the 2002 Six-Month Period, American Color's gross profit
decreased $2.3 million to $7.3 million from $9.6 million in the 2001 Six-Month
Period. In the 2002 Six-Month Period, American Color's gross margin decreased to
24.5% from 25.8% in the 2001 Six-Month Period. The decreases in gross profit and
gross margin for the 2002 Six-Month Period are primarily the result of reduced
premedia production volume, offset in part by reduced manufacturing costs
related to various cost containment programs.
In the 2002 Three-Month Period, American Color's gross profit decreased $0.7
million to $3.8 million from $4.5 million in the 2001 Three-Month Period. In the
2002 Three-Month Period, American Color's gross margin increased to 25.4% from
24.7% in the 2001 Three-Month Period. The decrease in gross profit for the 2002
Three-Month Period is primarily the result of reduced premedia production
volume, offset in part by reduced manufacturing costs related to various cost
containment programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the 2002 Six-Month Period,
American Color's selling, general and administrative expenses decreased $0.7
million to $4.3 million, or 14.5% of American Color's sales, from $5.0 million,
or 13.5% of American Color's sales in the 2001 Six-Month Period. The decrease in
the 2002 Six-Month Period is primarily attributable to decreased selling
expenses.
In the 2002 Three-Month Period, American Color's selling, general and
administrative expenses decreased $0.4 million to $2.3 million, or 15.1% of
American Color's sales, from $2.7 million, or 14.8% of American Color's sales in
the 2001 Three-Month Period. The decrease in the 2002 Three-Month Period is
primarily attributable to decreased selling expenses.
OPERATING INCOME. As a result of the factors discussed above, American Color's
operating income decreased to $3.0 million in the 2002 Six-Month Period from
$4.6 million in the 2001 Six-Month Period and decreased to $1.5 million in the
2002 Three-Month Period from $1.8 million in the 2001 Three-Month Period.
18
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OTHER OPERATIONS
Other operations consist primarily of revenues and expenses associated with
Digiscope and corporate general, administrative and other expenses, including
amortization expense. In the 2002 Six-Month Period, operating losses from other
operations improved to a loss of $2.3 million from a loss of $3.1 million in the
2001 Six-Month Period. In the 2002 Three-Month Period, operating losses from
other operations improved to a loss of $1.2 million from a loss of $2.0 million
in the 2001 Three-Month Period. Included in the 2002 Six-Month Period is a
reduction in goodwill amortization expense of $1.5 million, offset in part by
increased operating losses at Digiscope of $0.3 million and increased corporate
general and administrative expenses. Included in the 2002 Three-Month Period is
a reduction in goodwill amortization expense of $0.8 million and decreased
operating losses at Digiscope of $0.3 million, offset by increased corporate
general and administrative expenses. See discussion of goodwill amortization
below.
Goodwill was amortized on a straight-line basis by business segment through the
fiscal year ended March 31, 2002 ("Fiscal Year 2002"). Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), is effective for fiscal years beginning after December 15, 2001. In
compliance with this pronouncement, we adopted SFAS 142 on April 1, 2002. As a
result, we did not amortize goodwill during the 2002 Six-Month Period. In the
2001 Six-Month Period, goodwill amortization expense within other operations was
$1.5 million and in the 2001 Three-Month Period goodwill amortization expense
within other operations was $0.8 million. Application of the non-amortization
provisions of SFAS 142 is expected to result in an increase in pre-tax income of
approximately $2.8 million in fiscal year ending March 31, 2003 ("Fiscal Year
2003"). In the 2002 Three-Month Period, we performed the initial assessment of
impairment and noted no impairment. We expect to perform the first of the
required annual impairment tests of goodwill during the three months ending
December 31, 2002. We do not anticipate that these tests will have a material
effect on our results of operations or financial position.
INTEREST EXPENSE
In the 2002 Six-Month Period, interest expense decreased to $14.3 million from
$15.4 million in the 2001 Six-Month Period and in the 2002 Three-Month Period
interest expense decreased to $7.1 million from $7.7 million in the 2001
Three-Month Period. This decrease reflects both lower levels of indebtedness and
lower borrowing costs.
OTHER, NET
In the 2002 Six-Month Period, Other, net increased to expense of $0.4 million
from expense of $0.1 million in the 2001 Six-Month Period and in both the 2002
Three-Month Period and the 2001 Three-Month Period, Other, net was $0.2 million
expense.
INCOME TAXES
In the 2002 Six-Month Period, income tax expense decreased to $0.9 million from
$1.1 million in the 2001 Six-Month Period. Income tax expense was $0.3 million
in both the 2002 Three-Month Period and the 2001 Three-Month Period. The
decrease in the 2002 Six-Month Period is primarily due to lower amounts of U.S.
and foreign taxable income, offset in part by a decreased reduction in the
valuation allowance. Management continues to evaluate the need for a valuation
allowance for deferred tax assets. In the 2002 Six-Month Period and the 2002
Three-Month Period, there have been no changes in circumstances that would cause
a change in judgment with respect to the realization of deferred tax assets in
future years.
19
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
NET INCOME
As a result of the factors discussed above, net income decreased to $5.6 million
in the 2002 Six-Month Period from $6.0 million in the 2001 Six-Month Period and
in the 2002 Three-Month Period, net income increased to $1.1 million from $0.9
million in the 2001 Three-Month Period.
LIQUIDITY AND CAPITAL RESOURCES
We have a $145 million credit facility with a syndicate of lenders (the "Bank
Credit Agreement") that provides for:
(1) a $25 million amortizing term loan facility maturing on March
31, 2004 (the "A Term Loan Facility"),
(2) a $50 million amortizing term loan facility maturing on March
31, 2005 (the "B Term Loan Facility"), and
(3) a revolving credit facility providing for a maximum of $70
million borrowing availability, subject to certain
customary conditions, maturing on March 31, 2004,
including up to $40 million for letters of credit (the
"Revolving Credit Facility").
At September 30, 2002, we had total borrowings and letters of credit outstanding
under the Revolving Credit Facility of approximately $30.2 million and
additional borrowing availability of approximately $35.8 million.
At September 30, 2002, $6.3 million of the A Term Loan Facility and $35.1
million of the B Term Loan Facility remained outstanding. The scheduled A Term
Loan Facility and B Term Loan Facility payments due over the remainder of Fiscal
Year 2003 are $2.1 million and $0.2 million, respectively. Scheduled repayments
of existing capital lease obligations and other senior indebtedness during the
remainder of Fiscal Year 2003 are approximately $4.4 million and $1.3 million,
respectively.
During the 2002 Six-Month Period, we repurchased in the open market, an
aggregate principal amount of $1.7 million of our 12 3/4% Senior Subordinated
Notes Due 2005 (the "Notes") for approximately $1.7 million.
During the 2002 Six-Month Period, we primarily used net cash provided by
operating activities of $20.9 million, net revolver borrowings of $9.3 million,
the $4.5 million cash balance from March 31, 2002 and $0.1 million of proceeds
from the sale of fixed assets to fund the following expenditures:
(1) $14.0 million in principal repayments of indebtedness and
financing costs (including capital lease obligations of
$4.0 million and repurchase of the Notes of $1.7 million),
and
(2) $20.8 million in cash capital expenditures.
Our cash-on-hand of approximately $5.9 million is presented net of outstanding
checks within trade accounts payable at September 30, 2002. Accordingly, cash is
presented at a balance of $0 in the September 30, 2002 balance sheet. We plan to
continue our program of upgrading our print and premedia equipment and currently
anticipate that full year Fiscal Year 2003 cash capital expenditures will be
approximately $28.3 million and equipment acquired under capital leases will be
approximately $0.7 million.
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, make capital expenditures and, if we elect, redeem, repay or
repurchase outstanding indebtedness, including repurchases of Notes in privately
negotiated transactions, or in open market purchases, to the extent permitted by
our Bank Credit Agreement.
20
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
At September 30, 2002, we had total indebtedness, including capital lease
obligations, of $249.1 million, as compared to $256.3 million at September 30,
2001, representing a net reduction in total indebtedness of $7.2 million. Of the
total debt outstanding at September 30, 2002, $50.8 million (excluding letters
of credit) was outstanding under the Bank Credit Agreement at a weighted-average
interest rate of 4.1%. Indebtedness under the Bank Credit Agreement bears
interest at floating rates. At September 30, 2002, we had indebtedness other
than obligations under the Bank Credit Agreement of $198.3 million (including
$170.1 million of the Notes).
We are currently in compliance with the financial covenants contained in the
Bank Credit Agreement. We are, however, currently projecting that we will be
unable to meet the required Minimum EBITDA covenant level included within the
Bank Credit Agreement beginning in the quarter ending March 31, 2003 and
continuing through the quarter ending September 30, 2003. EBITDA includes the
impact of certain unusual expenses associated with our capacity expansion
efforts, including the start-up of 12 printing presses, five of which were
recently purchased and seven relocated from our other printing facilities.
We have initiated discussions with the banks to seek the appropriate amendment
to the Minimum EBITDA covenant levels within the Bank Credit Agreement. In the
absence of such an amendment, a breach of financial covenants would constitute
an event of default under the Bank Credit Agreement, which would permit our
banks to accelerate the maturity of the indebtedness thereunder, prohibit
borrowing under our Revolving Credit Facility and to enforce their security
interests in our assets. An acceleration under the Bank Credit Agreement which
could result from a default thereunder would result in a default under the
indenture related to the Notes. Although no assurances can be given that the
banks will grant such amendment, we believe we will be successful in obtaining
the necessary amendment to the Bank Credit Agreement.
A significant portion of Graphics' long-term obligations, including indebtedness
under the Bank Credit Agreement and the Notes, 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.
EBITDA
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands)
EBITDA:
Print $ 12,923 14,809 29,849 31,849
American Color 2,580 3,162 5,096 7,358
Other (a) (1,057) (1,039) (2,081) (1,123)
--------- ------ ------ ------
Total $ 14,446 16,932 32,864 38,084
EBITDA MARGIN:
Print 11.2% 12.9% 13.1% 13.6%
American Color 17.1% 17.4% 17.0% 19.7%
Total 11.0% 12.7% 12.7% 13.9%
(a) Other operations include revenues and expenses associated with our digital
visual effects business and corporate general and administrative expenses.
21
ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
EBITDA is presented and discussed because management believes that investors
regard EBITDA as a key measure of a leveraged company's performance and ability
to meet its future debt service requirements. "EBITDA" is defined as earnings
before net interest expense, income tax expense, depreciation, amortization, and
other expense (income). "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 Senior Subordinated Notes
Indenture and the Bank Credit Agreement are based on EBITDA, subject to certain
adjustments.
22
ACG HOLDINGS, INC.
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes since March 31, 2002. Reference
is made to Item 7A (Quantitative and Qualitative Disclosures About
Market Risk) disclosure in our Form 10-K filed for the fiscal year
ended March 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) promulgated under the Securities Exchange Act of 1934, as
amended). Based on that evaluation, the Company's management including
the Chief Executive Officer and Chief Financial Officer, concluded that
the Company's disclosure controls and procedures were effective as of
September 30, 2002. There have been no significant changes in the
Company's internal controls or in other factors that could
significantly affect internal controls subsequent to September 30,
2002.
23
ACG HOLDINGS, INC.
Part II Other Information
ITEM 1. (a) LEGAL PROCEEDINGS
Reference is made to Item 3 (Legal Proceedings) disclosure in our Form
10-K filed for the fiscal year ended March 31, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the third quarter of fiscal year ended March 31, 2000, certain
officers exercised options to purchase an aggregate of 1,106 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. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
12.1 Statement Re: Computation of Ratio of Earnings to
Fixed Charges
99.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
Form 8-K filed with Securities Exchange Commission on July 16,
2002 under Item 5 to announce Holdings' financial results for the
three months ended June 30, 2002.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Holdings and Graphics have duly caused this Report to be signed on their behalf
by the undersigned thereunto duly authorized.
ACG Holdings, Inc.
American Color Graphics, Inc.
Date: November 13, 2002 By /s/ Joseph M. Milano
---------------------------
Joseph M. Milano
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Date: November 13, 2002 By /s/ Patrick W. Kellick
----------------------------
Patrick W. Kellick
Senior Vice President/Corporate Controller
and Assistant Secretary
(Chief Accounting Officer)
25
CERTIFICATIONS
I, Stephen M. Dyott, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ACG
Holdings, Inc. and American Color Graphics, Inc.,
collectively (the "Company");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 /s/ Stephen M. Dyott
----------------------------
Stephen M. Dyott
Chief Executive Officer
26
CERTIFICATIONS
I, Joseph M. Milano, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ACG
Holdings, Inc. and American Color Graphics, Inc., collectively
(the "Company");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 /s/ Joseph M. Milano
----------------------------
Joseph M. Milano
Chief Financial Officer
27
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges 29
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 30
28