##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    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.
  Delaware
(State or Other Jurisdiction of Incorporation or Organization)
    
    62-1395968
(I.R.S. Employer Identification No.)100 Winners Circle, Brentwood, Tennessee
(Address of Principal Executive Offices)
    
    37027
(Zip Code)
 (615) 377-0377
 AMERICAN COLOR GRAPHICS, INC.
  New York
(State or Other Jurisdiction of Incorporation or Organization)
    
    16-1003976
(I.R.S. Employer Identification No.)100 Winners Circle, Brentwood, Tennessee
(Address of Principal Executive Offices)
    
    37027
(Zip Code)
 (615) 377-0377
  o þ
  o o þ
  o þ




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##### 



INDEX
  
 PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2007 and March 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    32PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    33Item 6.
    
    Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT INDEX
    
    
    35EX-10.4(A) EMPLOYMENT AGREEMENT AMENDMENTEX-10.6(A) EMPLOYMENT AGREEMENT AMENDMENTEx-12.1 StEX-12.1 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32.1 Section 906 Certification of the CEO and CFO
  2




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  June 30, 2007
    
    
    March 31, 2007(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,084 and
$1,017 at June 30, 2007 and March 31,
2007, respectively
    
    
    42,523
    
    
    
    44,385Other
    
    
    2,494
    
    
    
    2,645Total receivables
    
    
    45,017
    
    
    
    47,030Inventories
    
    
    6,463
    
    
    
    7,146Deferred income taxes
    
    
    962
    
    
    
    962Prepaid expenses and other current assets
    
    
    6,334
    
    
    
    4,914Total current assets
    
    
    58,776
    
    
    
    60,052Property, plant and equipment
    
    
    301,492
    
    
    
    296,556Less accumulated depreciation
    
    
    (221,323
    )
    
    
    (214,772
    )Net property, plant and equipment
    
    
    80,169
    
    
    
    81,784Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    18,329
    
    
    
    17,840Total assets
    
    $
    223,822
    
    
    
    226,224
   3




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ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
 June 30, 2007
    
    
    March 31, 2007(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current portion of long-term debt and capital leases
    
    $
    363,711
    
    
    
    352,110Trade accounts payable
    
    
    34,634
    
    
    
    33,091Accrued expenses
    
    
    21,925
    
    
    
    30,312Income tax payable
    
    
    150
    
    
    
    487Total current liabilities
    
    
    420,420
    
    
    
    416,000Deferred income taxes
    
    
    2,761
    
    
    
    2,677Other liabilities
    
    
    51,406
    
    
    
    52,499Total liabilities
    
    
    474,587
    
    
    
    471,176Commitments and contingencies (note 8)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 173,254 shares and 158,205 shares
issued and outstanding at June 30, 2007 and March
31, 2007, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (238,761
    )
    
    
    (232,083
    )Other accumulated comprehensive loss, net of tax
    
    
    (14,044
    )
    
    
    (14,909
    )Total stockholders deficit
    
    
    (250,765
    )
    
    
    (244,952
    )Total liabilities and stockholders deficit
    
    $
    223,822
    
    
    
    226,224
   4




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedJune 30,2007
    
    
    2006(Restated)Sales
    
    $
    105,823
    
    
    
    110,010Cost of sales
    
    
    94,941
    
    
    
    97,547Gross profit
    
    
    10,882
    
    
    
    12,463Selling, general and administrative expenses
    
    
    6,576
    
    
    
    5,999Restructuring costs (benefit)
    
    
    22
    
    
    
    (251
    )Operating income
    
    
    4,284
    
    
    
    6,715Other expense (income):Interest expense
    
    
    10,531
    
    
    
    9,522Interest income
    
    
    (6
    )
    
    
    (11
    )Other, net
    
    
    282
    
    
    
    227Total other expense
    
    
    10,807
    
    
    
    9,738Loss before income taxes
    
    
    (6,523
    )
    
    
    (3,023
    )Income tax expense (benefit):Current
    
    
    223
    
    
    
    195Deferred
    
    
    (68
    )
    
    
    (480
    )Total income tax expense (benefit)
    
    
    155
    
    
    
    (285
    )Net loss
    
    $
    (6,678
    )
    
    
    (2,738
    )
   5




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Three Months EndedJune 30,2007
    
    
    2006(Restated)Cash flows provided (used) by operating activities:Net loss
    
    $
    (6,678
    )
    
    
    (2,738
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    4,912
    
    
    
    4,633Amortization of other assets
    
    
    6
    
    
    
    10Amortization of deferred financing costs
    
    
    921
    
    
    
    682Deferred income tax benefit
    
    
    (68
    )
    
    
    (480
    )Decrease in working capital deficiency and other
    
    
    (6,798
    )
    
    
    (10,371
    )Net cash used by operating activities
    
    
    (7,705
    )
    
    
    (8,264
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (2,513
    )
    
    
    (3,023
    )Proceeds from sales of property, plant and equipment
    
    
    65
    
    
    
    11Other
    
    
    (139
    )
    
    
    (98
    )Net cash used by investing activities
    
    
    (2,587
    )
    
    
    (3,110
    )Cash flows provided (used) by financing activities:Net increase in revolver borrowings
    
    
    12,554
    
    
    
    12,300Repayment of capital lease obligations
    
    
    (953
    )
    
    
    (903
    )Payment of deferred financing costs
    
    
    (1,298
    )
    
    
    Net cash provided by financing activities
    
    
    10,303
    
    
    
    11,397Effect of exchange rates on cash
    
    
    (11
    )
    
    
    (23
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
   6




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ACG HOLDINGS, INC.
 
 Notes to Condensed Consolidated Financial Statements
  Description of the Company
  1. Basis of Presentation
   2. Restatement of Financial Statements
    7




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 RestatementJune 30, 2006
    
    
    Related
    
    
    June 30, 2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    110,010
    
    
    
    
    
    
    
    110,010Cost of
sales(b)(c)
    
    
    97,864
    
    
    
    (317
    )
    
    
    97,547Gross profit
    
    
    12,146
    
    
    
    317
    
    
    
    12,463Selling,
general and administrative expenses(a)(b)
    
    
    5,952
    
    
    
    47
    
    
    
    5,999Restructuring
costs (benefit)(d)
    
    
    
    
    
    
    (251
    )
    
    
    (251
    )Operating income
    
    
    6,194
    
    
    
    521
    
    
    
    6,715Other expense (income):Interest
expense(a)
    
    
    9,605
    
    
    
    (83
    )
    
    
    9,522Interest income
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Other, net
    
    
    227
    
    
    
    
    
    
    
    227Total other expense
    
    
    9,821
    
    
    
    (83
    )
    
    
    9,738Loss before income taxes
    
    
    (3,627
    )
    
    
    604
    
    
    
    (3,023
    )Income tax benefit
    
    
    (285
    )
    
    
    
    
    
    
    (285
    )Net loss
    
    $
    (3,342
    )
    
    
    604
    
    
    
    (2,738
    )
 (a)
    
    The revised treatment of deferred financing costs resulted in an increase of $56,000
in selling, general and administrative expenses and a decrease of $83,000 in interest
expense resulting in a net decrease of $27,000 in net loss.(b)
    
    The adjustment related to the revision of the accrued vacation liability calculation
resulted in an increase in cost of sales of $73,000 and a decrease in selling, general and
administrative expenses of $8,000 resulting in a net increase in net loss of $65,000.(c)
    
    The adjustment related to the utility liability resulted in a decrease in cost of
sales of $390,000.(d)
    
    The adjustment related to the restructuring liability resulted in a restructuring
benefit of $251,000.
 3. Inventories
  June 30,
    
    
    March 31,2007
    
    
    2007Paper
    
    $
    4,485
    
    
    
    5,036Ink
    
    
    143
    
    
    
    152Supplies and other
    
    
    1,835
    
    
    
    1,958Total inventories
    
    $
    6,463
    
    
    
    7,146
 4. Notes Payable and Long-Term Debt
 May 5, 2005 Refinancing Transaction
  8




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 
    
    a $55 million revolving credit facility ($40 million of which may
be used for letters of credit), maturing on December 15, 2009
which is not subject to a borrowing base limitation, (the 2005
Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on
December 15, 2009 (the 2005 Term Loan Facility).
     
    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of its business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to the Company from its subsidiaries.
   9




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 September 26, 2006 Revolving Trade Receivables Facility
         10




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 10% Senior Second Secured Notes
  Amendments to Credit Facilities
  Covenant Compliance and Liquidity
      11




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
    5. Comprehensive Income (Loss)
   Three Months EndedJune 30,2007
    
    
    2006(Restated)Net loss
    
    $
    (6,678
    )
    
    
    (2,738
    )Foreign currency translation adjustment,
net of tax
    
    
    865
    
    
    
    408Total comprehensive loss
    
    $
    (5,813
    )
    
    
    (2,330
    )
 6. Income Taxes
  12




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
      7. Employee Benefit Plans
 Components of Net Periodic Benefit Cost (in thousands)
 Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanThree months ended
    
    
    Three months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    114
    
    
    
    133
    
    
    
    6
    
    
    
    12Interest cost
    
    
    1,071
    
    
    
    1,230
    
    
    
    34
    
    
    
    68Expected return on plan assets
    
    
    (1,384
    )
    
    
    (1,373
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (71
    )Amortization of unrecognized loss
    
    
    243
    
    
    
    605
    
    
    
    
    
    
    
    Recognized net actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4Net periodic benefit cost
    
    $
    44
    
    
    
    595
    
    
    
    (29
    )
    
    
    13
 8. Commitments and Contingencies
  13




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
      9. Restructuring Costs
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
   14




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 
  03/31/07
    
    
    
    
    
    
    06/30/07Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    $
    335
    
    
    
    (32
    )
    
    
    303Other costs
    
    
    12
    
    
    
    
    
    
    
    12$
    347
    
    
    
    (32
    )
    
    
    315
  Pittsburg Facility Closure Plan
   15




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   03/31/07
    
    
    
    
    
    
    
    
    
    
    06/30/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceLease termination costs
    
    $
    598
    
    
    
    (1
    )
    
    
    (9
    )
    
    
    588Other costs
    
    
    16
    
    
    
    
    
    
    
    4
    
    
    
    20$
    614
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    608
  Plant and SG&A Reduction Plan
   16




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/07
    
    
    
    
    
    
    
    
    
    
    06/30/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    71
    
    
    
    (79
    )
    
    
    8
    
    
    
    Other costs
    
    
    3
    
    
    
    
    
    
    
    (3
    )
    
    
    $
    74
    
    
    
    (79
    )
    
    
    5
    
    
    
    
  Fiscal Year 2002 Restructuring Costs
   17




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/07Restructuring
    
    
    
    
    
    
    
    
    
    06/30/07Reserve
    
    
    
    
    
    Reserve
    
    RestructuringBalance
    
    Activity
    
    Adjustment
    
    Reserve BalanceLease termination costs
    
    $
    1,071
    
    
    
    (61
    )
    
    
    22
    
    
    
    1,032
  9. Industry Segment Information
     18




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalThree Months Ended June 30, 2007Sales
    
    $
    94,517
    
    
    
    11,306
    
    
    
    
    
    
    
    105,823EBITDA
    
    $
    8,296
    
    
    
    1,778
    
    
    
    (1,154
    )
    
    
    8,920Depreciation and amortization
    
    
    (4,488
    )
    
    
    (430
    )
    
    
    
    
    
    
    (4,918
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,531
    )
    
    
    (10,531
    )Interest income
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Income tax expense
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    (155
    )Net income (loss)
    
    $
    3,808
    
    
    
    1,348
    
    
    
    (11,834
    )
    
    
    (6,678
    )Total assets
    
    $
    200,647
    
    
    
    11,168
    
    
    
    12,007
    
    
    
    223,822Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,508
    
    
    
    5
    
    
    
    
    
    
    
    2,513Three Months Ended June 30, 2006 (Restated)Sales
    
    $
    97,153
    
    
    
    12,857
    
    
    
    
    
    
    
    110,010EBITDA
    
    $
    9,225
    
    
    
    2,799
    
    
    
    (893
    )
    
    
    11,131Depreciation and amortization
    
    
    (4,116
    )
    
    
    (527
    )
    
    
    
    
    
    
    (4,643
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (9,522
    )
    
    
    (9,522
    )Interest income
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Income tax benefit
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    285Net income (loss)
    
    $
    5,109
    
    
    
    2,272
    
    
    
    (10,119
    )
    
    
    (2,738
    )Total assets
    
    $
    205,110
    
    
    
    12,935
    
    
    
    11,612
    
    
    
    229,657Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,805
    
    
    
    218
    
    
    
    
    
    
    
    3,023
 10. Impact of Recently Issued Accounting Standards
   19




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   11. Subsequent Event
   20




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ACG HOLDINGS, INC.
 
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Special Note Regarding Forward Looking Statements
  
    
    a failure to achieve expected cost reductions or to execute other key strategies;
    
    fluctuations in the cost of paper, ink and other key 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;
    
    downgrades of our credit ratings;
    
    our financial condition and liquidity and our leverage and debt service obligations;
    
    the general condition of the United States economy;
    
    interest rate and foreign currency exchange rate fluctuations;
    
    the level of capital resources required for our operations;
    
    changes in the legal and regulatory environment;
    
    the demand for our products and services; and
    
    other risks and uncertainties, including the matters set forth in this Report
generally and those described from time to time in our filings with the Securities and
Exchange Commission.
   Restated Financial Statements
   21




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of  Financial Condition and Results of Operations
    Three Months EndedJune 30,2007
    
    
    2006(Restated)Sales:Print
    
    $
    94,517
    
    
    
    97,153Premedia Services
    
    
    11,306
    
    
    
    12,857Total
    
    $
    105,823
    
    
    
    110,010Gross Profit:Print
    
    $
    8,161
    
    
    
    8,691Premedia Services
    
    
    2,719
    
    
    
    3,773Other
    
    
    2
    
    
    
    (1
    )Total
    
    $
    10,882
    
    
    
    12,463Gross Margin:Print
    
    
    8.6
    %
    
    
    8.9
    %Premedia Services
    
    
    24.1
    %
    
    
    29.3
    %Total
    
    
    10.3
    %
    
    
    11.3
    %EBITDA:Print
    
    $
    8,296
    
    
    
    9,225Premedia Services
    
    
    1,778
    
    
    
    2,799Other (a)
    
    
    (1,154
    )
    
    
    (893
    )Total
    
    $
    8,920
    
    
    
    11,131EBITDA Margin:Print
    
    
    8.8
    %
    
    
    9.5
    %Premedia Services
    
    
    15.7
    %
    
    
    21.8
    %Total
    
    
    8.4
    %
    
    
    10.1
    %
 
 (a)
    
    Other operations include corporate general and administrative expenses.  22




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of  Financial Condition and Results of Operations
   PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended June 30, 2007EBITDA
    
    $
    8,296
    
    
    
    1,778
    
    
    
    (1,154
    )
    
    
    8,920Depreciation and amortization
    
    
    (4,488
    )
    
    
    (430
    )
    
    
    
    
    
    
    (4,918
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (10,525
    )
    
    
    (10,525
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    (155
    )Net income (loss)
    
    $
    3,808
    
    
    
    1,348
    
    
    
    (11,834
    )
    
    
    (6,678
    )Three Months Ended June 30, 2006 (Restated)EBITDA
    
    $
    9,225
    
    
    
    2,799
    
    
    
    (893
    )
    
    
    11,131Depreciation and amortization
    
    
    (4,116
    )
    
    
    (527
    )
    
    
    
    
    
    
    (4,643
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,511
    )
    
    
    (9,511
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    285Net income (loss)
    
    $
    5,109
    
    
    
    2,272
    
    
    
    (10,119
    )
    
    
    (2,738
    )
 Print
 Sal es.
 Gross Profit.
 Selling, General and Administrative Expenses.
 23




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Restructuring Costs (Benefit).
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Other Expense (Income).
 EBITDA.
 Other Operations
  Interest Expense, Net
  24




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Income Tax Expense (Benefit)
     Net Income (Loss)
  Liquidity and Capital Resources
 *   *   *
   *   *   *
 25




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Overview of Liquidity and Capital Resources
  
    
    $1.7 million under the 2005 Revolving Credit Facility; and
    
    $15.4 million under the Receivables Facility, including $1.9 million based on receivables purchased from Graphics at June 30, 2007 and an additional $13.5 million if Graphics Finance,
defined below, had purchased from Graphics all other eligible receivables at June 30, 2007.
       
    
    $7.7 million of operating activities (see our Consolidated Statements of Cash Flows
appearing elsewhere in this Report);
    
    $2.5 million in cash capital expenditures; and
    
    $2.3 million to service other indebtedness (including repayment of capital lease
obligations of $1.0 million and payment of deferred financing costs of $1.3 million).
 26




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
         27




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   May 2005 Refinancing
  
    
    a $55 million revolving credit facility ($40 million of which may be used for letters of
credit), maturing on December 15, 2009, which is not subject to a borrowing base
limitation, (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009 (the 2005
Term Loan Facility).
    28




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  
    
    a first lien leverage ratio test; and
    
    a minimum total liquidity test.
  
    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt (including the 10%
Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our subsidiaries.
  September 2006 Revolving Trade Receivables Facility
     29




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
    Value Added Revenue and Print Impressions for the Print Segment
  Three Months EndedJune 30,2007
    
    2006Print segment VAR (in thousands)
    
    $
    48,202
    
    
    
    47,073Print segment impressions (in millions)
    
    
    2,747
    
    
    
    2,864
  Three Months EndedJune 30,2007
    
    
    2006(In thousands)Print segment sales
    
    $
    94,517
    
    
    
    97,153Paper, ink and subcontract services
    
    
    (46,315
    )
    
    
    (50,080
    )Print segment VAR
    
    $
    48,202
    
    
    
    47,073
 30




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 New Accounting Pronouncements
   
  Contractual Obligations
  31




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##### Table of Contents



ACG HOLDINGS, INC.
PART I  FINANCIAL INFORMATION
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Quantitative Information.
 Qualitative Information.
    
 Item 4. Controls and Procedures.
        32




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##### Table of Contents



ACG HOLDINGS, INC.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description10.4(a)
    
    Amendment dated August 24, 2007 to
Employment Agreement dated as of April 19, 2007, among Graphics,
Holdings and Patrick W. Kellick10.6(a)
    
    Amendment dated August 24, 2007 to
Employment Agreement dated as of April 19, 2007, among Graphics,
Holdings and Kathleen A. DeKam12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges

31.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350
 33




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##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.
American Color Graphics, Inc.Date: August 31, 2007
    By  /s/ Stephen M. DyottStephen M. DyottChairman, President and Chief Executive Officer

ACG Holdings, Inc.

Chairman and Chief Executive Officer

American Color Graphics, Inc.

(Authorized Officer)Date: August 31, 2007
    By  /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officer
and Secretary

(Authorized Officer and
Principal Financial Officer) 34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.4(a)
    
    Amendment dated August 24, 2007 to
Employment Agreement dated as of April 19, 2007, among Graphics,
Holdings and Patrick W. Kellick.10.6(a)
    
    Amendment dated August 24, 2007 to
Employment Agreement dated as of April 19, 2007, among Graphics,
Holdings and Kathleen A. DeKam.12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
 35