##### 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 September 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
 þ o
  o o þ
 o þ




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##### 



INDEX
 PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Condensed Consolidated Balance Sheets as of
September 30, 2007 and March 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Operations for the
Six Months Ended September 30, 2007 and 2006
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2007 and 2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    34Item 4.
    
    Controls and Procedures.
    
    
    34PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    
    35Item 6.
    
    Exhibits.
    
    
    35SIGNATURES
    
    
    36EXHIBIT INDEX
    
    
    37Ex-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 & CFO
  2




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  September 30,
    
    
    March 31,2007
    
    
    2007(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,108 and
$1,017 at September 30, 2007 and
March 31, 2007, respectively
    
    
    45,733
    
    
    
    44,385Other
    
    
    2,393
    
    
    
    2,645Total receivables
    
    
    48,126
    
    
    
    47,030Inventories
    
    
    6,657
    
    
    
    7,146Deferred income taxes
    
    
    673
    
    
    
    962Prepaid expenses and other current assets
    
    
    5,934
    
    
    
    4,914Total current assets
    
    
    61,390
    
    
    
    60,052Property, plant and equipment
    
    
    303,828
    
    
    
    296,556Less accumulated depreciation
    
    
    (225,786
    )
    
    
    (214,772
    )Net property, plant and equipment
    
    
    78,042
    
    
    
    81,784Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    17,277
    
    
    
    17,840Total assets
    
    $
    223,257
    
    
    
    226,224
  3




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##### Table of Contents



ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
 September 30,
    
    
    March 31,2007
    
    
    2007(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current portion of long-term debt and capital leases
    
    $
    368,515
    
    
    
    352,110Trade accounts payable
    
    
    33,160
    
    
    
    33,091Accrued expenses
    
    
    27,877
    
    
    
    30,312Income tax payable
    
    
    39
    
    
    
    487Total current liabilities
    
    
    429,591
    
    
    
    416,000Deferred income taxes
    
    
    6,241
    
    
    
    2,677Other liabilities
    
    
    50,338
    
    
    
    52,499Total liabilities
    
    
    486,170
    
    
    
    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 September 30, 2007 and
March 31, 2007, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (251,555
    )
    
    
    (232,083
    )Other accumulated comprehensive loss, net of tax
    
    
    (13,398
    )
    
    
    (14,909
    )Total stockholders deficit
    
    
    (262,913
    )
    
    
    (244,952
    )Total liabilities and stockholders deficit
    
    $
    223,257
    
    
    
    226,224
  4




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedSeptember 30,2007
    
    
    2006(Restated)Sales
    
    $
    101,396
    
    
    
    111,654Cost of sales
    
    
    90,929
    
    
    
    99,324Gross profit
    
    
    10,467
    
    
    
    12,330Selling, general and administrative expenses
    
    
    6,316
    
    
    
    6,374Restructuring costs
    
    
    67
    
    
    
    95Operating income
    
    
    4,084
    
    
    
    5,861Other expense (income):Interest expense
    
    
    10,886
    
    
    
    9,941Interest income
    
    
    (6
    )
    
    
    (39
    )Other, net
    
    
    2,219
    
    
    
    448Total other expense
    
    
    13,099
    
    
    
    10,350Loss before income taxes
    
    
    (9,015
    )
    
    
    (4,489
    )Income tax expense (benefit):Current
    
    
    128
    
    
    
    76Deferred
    
    
    3,651
    
    
    
    (77
    )Total income tax expense (benefit)
    
    
    3,779
    
    
    
    (1
    )Net loss
    
    $
    (12,794
    )
    
    
    (4,488
    )
  5




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Six Months EndedSeptember 30,2007
    
    
    2006(Restated)Sales
    
    $
    207,219
    
    
    
    221,664Cost of sales
    
    
    185,870
    
    
    
    196,871Gross profit
    
    
    21,349
    
    
    
    24,793Selling, general and administrative expenses
    
    
    12,892
    
    
    
    12,373Restructuring costs (benefit)
    
    
    89
    
    
    
    (156
    )Operating income
    
    
    8,368
    
    
    
    12,576Other expense (income):Interest expense
    
    
    21,417
    
    
    
    19,463Interest income
    
    
    (12
    )
    
    
    (50
    )Other, net
    
    
    2,501
    
    
    
    675Total other expense
    
    
    23,906
    
    
    
    20,088Loss before income taxes
    
    
    (15,538
    )
    
    
    (7,512
    )Income tax expense (benefit):Current
    
    
    351
    
    
    
    271Deferred
    
    
    3,583
    
    
    
    (557
    )Total income tax expense (benefit)
    
    
    3,934
    
    
    
    (286
    )Net loss
    
    $
    (19,472
    )
    
    
    (7,226
    )
  6




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Six Months EndedSeptember 30,2007
    
    
    2006(Restated)Cash flows provided (used) by operating activities:Net loss
    
    $
    (19,472
    )
    
    
    (7,226
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    9,215
    
    
    
    9,259Amortization of other assets
    
    
    11
    
    
    
    22Amortization of deferred financing costs
    
    
    1,927
    
    
    
    1,449Deferred income tax expense (benefit)
    
    
    3,583
    
    
    
    (557
    )Decrease in working capital deficiency and other
    
    
    (5,934
    )
    
    
    (14,583
    )Net cash used by operating activities
    
    
    (10,670
    )
    
    
    (11,636
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (4,130
    )
    
    
    (7,250
    )Proceeds from sales of property, plant and equipment
    
    
    60
    
    
    
    12Other
    
    
    (255
    )
    
    
    (131
    )Net cash used by investing activities
    
    
    (4,325
    )
    
    
    (7,369
    )Cash flows provided (used) by financing activities:Net increase in revolver borrowings
    
    
    18,125
    
    
    
    23,250Repayment of capital lease obligations
    
    
    (1,720
    )
    
    
    (1,825
    )Payment of deferred financing costs
    
    
    (1,339
    )
    
    
    (2,395
    )Net cash provided by financing activities
    
    
    15,066
    
    
    
    19,030Effect of exchange rates on cash
    
    
    (71
    )
    
    
    (25
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
  7




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Description of the Company
  1. Basis of Presentation
   2. Restatement of Financial Statements
    8




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Three Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    Restatement
    
    
    September 30,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    111,654
    
    
    
    
    
    
    
    111,654Cost of sales (b) (c) (e)
    
    
    99,307
    
    
    
    17
    
    
    
    99,324Gross profit
    
    
    12,347
    
    
    
    (17
    )
    
    
    12,330Selling, general and
administrative expenses (a) (b)
(e)
    
    
    6,293
    
    
    
    81
    
    
    
    6,374Restructuring costs (d)
    
    
    
    
    
    
    95
    
    
    
    95Operating income
    
    
    6,054
    
    
    
    (193
    )
    
    
    5,861Other expense (income):Interest expense (a)
    
    
    10,020
    
    
    
    (79
    )
    
    
    9,941Interest income
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Other, net
    
    
    448
    
    
    
    
    
    
    
    448Total other expense
    
    
    10,429
    
    
    
    (79
    )
    
    
    10,350Loss before income taxes
    
    
    (4,375
    )
    
    
    (114
    )
    
    
    (4,489
    )Income tax benefit
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Net loss
    
    $
    (4,374
    )
    
    
    (114
    )
    
    
    (4,488
    )
 
 (a)
    
    The revised treatment of deferred financing costs resulted in an increase of $89,000 in
selling, general and administrative expenses and a decrease of $79,000 in interest expense
resulting in a net increase of $10,000 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 $7,000 resulting in a net increase in net loss of $66,000.(c)
    
    The adjustment related to the utility liability resulted in a decrease in cost of sales
of $57,000.(d)
    
    The adjustment related to the restructuring liability resulted in a restructuring
expense of $95,000.(e)
    
    Other immaterial adjustments resulted in a net increase in cost of sales of $1,000 and
a net decrease in selling, general and administrative expenses of $1,000. 9




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Six Months
    
    
    
    
    
    
    Six MonthsEnded
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    Restatement
    
    
    September 30,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    221,664
    
    
    
    
    
    
    
    221,664Cost of sales (b) (c) (e)
    
    
    197,171
    
    
    
    (300
    )
    
    
    196,871Gross profit
    
    
    24,493
    
    
    
    300
    
    
    
    24,793Selling, general and
administrative expenses (a) (b)
(e)
    
    
    12,245
    
    
    
    128
    
    
    
    12,373Restructuring costs (benefit) (d)
    
    
    
    
    
    
    (156
    )
    
    
    (156
    )Operating income
    
    
    12,248
    
    
    
    328
    
    
    
    12,576Other expense (income):Interest expense (a)
    
    
    19,625
    
    
    
    (162
    )
    
    
    19,463Interest income
    
    
    (50
    )
    
    
    
    
    
    
    (50
    )Other, net
    
    
    675
    
    
    
    
    
    
    
    675Total other expense
    
    
    20,250
    
    
    
    (162
    )
    
    
    20,088Loss before income taxes
    
    
    (8,002
    )
    
    
    490
    
    
    
    (7,512
    )Income tax benefit
    
    
    (286
    )
    
    
    
    
    
    
    (286
    )Net loss
    
    $
    (7,716
    )
    
    
    490
    
    
    
    (7,226
    )
 
 (a)
    
    The revised treatment of deferred financing costs resulted in an increase of $145,000
in selling, general and administrative expenses and a decrease of $162,000 in interest
expense resulting in a net decrease of $17,000 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 $146,000 and a decrease in selling, general and
administrative expenses of $15,000 resulting in a net increase in net loss of $131,000.(c)
    
    The adjustment related to the utility liability resulted in a decrease in cost of sales
of $447,000.(d)
    
    The adjustment related to the restructuring liability resulted in a restructuring
benefit of $156,000.(e)
    
    Other immaterial adjustments resulted in an increase in cost of sales of $1,000 and a
decrease in selling, general and administrative expenses of $2,000 resulting in a net
decrease in net loss of $1,000. 3. Inventories
  September 30,
    
    
    March 31,2007
    
    
    2007Paper
    
    $
    4,732
    
    
    
    5,036Ink
    
    
    135
    
    
    
    152Supplies and other
    
    
    1,790
    
    
    
    1,958Total inventories
    
    $
    6,657
    
    
    
    7,146
 10




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 4. Notes Payable and Long-Term Debt
 Covenant Compliance and Liquidity
         May 5, 2005 Refinancing Transaction
  
    
    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, defined below), subject to certain exceptions;
    
    repurchase or redeem equity interests;
 11




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 
    
    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.
   September 26, 2006 Revolving Trade Receivables Facility
      12




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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
  5. Comprehensive Income (Loss)
  13




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Net loss
    
    $
    (12,794
    )
    
    
    (4,488
    )
    
    
    (19,472
    )
    
    
    (7,226
    )Foreign currency translation
adjustment, net of tax
    
    
    646
    
    
    
    (28
    )
    
    
    1,511
    
    
    
    380Total comprehensive loss
    
    $
    (12,148
    )
    
    
    (4,516
    )
    
    
    (17,961
    )
    
    
    (6,846
    )
 6. Income Taxes
     14




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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 endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    115
    
    
    
    98
    
    
    
    6
    
    
    
    11Interest cost
    
    
    1,073
    
    
    
    889
    
    
    
    34
    
    
    
    68Expected return on plan assets
    
    
    (1,384
    )
    
    
    (1,070
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (71
    )Amortization of unrecognized loss
    
    
    244
    
    
    
    411
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4Net periodic benefit cost
    
    $
    48
    
    
    
    328
    
    
    
    (29
    )
    
    
    12
 Six months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    230
    
    
    
    231
    
    
    
    12
    
    
    
    23Interest cost
    
    
    2,146
    
    
    
    2,119
    
    
    
    68
    
    
    
    136Expected return on plan assets
    
    
    (2,768
    )
    
    
    (2,443
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    (142
    )Amortization of unrecognized loss
    
    
    488
    
    
    
    1,016
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    8Net periodic benefit cost
    
    $
    96
    
    
    
    923
    
    
    
    (58
    )
    
    
    25
 8. Commitments and Contingencies
   15




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
      9. Restructuring Costs
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
   16




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   03/31/07
    
    
    
    
    
    
    
    
    
    
    09/30/07Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve Adjustment
    
    
    Reserve BalanceLease termination costs
    
    $
    335
    
    
    
    (70
    )
    
    
    12
    
    
    
    277Other costs
    
    
    12
    
    
    
    
    
    
    
    (12
    )
    
    
    $
    347
    
    
    
    (70
    )
    
    
    
    
    
    
    277
  Pittsburg Facility Closure Plan
    17




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/07
    
    
    
    
    
    
    
    
    
    
    09/30/07Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve Adjustment
    
    
    Reserve BalanceLease termination
costs
    
    $
    598
    
    
    
    (1
    )
    
    
    11
    
    
    
    608Other costs
    
    
    16
    
    
    
    
    
    
    
    (16
    )
    
    
    $
    614
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    608
  Plant and SG&A Reduction Plan
    03/31/07
    
    
    
    
    
    
    
    
    
    
    09/30/07Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve Adjustment
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    71
    
    
    
    (79
    )
    
    
    8
    
    
    
    Other costs
    
    
    3
    
    
    
    
    
    
    
    (3
    )
    
    
    $
    74
    
    
    
    (79
    )
    
    
    5
    
    
    
    
 18




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Fiscal Year 2002 Restructuring Costs
     03/31/07
    
    
    
    
    
    
    
    
    
    09/30/07Restructuring
    
    
    
    
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve Adjustment
    
    Reserve BalanceLease termination costs
    
    $
    1,071
    
    
    
    (127
    )
    
    
    89
    
    
    
    1,033
  19




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 10. Industry Segment Information
     (In thousands)
    
    Print
    
    
    Premedia Services
    
    
    Corporate and Other
    
    
    TotalSix Months Ended September 30, 2007Sales
    
    $
    184,191
    
    
    
    23,028
    
    
    
    
    
    
    
    207,219EBITDA
    
    $
    15,689
    
    
    
    3,555
    
    
    
    (4,151
    )
    
    
    15,093Depreciation and amortization
    
    
    (8,391
    )
    
    
    (835
    )
    
    
    
    
    
    
    (9,226
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (21,417
    )
    
    
    (21,417
    )Interest income
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,934
    )
    
    
    (3,934
    )Net income (loss)
    
    $
    7,298
    
    
    
    2,720
    
    
    
    (29,490
    )
    
    
    (19,472
    )Total assets
    
    $
    201,116
    
    
    
    11,517
    
    
    
    10,624
    
    
    
    223,257Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    4,003
    
    
    
    127
    
    
    
    
    
    
    
    4,130
 20




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 (In thousands)
    
    Print
    
    
    Premedia Services
    
    

Corporate
and Other
    
    
    TotalSix Months Ended September 30, 2006(Restated)Sales
    
    $
    196,244
    
    
    
    25,420
    
    
    
    
    
    
    
    221,664EBITDA
    
    $
    18,083
    
    
    
    5,268
    
    
    
    (2,169
    )
    
    
    21,182Depreciation and amortization
    
    
    (8,245
    )
    
    
    (1,036
    )
    
    
    
    
    
    
    (9,281
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (19,463
    )
    
    
    (19,463
    )Interest income
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50Income tax benefit
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    286Net income (loss)
    
    $
    9,838
    
    
    
    4,232
    
    
    
    (21,296
    )
    
    
    (7,226
    )Total assets
    
    $
    214,368
    
    
    
    11,594
    
    
    
    13,414
    
    
    
    239,376Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    6,891
    
    
    
    359
    
    
    
    
    
    
    
    7,250Three Months Ended September 30,
2007Sales
    
    $
    89,674
    
    
    
    11,722
    
    
    
    
    
    
    
    101,396EBITDA
    
    $
    7,393
    
    
    
    1,777
    
    
    
    (2,997
    )
    
    
    6,173Depreciation and amortization
    
    
    (3,903
    )
    
    
    (405
    )
    
    
    
    
    
    
    (4,308
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,886
    )
    
    
    (10,886
    )Interest income
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,779
    )
    
    
    (3,779
    )Net income (loss)
    
    $
    3,490
    
    
    
    1,372
    
    
    
    (17,656
    )
    
    
    (12,794
    )Total assets
    
    $
    201,116
    
    
    
    11,517
    
    
    
    10,624
    
    
    
    223,257Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    1,495
    
    
    
    122
    
    
    
    
    
    
    
    1,617Three Months Ended September 30,
2006(Restated)Sales
    
    $
    99,091
    
    
    
    12,563
    
    
    
    
    
    
    
    111,654EBITDA
    
    $
    8,858
    
    
    
    2,469
    
    
    
    (1,276
    )
    
    
    10,051Depreciation and amortization
    
    
    (4,129
    )
    
    
    (509
    )
    
    
    
    
    
    
    (4,638
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (9,941
    )
    
    
    (9,941
    )Interest income
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net income (loss)
    
    $
    4,729
    
    
    
    1,960
    
    
    
    (11,177
    )
    
    
    (4,488
    )Total assets
    
    $
    214,368
    
    
    
    11,594
    
    
    
    13,414
    
    
    
    239,376Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    4,086
    
    
    
    141
    
    
    
    
    
    
    
    4,227
 21




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 11. Impact of Recently Issued Accounting Standards
     12. Subsequent Event
     22




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##### Table of Contents



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
   23




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Sales:Print
    
    $
    89,674
    
    
    
    99,091
    
    
    
    184,191
    
    
    
    196,244Premedia Services
    
    
    11,722
    
    
    
    12,563
    
    
    
    23,028
    
    
    
    25,420Total
    
    $
    101,396
    
    
    
    111,654
    
    
    
    207,219
    
    
    
    221,664Gross Profit:Print
    
    $
    7,702
    
    
    
    8,891
    
    
    
    15,863
    
    
    
    17,582Premedia Services
    
    
    2,763
    
    
    
    3,440
    
    
    
    5,482
    
    
    
    7,213Other
    
    
    2
    
    
    
    (1
    )
    
    
    4
    
    
    
    (2
    )Total
    
    $
    10,467
    
    
    
    12,330
    
    
    
    21,349
    
    
    
    24,793Gross Margin:Print
    
    
    8.6
    %
    
    
    9.0
    %
    
    
    8.6
    %
    
    
    9.0
    %Premedia Services
    
    
    23.6
    %
    
    
    27.4
    %
    
    
    23.8
    %
    
    
    28.4
    %Total
    
    
    10.3
    %
    
    
    11.0
    %
    
    
    10.3
    %
    
    
    11.2
    %EBITDA:Print
    
    $
    7,393
    
    
    
    8,858
    
    
    
    15,689
    
    
    
    18,083Premedia Services
    
    
    1,777
    
    
    
    2,469
    
    
    
    3,555
    
    
    
    5,268Other (a)
    
    
    (2,997
    )
    
    
    (1,276
    )
    
    
    (4,151
    )
    
    
    (2,169
    )Total
    
    $
    6,173
    
    
    
    10,051
    
    
    
    15,093
    
    
    
    21,182EBITDA Margin:Print
    
    
    8.2
    %
    
    
    8.9
    %
    
    
    8.5
    %
    
    
    9.2
    %Premedia Services
    
    
    15.2
    %
    
    
    19.7
    %
    
    
    15.4
    %
    
    
    20.7
    %Total
    
    
    6.1
    %
    
    
    9.0
    %
    
    
    7.3
    %
    
    
    9.6
    %
 
 (a)
    
    Other operations include corporate general and administrative expenses and other
non-operating expenses.  24




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   Print
    
    
    Premedia Services
    
    
    Other
    
    
    TotalThree Months Ended September
30, 2007EBITDA
    
    $
    7,393
    
    
    
    1,777
    
    
    
    (2,997
    )
    
    
    6,173Depreciation and amortization
    
    
    (3,903
    )
    
    
    (405
    )
    
    
    
    
    
    
    (4,308
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (10,880
    )
    
    
    (10,880
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,779
    )
    
    
    (3,779
    )Net income (loss)
    
    $
    3,490
    
    
    
    1,372
    
    
    
    (17,656
    )
    
    
    (12,794
    )Three Months Ended September
30, 2006(Restated)EBITDA
    
    $
    8,858
    
    
    
    2,469
    
    
    
    (1,276
    )
    
    
    10,051Depreciation and amortization
    
    
    (4,129
    )
    
    
    (509
    )
    
    
    
    
    
    
    (4,638
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,902
    )
    
    
    (9,902
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net income (loss)
    
    $
    4,729
    
    
    
    1,960
    
    
    
    (11,177
    )
    
    
    (4,488
    )Six Months Ended September 30, 2007EBITDA
    
    $
    15,689
    
    
    
    3,555
    
    
    
    (4,151
    )
    
    
    15,093Depreciation and amortization
    
    
    (8,391
    )
    
    
    (835
    )
    
    
    
    
    
    
    (9,226
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (21,405
    )
    
    
    (21,405
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,934
    )
    
    
    (3,934
    )Net income (loss)
    
    $
    7,298
    
    
    
    2,720
    
    
    
    (29,490
    )
    
    
    (19,472
    )Six Months Ended September 30, 2006(Restated)EBITDA
    
    $
    18,083
    
    
    
    5,268
    
    
    
    (2,169
    )
    
    
    21,182Depreciation and amortization
    
    
    (8,245
    )
    
    
    (1,036
    )
    
    
    
    
    
    
    (9,281
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (19,413
    )
    
    
    (19,413
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    286Net income (loss)
    
    $
    9,838
    
    
    
    4,232
    
    
    
    (21,296
    )
    
    
    (7,226
    )
 25




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Print
 Sales.
  Gross Profit
  Selling, General and Administrative Expenses.
  Restructuring Costs (Benefit).
 26




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
  Gross Profit.
  Selling, General and Administrative Expenses.
 Other Expense (Income).
 27




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 EBITDA.
 Other Operations
  Interest Expense, Net
  Income Tax Expense (Benefit)
      28




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Net Income (Loss)
  Liquidity and Capital Resources
 *     *     *
  *     *     *
 Overview of Liquidity and Capital Resources
  
    
    $1.0 million under the 2005 Revolving Credit Facility; and
    
    $14.8 million under the Receivables Facility, including $2.0 million based on
receivables purchased from Graphics at September 30, 2007 and an additional $12.8 million
if Graphics Finance, defined below, had purchased from Graphics all other eligible
receivables at September 30, 2007.
       
    
    $10.7 million of operating activities (see our Condensed Consolidated Statements of Cash Flows
appearing elsewhere in this Report);
 29




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 
    
    $4.1 million in cash capital expenditures; and
    
    $3.1 million to service other indebtedness (including repayment of capital lease
obligations of $1.7 million and payment of deferred financing costs of $1.4 million).
            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).
   30




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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
    31




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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 Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Print segment VAR (in thousands)
    
    $
    46,275
    
    
    
    47,992
    
    
    
    94,477
    
    
    
    95,065Print segment impressions (in
millions)
    
    
    2,472
    
    
    
    2,848
    
    
    
    5,219
    
    
    
    5,712
 32




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006(in thousands)
    
    (in thousands)Print segment sales
    
    $
    89,674
    
    
    
    99,091
    
    
    
    184,191
    
    
    
    196,244Paper, ink and subcontract services
    
    
    (43,399
    )
    
    
    (51,099
    )
    
    
    (89,714
    )
    
    
    (101,179
    )Print segment VAR
    
    $
    46,275
    
    
    
    47,992
    
    
    
    94,477
    
    
    
    95,065
 New Accounting Pronouncements
      Contractual Obligations
  33




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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.
  34




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ACG HOLDINGS, INC.
PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description12.1
    
    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




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##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.
American Color Graphics, Inc.Date: November 14, 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: November 14, 2007
    By
    /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officer
and Secretary
(Authorized Officer and
Principal Financial Officer) 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description12.1
    
    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
 37