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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 December 31, 2003                                       
|           |  | 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
(State or other jurisdiction of incorporation or organization) |  | 62-1395968
(I.R.S. Employer Identification Number)

100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377

(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)

AMERICAN COLOR GRAPHICS, INC.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|New York
(State or other jurisdiction of incorporation or organization) |  | 16-1003976
(I.R.S. Employer Identification Number)

100 Winners Circle
Brentwood, Tennessee 37027
(615) 377-0377

(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes  [X]  No  [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2) of the Exchange Act.
Yes  [  ]  No  [X]

ACG Holdings, Inc. has 160,067 shares outstanding of its Common Stock, $.01 Par
Value, as of January 31, 2004 (all of which are privately owned and not traded
on a public market).





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INDEX


TABLE OF CONTENTS



|                                            |                                                                                          |                                                      |  |  |  |  |  | 
|------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                                            |                                                                                          | Condensed Consolidated Balance Sheets               
|                                            |                                                                                          | Condensed Consolidated Statements of Operations     
|                                            |                                                                                          | Condensed Consolidated Statements of Operations     
|                                            |                                                                                          | Condensed Consolidated Statements of Cash Flows     
|                                            |                                                                                          | Notes to Condensed Consolidated Financial Statements
|                                            | Managements Discussion and Analysis of Financial Condition and Results of Operations   
|                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                      
|                                            | Item 4. Controls and Procedures                                                         
|Part II Other Information                  
|                                            | Item 1. Legal Proceedings                                                               
|                                            | Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|                                            | Item 6. Exhibits and Reports on Form 8-K                                                
|SIGNATURES                                 
|EXHIBIT INDEX                              
|EX 10.12.A  AMENDMENT TO CREDIT AGREEMENT  
|EX-12.1  COMPUTATION OF RATIO OF EARNINGS  
|EX-31.1  CEO CERTIFICATION                 
|EX-31.2  CFO CERTIFICATION                 
|EX-32.1  SARBANES CEO AND CFO CERTIFICATION



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|         |  |                                                                                       |  |                                                                                                       |    |          |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|         |  |                                                                                       |  |                                                                                                       |    | Page No.
|         |  |                                                                                       |  |                                                                                                       |    |         
|Part I.  |  | Financial Information                                                                 |  |                                                                                                       |    |         
|Item 1.  |  | Financial Statements                                                                  |  |                                                                                                       |    |         
|         |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of
December 31, 2003 and March 31, 2003                      |    |          | 3  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the
Three Months Ended December 31, 2003 and 2002 |    |          | 5  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the
Nine Months Ended December 31, 2003 and 2002  |    |          | 6  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 2003 and 2002  |    |          | 7  | 
|         |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                  |    |          | 8  | 
|Item 2.  |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations |  |                                                                                                       | 18 |         
|Item 3.  |  | Quantitative and Qualitative Disclosures
About Market Risk                            |  |                                                                                                       | 30 |         
|Item 4.  |  | Controls and Procedures                                                               |  |                                                                                                       | 30 |         
|Part II. |  | Other Information                                                                     |  |                                                                                                       |    |         
|Item 1.  |  | Legal Proceedings                                                                     |  |                                                                                                       | 31 |         
|Item 2.  |  | Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities      |  |                                                                                                       | 31 |         
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                       | 31 |         
|         |  |                                                                                       |  | Signatures                                                                                            |    |          | 32 | 
|         |  |                                                                                       |  | Exhibit Index                                                                                         |    |          | 33 | 

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ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)

|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |        |        |         | 
|------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----- | ----------------- | ------- | -------------- | ------ | ------ | ------- | 
|                                            |                                           |                                                                                                                                 |                                   |       | December 31, 2003 |         | March 31, 2003
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |               
|                                            |                                           |                                                                                                                                 |                                   |       | (Unaudited)       |         |                |        |       
|Assets                                      |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|Current assets:                             |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|                                            | Cash                                      |                                                                                                                                 | $                                 |      |                   |         |                |       |       
|                                            | Receivables:                              |                                                                                                                                 |                                   |       |                   |         |                |        |       
|                                            |                                           | Trade accounts, less allowance for
doubtful accounts of $2,933 and $2,544
at December 31, 2003 and March 31,
2003, respectively |                                   |       | 49,407            |         |                |        | 49,402 |        
|                                            |                                           | Income tax receivable                                                                                                           |                                   |       | 38                |         |                |        | 233    |        
|                                            |                                           | Other                                                                                                                           |                                   |       | 3,485             |         |                |        | 2,227  |        
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|                                            |                                           |                                                                                                                                 | Total receivables                 |       |                   | 52,930  |                |        |        | 51,862  | 
|                                            | Inventories                               |                                                                                                                                 |                                   | 9,030 |                   |         |                | 10,203 |       
|                                            | Deferred income taxes                     |                                                                                                                                 |                                   | 2,442 |                   |         |                | 6,246  |       
|                                            | Prepaid expenses and other current assets |                                                                                                                                 |                                   | 4,358 |                   |         |                | 4,296  |       
|                                            | Current assets of discontinued operations |                                                                                                                                 |                                   |      |                   |         |                | 866    |       
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|                                            |                                           |                                                                                                                                 | Total current assets              |       |                   | 68,760  |                |        |        | 73,473  | 
|Property, plant and equipment               |                                           |                                                                                                                                 | 311,108                           |       |                   |         | 310,180        |       
|Less accumulated depreciation               |                                           |                                                                                                                                 | (187,114                          | )     |                   |         | (183,167       | )     
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|                                            |                                           |                                                                                                                                 | Net property, plant and equipment |       |                   | 123,994 |                |        |        | 127,013 | 
|Excess of cost over net assets acquired     |                                           |                                                                                                                                 | 66,548                            |       |                   |         | 66,548         |       
|Deferred financing costs                    |                                           |                                                                                                                                 | 12,527                            |       |                   |         | 3,335          |       
|Other assets                                |                                           |                                                                                                                                 | 7,597                             |       |                   |         | 7,790          |       
|Long-term assets of discontinued operations |                                           |                                                                                                                                 |                                  |       |                   |         | 282            |       
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |       
|                                            |                                           |                                                                                                                                 | Total assets                      |       | $                 | 279,426 |                |        |        | 278,441 | 
|                                            |                                           |                                                                                                                                 |                                   |       |                   |         |                |       

See accompanying notes to condensed consolidated financial statements.

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ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values and liquidation preference)

|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |          |          |  
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ----------------- | -------- | -------------- | ------- | -------- | -------- | -
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         | December 31, 2003 |          | March 31, 2003
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |               
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         | (Unaudited)       |          |                |         |         
|Liabilities and Stockholders Deficit                                 |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|Current liabilities:                                                  |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      | Current installments of long-term debt and
capitalized leases                                                                                                                                                                                                                                                                                                          |                                             | $       | 5,348             |          |                |         | 31,698   |         
|                                                                      | Trade accounts payable                                                                                                                                                                                                                                                                                                                                                 |                                             |         | 36,626            |          |                |         | 39,044   |         
|                                                                      | Accrued expenses                                                                                                                                                                                                                                                                                                                                                       |                                             |         | 29,449            |          |                |         | 32,302   |         
|                                                                      | Current liabilities of discontinued operations                                                                                                                                                                                                                                                                                                                         |                                             |         |                  |          |                |         | 249      |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        | Total current liabilities                   |         |                   | 71,423   |                |         |          | 103,293  |  
|Long-term debt and capitalized leases,
excluding current installments |                                                                                                                                                                                                                                                                                                                                                                        |                                             | 302,371 |                   |          |                | 200,059 |         
|Deferred income taxes                                                 |                                                                                                                                                                                                                                                                                                                                                                        |                                             | 8,873   |                   |          |                | 2,023   |         
|Other liabilities                                                     |                                                                                                                                                                                                                                                                                                                                                                        |                                             | 76,421  |                   |          |                | 80,765  |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        | Total liabilities                           |         |                   | 459,088  |                |         |          | 386,140  |  
|                                                                     
|Commitments and contingencies (Note 7)                                |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                     
|Stockholders deficit:                                                |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      | Common stock, voting, $.01 par value, 5,852,223
shares authorized, 165,054 and 163,929 shares issued and
outstanding at December 31, 2003 and March 31, 2003, respectively                                                                                                                                                                                             |                                             |         | 2                 |          |                |         | 2        |         
|                                                                      | Preferred stock, $.01 par value, 15,823 shares
authorized, none issued and outstanding as of
December 31, 2003, as of March 31, 2003, 3,617
shares Series AA convertible preferred stock
issued and outstanding, $39,442,500 liquidation
preference, and 1,606 shares Series BB
convertible preferred stock issued and
outstanding, $17,500,000 liquidation preference |                                             |         |                  |          |                |         |         |         
|                                                                      | Additional paid-in capital                                                                                                                                                                                                                                                                                                                                             |                                             |         | 2,045             |          |                |         | 58,816   |         
|                                                                      | Accumulated deficit                                                                                                                                                                                                                                                                                                                                                    |                                             |         | (157,227          | )        |                |         | (140,655 | )       
|                                                                      | Other accumulated comprehensive loss, net of tax                                                                                                                                                                                                                                                                                                                       |                                             |         | (24,482           | )        |                |         | (25,862  | )       
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        | Total stockholders deficit                 |         |                   | (179,662 | )              |         |          | (107,699 | )
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        | Total liabilities and stockholders deficit |         | $                 | 279,426  |                |         |          | 278,441  |  
|                                                                      |                                                                                                                                                                                                                                                                                                                                                                        |                                             |         |                   |          |                |         |         

See accompanying notes to condensed consolidated financial statements.

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ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)

|                                             |                  |                                                       |            |        |                    |       |         |       |        |       | 
|-------------------------------------------- | ---------------- | ----------------------------------------------------- | ---------- | ------ | ------------------ | ----- | ------- | ----- | ------ | ----- | 
|                                             |                  |                                                       |            |        | Three Months Ended
|                                             |                  |                                                       |            |        | December 31,      
|                                             |                  |                                                       |            |        |                   
|                                             |                  |                                                       |            |        | 2003               |       | 2002   
|                                             |                  |                                                       |            |        |                    |       |        
|Sales                                        |                  | $                                                     | 128,569    |        |                    |       | 141,913 |      
|Cost of sales                                |                  |                                                       | 111,339    |        |                    |       | 122,390 |      
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Gross profit                                          |            |        | 17,230             |       |         |       | 19,523 |      
|Selling, general and administrative expenses |                  |                                                       | 7,519      |        |                    |       | 9,460   |      
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Operating income                                      |            |        | 9,711              |       |         |       | 10,063 |      
|Other expense (income):                      |                  |                                                       |            |        |                    |       |         |      
|                                             | Interest expense |                                                       |            | 8,412  |                    |       |         | 7,149 |       
|                                             | Interest income  |                                                       |            | (1     | )                  |       |         | (6    | )     
|                                             | Other, net       |                                                       |            | 83     |                    |       |         | 38    |       
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Total other expense                                   |            |        | 8,494              |       |         |       | 7,181  |      
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Income from continuing operations before
income taxes |            |        | 1,217              |       |         |       | 2,882  |      
|Income tax expense (benefit):                |                  |                                                       |            |        |                    |       |         |      
|                                             | Current          |                                                       |            | 406    |                    |       |         | 532   |       
|                                             | Deferred         |                                                       |            | (2,196 | )                  |       |         | (114  | )     
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Total income tax expense (benefit)                    |            |        | (1,790             | )     |         |       | 418    |      
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Income from continuing operations                     |            |        | 3,007              |       |         |       | 2,464  |      
|Discontinued operations:                     |                  |                                                       |            |        |                    |       |         |      
|                                             |                  | Loss from operations, net of $0 tax                   |            |        |                   |       |         |       | 243    |      
|                                             |                  |                                                       |            |        |                    |       |         |      
|                                             |                  |                                                       | Net income |        | $                  | 3,007 |         |       |        | 2,221 | 
|                                             |                  |                                                       |            |        |                    |       |         |      

See accompanying notes to condensed consolidated financial statements.

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ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)

|                                             |                                      |                                                              |                   |        |                   |         |         |        |        |       | 
|-------------------------------------------- | ------------------------------------ | ------------------------------------------------------------ | ----------------- | ------ | ----------------- | ------- | ------- | ------ | ------ | ----- | 
|                                             |                                      |                                                              |                   |        | Nine Months Ended
|                                             |                                      |                                                              |                   |        | December 31,     
|                                             |                                      |                                                              |                   |        |                  
|                                             |                                      |                                                              |                   |        | 2003              |         | 2002   
|                                             |                                      |                                                              |                   |        |                   |         |        
|Sales                                        |                                      | $                                                            | 365,536           |        |                   |         | 399,444 |       
|Cost of sales                                |                                      |                                                              | 314,931           |        |                   |         | 341,193 |       
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Gross profit                                                 |                   |        | 50,605            |         |         |        | 58,251 |      
|Selling, general and administrative expenses |                                      |                                                              | 23,842            |        |                   |         | 26,480  |       
|Restructuring costs                          |                                      |                                                              | 2,000             |        |                   |         |        |       
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Operating income                                             |                   |        | 24,763            |         |         |        | 31,771 |      
|Other expense (income):                      |                                      |                                                              |                   |        |                   |         |         |       
|                                             | Interest expense                     |                                                              |                   | 25,713 |                   |         |         | 21,454 |       
|                                             | Interest income                      |                                                              |                   | (8     | )                 |         |         | (83    | )     
|                                             | Loss on early extinguishment of debt |                                                              |                   | 3,196  |                   |         |         |       |       
|                                             | Other, net                           |                                                              |                   | 294    |                   |         |         | 520    |       
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Total other expense                                          |                   |        | 29,195            |         |         |        | 21,891 |      
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Income (loss) from continuing operations
before income taxes |                   |        | (4,432            | )       |         |        | 9,880  |      
|Income tax expense:                          |                                      |                                                              |                   |        |                   |         |         |       
|                                             | Current                              |                                                              |                   | 1,030  |                   |         |         | 1,258  |       
|                                             | Deferred                             |                                                              |                   | 10,654 |                   |         |         | 75     |       
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Total income tax expense                                     |                   |        | 11,684            |         |         |        | 1,333  |      
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Income (loss) from continuing operations                     |                   |        | (16,116           | )       |         |        | 8,547  |      
|Discontinued operations:                     |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      | Loss from operations, net of $0 tax                          |                   |        | 12                |         |         |        | 745    |      
|                                             |                                      | Loss on sale, net of $0 tax                                  |                   |        | 444               |         |         |        |       |      
|                                             |                                      |                                                              |                   |        |                   |         |         |       
|                                             |                                      |                                                              | Net income (loss) |        | $                 | (16,572 | )       |        |        | 7,802 | 
|                                             |                                      |                                                              |                   |        |                   |         |         |       

See accompanying notes to condensed consolidated financial statements.

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ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |       |         |   |         |  
|---------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------------------------------------ | ------- | ------------------------------------------------ | -------- | ----------------- | ------- | ----- | ------- | - | ------- | -
|                                                                                         |                                          |                                                                          |         |                                                  |          | Nine Months Ended
|                                                                                         |                                          |                                                                          |         |                                                  |          | December 31,     
|                                                                                         |                                          |                                                                          |         |                                                  |          |                  
|                                                                                         |                                          |                                                                          |         |                                                  |          | 2003              |         | 2002 
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|Cash flows provided (used) by operating activities:                                      |                                          |                                                                          |         |                                                  |          |                   |         |      
|Net income (loss)                                                                        |                                          | $                                                                        | (16,572 | )                                                |          |                   | 7,802   |      
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          | Depreciation                                                             |         |                                                  | 17,708   |                   |         |       | 17,354  |  
|                                                                                         |                                          | Depreciation related to discontinued operations                          |         |                                                  | 26       |                   |         |       | 308     |  
|                                                                                         |                                          | Amortization of other assets                                             |         |                                                  | 497      |                   |         |       | 411     |  
|                                                                                         |                                          | Amortization of deferred financing costs                                 |         |                                                  | 1,591    |                   |         |       | 1,175   |  
|                                                                                         |                                          | Write-off of deferred financing costs                                    |         |                                                  | 3,196    |                   |         |       |        |  
|                                                                                         |                                          | Deferred income tax expense                                              |         |                                                  | 10,654   |                   |         |       | 75      |  
|                                                                                         |                                          | Discontinued operations, net of tax                                      |         |                                                  | 430      |                   |         |       | 437     |  
|                                                                                         |                                          | Decrease (increase) in working capital and other                         |         |                                                  | (9,360   | )                 |         |       | 351     |  
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          |                                                                          |         | Net cash provided by operating activities        |          |                   | 8,170   |       |         |   | 27,913  |  
|Cash flows provided (used) by investing activities:                                      |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          | Purchases of property, plant and equipment                               |         |                                                  | (10,501  | )                 |         |       | (24,944 | )
|                                                                                         |                                          | Proceeds from sales of property, plant and equipment                     |         |                                                  | 24       |                   |         |       | 259     |  
|                                                                                         |                                          | Other                                                                    |         |                                                  | 260      |                   |         |       | (18     | )
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          |                                                                          |         | Net cash used by investing activities            |          |                   | (10,217 | )     |         |   | (24,703 | )
|Cash flows provided (used) by financing activities:                                      |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          | Repayment of long-term debt, net                                         |         |                                                  | (39,185  | )                 |         |       | (9,428  | )
|                                                                                         |                                          | Net increase in revolver borrowings                                      |         |                                                  | 7,164    |                   |         |       | 10,731  |  
|                                                                                         |                                          | Repayment
of 12 3⁄4% senior subordinated notes                             |         |                                                  | (170,055 | )                 |         |       | (1,700  | )
|                                                                                         |                                          | Proceeds from issuance of 10% senior second secured notes                |         |                                                  | 280,000  |                   |         |       |        |  
|                                                                                         |                                          | Repayment of capital lease obligations                                   |         |                                                  | (4,832   | )                 |         |       | (6,799  | )
|                                                                                         |                                          | Repayment of capital lease obligations  discontinued operations         |         |                                                  |         |                   |         |       | (100    | )
|                                                                                         |                                          | Payment of deferred financing costs                                      |         |                                                  | (13,979  | )                 |         |       | (458    | )
|                                                                                         |                                          | Repurchase and retire preferred stock and cancel preferred stock options |         |                                                  | (56,942  | )                 |         |       |        |  
|                                                                                         |                                          | Other, net                                                               |         |                                                  |         |                   |         |       | (3      | )
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         |                                          |                                                                          |         | Net cash provided (used) by financing activities |          |                   | 2,171   |       |         |   | (7,757  | )
|                                                                                         | Effect of exchange rates on cash         |                                                                          |         | (124                                             | )        |                   |         |      |        
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|Net change in cash                                                                       |                                          |                                                                          |        |                                                  |          |                   | (4,547  | )    
|Cash:                                                                                    |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         | Beginning of period                      |                                                                          |         |                                                 |          |                   |         | 4,547 |        
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         | End of period                            |                                                                          | $       |                                                 |          |                   |         |      |        
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      
|Non-cash investing activity:                                                             |                                          |                                                                          |         |                                                  |          |                   |         |      
|                                                                                         | Equipment purchases under capital leases |                                                                          | $       | 2,870                                            |          |                   |         | 725   |        
|                                                                                         |                                          |                                                                          |         |                                                  |          |                   |         |      

See accompanying notes to condensed consolidated financial statements.

7



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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.

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
the 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 nine-month periods
ended December 31, 2003 are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 2004. 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, 2003, as reclassified
in the Companys current report on Form 8-K dated November 6, 2003, as filed
with the Securities and Exchange Commission.

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. Certain prior period information has been reclassified to conform
to current period presentation.

2.     Discontinued Operations

In June 2003, the Company sold its digital visual effects business,
(Digiscope), for a de minimis amount, which resulted in a net loss of
approximately $0.4 million, which is net of zero income tax benefits. The sale
of Digiscope has been accounted for as a discontinued operation, and
accordingly, Digiscopes operations are segregated and reported within
discontinued operations in the accompanying condensed consolidated financial
statements. Sales, cost of sales, selling, general and administrative expenses
and other expenses attributable to Digiscope for the three and nine months
ended December 31, 2002 have been reclassified and presented within
discontinued operations.

3.     Inventories

The components of inventories are as follows (in thousands):

|                   |                   |   |              |       |           |  |       |        | 
|------------------ | ----------------- | - | ------------ | ----- | --------- |  | ----- | ------ | 
|                   |                   |   | December 31, |       | March 31,
|                   |                   |   | 2003         |       | 2003     
|                   |                   |   |              |       |          
|Paper              |                   | $ | 6,919        |       |           |  | 7,973 |       
|Ink                |                   |   | 187          |       |           |  | 164   |       
|Supplies and other |                   |   | 1,924        |       |           |  | 2,066 |       
|                   |                   |   |              |       |           |  |       |       
|                   | Total inventories |   | $            | 9,030 |           |  |       | 10,203 | 
|                   |                   |   |              |       |           |  |       |       

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

4.     July 3, 2003 Refinancing Transactions

On July 3, 2003, the Company sold $280 million aggregate principal amount of
its 10% Senior Second Secured Notes Due 2010 (the 10% Notes) as part of a
recapitalization involving Graphics, Holdings and certain affiliates of the
Company and also entered into a $70 million senior secured revolving credit
facility maturing on July 3, 2008, with a syndicate of lenders (the Revolving
Credit Facility), (collectively the 2003 Refinancing). Graphics repaid
substantially all existing indebtedness (excluding capital leases) through:



| |  |  | the repayment of all amounts outstanding under the old bank credit
agreement, and the concurrent termination of all related commitments
thereunder;                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the issuance of letters of credit under the Revolving Credit
Facility to replace outstanding letters of credit; and                                                                                                                    
|
| |  |  | effective August 3, 2003, the
redemption of all of the 12 3⁄4%
Senior Subordinated Notes Due 2005 (the 12 3⁄4% Notes), at a
redemption price equal to 100% of their aggregate principal amount,
plus accrued and unpaid interest thereon.

In addition, the Company repurchased, and concurrently retired, all 5,223
outstanding shares of preferred stock of Holdings, and canceled all outstanding
options to purchase shares of preferred stock of Holdings held by certain key
officers, for an aggregate purchase price of $56.9 million. The canceled
options would have been exercisable for 582 shares of preferred stock of
Holdings.

In connection with the 2003 Refinancing, the Company incurred $13.6 million of
deferred financing fees through December 31, 2003. Of the total deferred
financing fees, $4.9 million was paid to affiliates of Morgan Stanley for the
services they performed in conjunction with the Revolving Credit Facility and
the original private placement of the 10% Notes. The Company also incurred a
charge of approximately $3.2 million in the nine months ended December 31, 2003
related to the write-off of deferred financing costs associated with the old
bank credit agreement and the 12 3⁄4% Notes. In addition, the Company
recorded incremental interest expense of approximately $1.7 million in the nine
months ended December 31, 2003 as a result of the 30 day call provision related
to the 12 3⁄4% Notes.

The Revolving Credit Facility provides for maximum borrowings of $70 million,
including a letter of credit sub-facility of up to $40 million. Borrowings
under this facility, as amended, are subject to a borrowing base limitation
based on certain percentages of eligible accounts receivable, eligible
inventory and the appraised value of eligible machinery and equipment and real
estate, subject to certain limitations. The borrowing base
arrangement includes a provision whereby proceeds from collection of
substantially all of the Companys accounts receivable are
deposited into bank accounts which are applied daily toward repayment
of borrowings outstanding, if any, under the Revolving Credit
Facility. At December 31, 2003, the Company had
additional borrowing availability under the Revolving Credit Facility of $31.7
million.

The Revolving Credit Facility is secured by substantially all of the assets of
Graphics. Holdings has guaranteed Graphics indebtedness under the Revolving
Credit Facility, which guarantee is secured by a pledge of all of Graphics and
Graphics subsidiaries stock.

Amounts outstanding under the Revolving Credit Facility, as amended, bear
interest at a rate equal to, at the Companys option, (a) an alternate base
rate, plus an applicable margin of 2.00% or (b) a reserve adjusted LIBOR rate,
plus an applicable margin of 3.00%. The applicable margins under both rate
structures are subject to periodic downward adjustment based upon the
attainment of certain fixed charge coverage ratio levels.

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Revolving Credit Facility, as amended, contains customary affirmative and
negative covenants, including but not limited to:



| |  |  | minimum fixed charge coverage ratio requirements; and                                                                                                                                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | limitations on acquisitions and investments, new subsidiaries,
uses of proceeds, indebtedness, liens, dividends and distributions,
prepayments of certain indebtedness, affiliate transactions, loans,
asset dispositions and Holdings business operations.

5.     Comprehensive Income (Loss)

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 (loss).

Total comprehensive income (loss) for the three and nine months ended December
31, 2003 and 2002 are as follows (in thousands):

|                                  |                                                     |   |                    |     |                   |  |       |     |      |  |         |       |  |  |       |     | 
|--------------------------------- | --------------------------------------------------- | - | ------------------ | --- | ----------------- |  | ----- | --- | ---- |  | ------- | ----- |  |  | ----- | --- | 
|                                  |                                                     |   | Three Months Ended |     | Nine Months Ended
|                                  |                                                     |   | December 31,       |     | December 31,     
|                                  |                                                     |   |                    |     |                  
|                                  |                                                     |   | 2003               |     | 2002              |  | 2003  |     | 2002
|                                  |                                                     |   |                    |     |                   |  |       |     |     
|Net income (loss)                 |                                                     | $ | 3,007              |     |                   |  | 2,221 |     |      |  | (16,572 | )     |  |  | 7,802 |    
|                                  | Foreign currency
translation adjustment,
net of tax |   |                    | 331 |                   |  |       | (67 | )    |  |         | 1,380 |  |  |       | 119 | 
|                                  |                                                     |   |                    |     |                   |  |       |     |      |  |         |       |  |  |       |    
|Total comprehensive income (loss) |                                                     | $ | 3,338              |     |                   |  | 2,154 |     |      |  | (15,192 | )     |  |  | 7,921 |    
|                                  |                                                     |   |                    |     |                   |  |       |     |      |  |         |       |  |  |       |    

6.     Income Taxes

Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109). Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts as measured by tax laws and
regulations.

The Company recorded an income tax benefit of $1.8 million and income tax
expense of $11.7 million for the three and nine months ended December 31, 2003,
respectively compared to expense of $0.4 million and expense of $1.3 million
for the three and nine months ended December 31, 2002, respectively. The
increase in income tax benefit in the three months ended December 31, 2003 is
primarily due to an adjustment of $2.2 million to reflect a change in estimate
with respect to the Companys income tax liability. The increase in income tax
expense in the nine months ended December 31, 2003 is primarily due to an
adjustment, recorded in the three months ended September 30, 2003, to increase
the deferred tax asset valuation allowance by $12.8 million. This adjustment
reflected a change in circumstances which resulted in a judgment that, based on
the provisions in SFAS 109 that restrict the Companys ability to consider
forecasts of future income, a corresponding amount of deferred tax assets may
not be realized. The change in circumstances arose from an assessment of the
economic climate, particularly the continuance of competitive pricing pressures
in the industry, and the expected increase in annual interest costs arising
from the issuance of the 10% Notes that have provided negative evidence about
the Companys ability to realize certain deferred tax assets. The Company will
reverse its valuation allowance into income when and to the extent sufficient
positive evidence arises to support the realization of the related deferred tax
assets.

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

7.     Commitments and Contingencies

The Company has employment agreements with one of its principal officers and
two 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 a consulting agreement with one former
employee. The aggregate commitment for future compensation at December 31,
2003, excluding bonuses, was approximately $2.0 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 contractual
provisions over the life of the contracts, which are being recognized as the
purchase commitments are achieved. The amount deferred at December 31, 2003 is
$45.6 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 a solvent recovery operation that
closed in 1989. 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 in writing that Graphics share of removal
costs is approximately 0.583% 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
December 31, 2003. 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.

8.     Restructuring Costs

Fiscal Year 2004 Restructuring Costs

In July 2003, the Company implemented a restructuring plan for the print and
premedia services segments to further reduce its selling, general and
administrative expenses. This plan resulted in the termination of four
administrative employees.

As a result of this plan, the Company recorded a pre-tax restructuring charge
of approximately $1.8 million in the quarter ended September 30, 2003. This
charge was classified within restructuring costs in the accompanying condensed
consolidated statements of operations in the nine month period ended December
31, 2003. The cost of this restructuring plan was accounted for in accordance
with the guidance set forth in Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). The restructuring charge is composed of severance and related
termination benefits.

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table summarizes the activity related to this restructuring plan
for the nine months ended December 31, 2003 (in thousands):

|                                   |  |                   |       |          |  |                 |      |               |  |  |       | 
|---------------------------------- |  | ----------------- | ----- | -------- |  | --------------- | ---- | ------------- |  |  | ----- | 
|                                   |  | Initial Recording |       |          |  |                 |      | 12/31/03     
|                                   |  | of Restructuring  |       |          |  |                 |      | Restructuring
|                                   |  | Reserve           |       | Activity |  | Reserve Balance
|                                   |  |                   |       |          |  |                
|Severance and other
employee costs |  | $                 | 1,775 |          |  |                 | (373 | )             |  |  | 1,402 | 

As of December 31, 2003, the Company believes the restructuring reserve of
approximately $1.4 million is adequate. The Company anticipates that
approximately $0.3 million of the restructuring balance will be paid by March
31, 2004, approximately $0.7 million will be paid during fiscal year ending
March 31, 2005,
approximately $0.3 million will be paid during fiscal year ending March 31,
2006 and the remaining $0.1 million will be paid during fiscal year ending
March 31, 2007. These costs will be funded through cash generated from
operations and borrowings under the Revolving Credit Facility, as amended.

Fiscal Year 2003 Restructuring Costs

In the fourth quarter of the fiscal year ended March 31, 2003, the Companys
Board of Directors approved a restructuring plan for the print and premedia
services segments designed to improve operating efficiency and profitability.
This plan included the closing of a premedia services facility in Nashville,
Tennessee, a reduction of personnel in both the print and premedia services
segments and the elimination of certain administrative personnel. These
combined actions resulted in the elimination of 30 positions within the
Company.

As a result of this plan, the Company recorded a pre-tax restructuring charge
of approximately $1.2 million in the fourth quarter of the fiscal year ended
March 31, 2003. This charge was classified within restructuring costs and
other special charges in the consolidated statements of operations in the
fiscal year ended March 31, 2003. The cost of this restructuring plan was
accounted for in accordance with the guidance set forth in SFAS 146. The
restructuring charge is primarily composed of severance and related termination
benefits.

The following table summarizes the activity related to this restructuring plan
for the nine months ended December 31, 2003 (in thousands):

|                                   |  |                 |       |          |  |                 |      |               |  |  |     | 
|---------------------------------- |  | --------------- | ----- | -------- |  | --------------- | ---- | ------------- |  |  | --- | 
|                                   |  | 03/31/03        |       |          |  |                 |      | 12/31/03     
|                                   |  | Restructuring   |       |          |  |                 |      | Restructuring
|                                   |  | Reserve Balance |       | Activity |  | Reserve Balance
|                                   |  |                 |       |          |  |                
|Severance and other
employee costs |  | $               | 979   |          |  |                 | (719 | )             |  |  | 260 | 
|Other costs                        |  |                 | 103   |          |  |                 | (93  | )             |  |  | 10  | 
|                                   |  |                 |       |          |  |                 |      |               |  |  |     | 
|                                   |  | $               | 1,082 |          |  |                 | (812 | )             |  |  | 270 | 
|                                   |  |                 |       |          |  |                 |      |               |  |  |     | 

The process of closing a premedia services facility, and the elimination of
certain personnel within the Company was completed by March 31, 2003. During
the fiscal year ended March 31, 2003, $0.1 million of these costs were paid.
As of December 31, 2003, the Company believes the restructuring reserve of
approximately $0.3 million is adequate. The Company anticipates that $0.1
million of the remaining costs will be paid by March 31, 2004 and the remaining
$0.2 million will be paid by March 31, 2005. These costs will be funded
through cash generated from operations and borrowings under the Revolving
Credit Facility, as amended.

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Fiscal Year 2002 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 statements of operations 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 provided no future use or
functionality. The Company recorded an additional $0.2 million of
restructuring charges related to this plan in the quarter ended September 30,
2003. This charge relates to future lease commitments and is classified within
restructuring costs in the accompanying condensed consolidated statements of
operations for the nine months ended December 31, 2003.

The following table summarizes the activity related to this restructuring plan
for the nine months ended December 31, 2003 (in thousands):

|                                   |  |               |       |          |  |         |      |            |  |         |     |               |  |  |       | 
|---------------------------------- |  | ------------- | ----- | -------- |  | ------- | ---- | ---------- |  | ------- | --- | ------------- |  |  | ----- | 
|                                   |  | 03/31/03      |       |          |  |         |      |            |  |         |     | 12/31/03     
|                                   |  | Restructuring |       |          |  |         |      |            |  |         |     | Restructuring
|                                   |  | Reserve       |       |          |  |         |      | Additional |  | Reserve
|                                   |  | Balance       |       | Activity |  | Reserve |      | Balance   
|                                   |  |               |       |          |  |         |      |           
|Severance and other
employee costs |  | $             | 498   |          |  |         | (211 | )          |  |         |    |               |  |  | 287   | 
|Lease termination costs            |  |               | 1,311 |          |  |         | (468 | )          |  |         | 225 |               |  |  | 1,068 | 
|Other costs                        |  |               | 70    |          |  |         | (22  | )          |  |         |    |               |  |  | 48    | 
|                                   |  |               |       |          |  |         |      |            |  |         |     |               |  |  |       | 
|                                   |  | $             | 1,879 |          |  |         | (701 | )          |  |         | 225 |               |  |  | 1,403 | 
|                                   |  |               |       |          |  |         |      |            |  |         |     |               |  |  |       | 

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. During the fiscal years
ended March 31, 2003 and March 31, 2002, $3.3 million and $3.4 million of these
costs were paid, respectively. As of December 31, 2003, the Company believes
the restructuring reserve of approximately $1.4 million is adequate. The
Company anticipates that $0.3 million of the restructuring reserve balance will
be paid by March 31, 2004, $0.5 million will be paid by March 31, 2005 and the
remaining $0.6 million will be paid by March 31, 2006. These costs will be
funded through cash generated from operations and borrowings under the
Revolving Credit Facility, as amended.

13



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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

9.     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 premedia services division.
The Companys corporate expenses have been segregated and do not constitute a
reportable segment.

The Company has two reportable segments: (1) print and (2) premedia services.
The print business produces advertising inserts, comics (Sunday newspaper
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 each of the segments are the same as those used by
the Company in its condensed consolidated financial statements. The Company
evaluates performance based on segment EBITDA as calculated by management,
which is defined as earnings before net interest expense, income tax expense,
depreciation, amortization, restructuring costs, loss on early extinguishment
of debt, other expense (income) and discontinued operations. This calculation
differs from the EBITDA disclosed in Managements Discussion and Analysis of
Financial Condition and Results of Operations as that definition includes the
impact of restructuring costs, loss on early extinguishment of debt, other
expense (income) and discontinued operations. 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 period balances to conform with the current period
presentation.

In June 2003, the Company sold its digital visual effects business, Digiscope,
for a de minimis amount and recorded a net loss of approximately $0.4 million,
which is net of zero income tax benefits. Segment operating results for the
three and nine months ended December 31, 2002 have been reclassified to present
Digiscopes operating results as a discontinued operation. In addition, the
three and nine months ended December 31, 2002 reflect a reclassification to the
print segment of certain premedia revenues and expenses performed in the print
facilities previously presented within the premedia services segment. We
revised and reclassified the segment reporting to reflect the current approach
used by the Chief Operating Decision Maker in evaluating segment operating
results. These reclassifications do not impact the Companys previously
reported consolidated results.

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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 
|                                    |                                                |       |         |          |   |           |          |       
|Nine Months Ended December 31, 2003 |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Segment revenues                    |                                                | $     | 325,848 |          |   |           | 39,688   |        |           |  |        |         |   |  | 365,536 |        
|EBITDA as calculated by management  |                                                | $     | 39,491  |          |   |           | 7,830    |        |           |  | (2,353  | )       |   |  | 44,968  |        
|                                    | Depreciation and amortization                  |       |         | (15,493  | ) |           |          | (2,712 | )         |  |         |        |   |  |         | (18,205 | )
|                                    | Restructuring costs                            |       |         | (1,716   | ) |           |          | (284   | )         |  |         |        |   |  |         | (2,000  | )
|                                    |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Operating income (loss)             |                                                |       | 22,282  |          |   |           | 4,834    |        |           |  | (2,353  | )       |   |  | 24,763  |        
|                                    | Interest expense                               |       |         |         |   |           |          |       |           |  |         | (25,713 | ) |  |         | (25,713 | )
|                                    | Interest income                                |       |         |         |   |           |          |       |           |  |         | 8       |   |  |         | 8       |  
|                                    | Loss on early extinguishment of debt           |       |         |         |   |           |          |       |           |  |         | (3,196  | ) |  |         | (3,196  | )
|                                    | Other, net                                     |       |         | (75      | ) |           |          | (29    | )         |  |         | (190    | ) |  |         | (294    | )
|                                    | Income tax expense                             |       |         |         |   |           |          |       |           |  |         | (11,684 | ) |  |         | (11,684 | )
|                                    | Depreciation from discontinued operations      |       |         |         |   |           |          |       |           |  |         | (26     | ) |  |         | (26     | )
|                                    | Discontinued operations excluding
depreciation |       |         |         |   |           |          |       |           |  |         | (430    | ) |  |         | (430    | )
|                                    |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Net income (loss)                   |                                                | $     | 22,207  |          |   |           | 4,805    |        |           |  | (43,584 | )       |   |  | (16,572 | )      
|                                   
|Total assets                        |                                                | $     | 250,608 |          |   |           | 13,788   |        |           |  | 15,030  |         |   |  | 279,426 |        
|Total goodwill                      |                                                | $     | 64,656  |          |   |           | 1,892    |        |           |  |        |         |   |  | 66,548  |        
|Total capital expenditures          |                                                | $     | 12,331  |          |   |           | 1,040    |        |           |  |        |         |   |  | 13,371  |        
|                                   
|Nine Months Ended December 31, 2002 |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Segment revenues                    |                                                | $     | 358,835 |          |   |           | 40,609   |        |           |  |        |         |   |  | 399,444 |        
|EBITDA as calculated by management  |                                                | $     | 46,272  |          |   |           | 6,085    |        |           |  | (2,821  | )       |   |  | 49,536  |        
|                                    | Depreciation and amortization                  |       |         | (14,573  | ) |           |          | (3,192 | )         |  |         |        |   |  |         | (17,765 | )
|                                    |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Operating income (loss)             |                                                |       | 31,699  |          |   |           | 2,893    |        |           |  | (2,821  | )       |   |  | 31,771  |        
|                                    | Interest expense                               |       |         |         |   |           |          |       |           |  |         | (21,454 | ) |  |         | (21,454 | )
|                                    | Interest income                                |       |         |         |   |           |          |       |           |  |         | 83      |   |  |         | 83      |  
|                                    | Other, net                                     |       |         | (179     | ) |           |          | (234   | )         |  |         | (107    | ) |  |         | (520    | )
|                                    | Income tax expense                             |       |         |         |   |           |          |       |           |  |         | (1,333  | ) |  |         | (1,333  | )
|                                    | Depreciation from discontinued operations      |       |         |         |   |           |          |       |           |  |         | (308    | ) |  |         | (308    | )
|                                    | Discontinued operations excluding
depreciation |       |         |         |   |           |          |       |           |  |         | (437    | ) |  |         | (437    | )
|                                    |                                                |       |         |          |   |           |          |        |           |  |         |         |   |  |         |        
|Net income (loss)                   |                                                | $     | 31,520  |          |   |           | 2,659    |        |           |  | (26,377 | )       |   |  | 7,802   |        
|                                   
|Total assets                        |                                                | $     | 259,458 |          |   |           | 18,802   |        |           |  | 13,011  |         |   |  | 291,271 |        
|Total goodwill                      |                                                | $     | 64,656  |          |   |           | 1,892    |        |           |  |        |         |   |  | 66,548  |        
|Total capital expenditures          |                                                | $     | 24,005  |          |   |           | 1,664    |        |           |  |        |         |   |  | 25,669  |        

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

|                                     |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |        |  
|------------------------------------ | ---------------------------------------------- | ----- | ------- | -------- | - | --------- | -------- | ------ | --------- |  | ------ | ------ | - |  | ------- | ------ | -
|                                     |                                                |       |         |          |   |           | Premedia |        | Corporate |  |        |        |  
|(In thousands)                       |                                                | Print |         | Services |   | and Other |          | Total 
|                                     |                                                |       |         |          |   |           |          |       
|Three Months Ended December 31, 2003 |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Segment revenues                     |                                                | $     | 115,340 |          |   |           | 13,229   |        |           |  |       |        |   |  | 128,569 |       
|EBITDA as calculated by management   |                                                | $     | 13,657  |          |   |           | 2,753    |        |           |  | (636   | )      |   |  | 15,774  |       
|                                     | Depreciation and amortization                  |       |         | (5,215   | ) |           |          | (848   | )         |  |        |       |   |  |         | (6,063 | )
|                                     |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Operating income (loss)              |                                                |       | 8,442   |          |   |           | 1,905    |        |           |  | (636   | )      |   |  | 9,711   |       
|                                     | Interest expense                               |       |         |         |   |           |          |       |           |  |        | (8,412 | ) |  |         | (8,412 | )
|                                     | Interest income                                |       |         |         |   |           |          |       |           |  |        | 1      |   |  |         | 1      |  
|                                     | Other, net                                     |       |         | (44      | ) |           |          | (5     | )         |  |        | (34    | ) |  |         | (83    | )
|                                     | Income tax benefit                             |       |         |         |   |           |          |       |           |  |        | 1,790  |   |  |         | 1,790  |  
|                                     |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Net income (loss)                    |                                                | $     | 8,398   |          |   |           | 1,900    |        |           |  | (7,291 | )      |   |  | 3,007   |       
|                                    
|Total assets                         |                                                | $     | 250,608 |          |   |           | 13,788   |        |           |  | 15,030 |        |   |  | 279,426 |       
|Total goodwill                       |                                                | $     | 64,656  |          |   |           | 1,892    |        |           |  |       |        |   |  | 66,548  |       
|Total capital expenditures           |                                                | $     | 870     |          |   |           | 361      |        |           |  |       |        |   |  | 1,231   |       
|                                    
|Three Months Ended December 31, 2002 |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Segment revenues                     |                                                | $     | 128,349 |          |   |           | 13,564   |        |           |  |       |        |   |  | 141,913 |       
|EBITDA as calculated by management   |                                                | $     | 14,809  |          |   |           | 2,603    |        |           |  | (1,040 | )      |   |  | 16,372  |       
|                                     | Depreciation and amortization                  |       |         | (5,224   | ) |           |          | (1,085 | )         |  |        |       |   |  |         | (6,309 | )
|                                     |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Operating income (loss)              |                                                |       | 9,585   |          |   |           | 1,518    |        |           |  | (1,040 | )      |   |  | 10,063  |       
|                                     | Interest expense                               |       |         |         |   |           |          |       |           |  |        | (7,149 | ) |  |         | (7,149 | )
|                                     | Interest income                                |       |         |         |   |           |          |       |           |  |        | 6      |   |  |         | 6      |  
|                                     | Other, net                                     |       |         | 22       |   |           |          | (50    | )         |  |        | (10    | ) |  |         | (38    | )
|                                     | Income tax expense                             |       |         |         |   |           |          |       |           |  |        | (418   | ) |  |         | (418   | )
|                                     | Depreciation from discontinued operations      |       |         |         |   |           |          |       |           |  |        | (71    | ) |  |         | (71    | )
|                                     | Discontinued operations excluding
depreciation |       |         |         |   |           |          |       |           |  |        | (172   | ) |  |         | (172   | )
|                                     |                                                |       |         |          |   |           |          |        |           |  |        |        |   |  |         |       
|Net income (loss)                    |                                                | $     | 9,607   |          |   |           | 1,468    |        |           |  | (8,854 | )      |   |  | 2,221   |       
|                                    
|Total assets                         |                                                | $     | 259,458 |          |   |           | 18,802   |        |           |  | 13,011 |        |   |  | 291,271 |       
|Total goodwill                       |                                                | $     | 64,656  |          |   |           | 1,892    |        |           |  |       |        |   |  | 66,548  |       
|Total capital expenditures           |                                                | $     | 3,549   |          |   |           | 550      |        |           |  |       |        |   |  | 4,099   |       

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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

10.     Impact of Recently Issued Accounting Standards

In April 2002, the Financial Accounting Standards Board (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 makes various 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. In accordance with the guidance set forth in SFAS 145, the
Company classified the $3.2 million charge incurred in the nine month period
ended December 31, 2003 related to the write-off of deferred financing costs
associated with the old bank credit agreement and the 12 3/4% Notes as Other
expense in the accompanying condensed consolidated statements of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46) to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
Until now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN 46 changes that guidance by requiring a variable interest entity, as
defined, to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities or
is entitled to receive a majority of the entitys residual returns or both.
FIN 46 also requires disclosure about variable interest entities that the
company is not required to consolidate but in which
it has a significant variable interest. The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003 and to existing entities in the first fiscal year or interim period ending
after December 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company has evaluated the
requirements of FIN 46 and does not expect any effect on its consolidated
financial position or operating results.

11.     Subsequent Event

In January 2004, the Company approved a plan for the print and premedia
services segments designed to improve operating efficiency and profitability.
This plan included a consolidation of capacity and the related downsizing of a
print facility in Stevensville, Ontario, a reduction of personnel in certain of
the Companys other print and premedia facilities and the elimination of
certain selling and administrative positions. These actions in total will
result in the elimination of approximately 170 positions within the Company.
As a result, the Company plans to record a pre-tax restructuring charge of
approximately $5.8 million in the quarter ending March 31, 2004 associated
with this plan. This restructuring charge is composed primarily of severance
and related termination benefits. The cost of this restructuring plan will be
accounted for in accordance with the guidance set forth in SFAS 146.

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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

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, intends, expects, may, will,
estimates, should, could, anticipates, plans or other comparable
terms 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 the control
of ACG Holdings, Inc. (Holdings), together with its wholly-owned subsidiary,
American Color Graphics, Inc. (Graphics), including, but not limited to:



| |  |  | 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,                                                                                                                      
|
| |  |  | 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.

All forward-looking statements in this Report are qualified by these cautionary
statements and are made only as of the date of this Report. We do not
undertake any obligation, other than as required by law, to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.

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.

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

Results of Operations

General

In June 2003, we made a strategic decision to sell the operations of our
digital visual effects business, Digiscope, for a de minimis amount. This
resulted in a net loss of approximately $0.4 million in the nine month period
ended December 31, 2003, which is net of zero income tax benefits. The sale of
Digiscope has been accounted for as a discontinued operation, and accordingly,
Digiscopes operations are reclassified and presented within discontinued
operations in the accompanying condensed consolidated financial statements.
Sales, costs of sales, selling, general and administrative expenses and other
expenses attributable to Digiscope for the three and nine months ended December
31, 2002 have been reclassified and presented within discontinued operations.

In July 2003, we implemented a plan to further reduce our selling, general and
administrative expenses. This plan resulted in the termination of four
administrative employees. We recorded a pre-tax restructuring charge of
approximately $1.8 million in the quarter ended September 30, 2003 associated
with this plan. This restructuring charge is composed of severance and related
termination benefits. The cost of this restructuring plan was accounted for in
accordance with the guidance set forth in SFAS 146. We also recorded an
additional $0.2 million of restructuring charges related to the Fiscal Year
2002 restructuring plan (see note 8 to our condensed consolidated financial
statements) in the quarter ended September 30, 2003. This charge is related to
future lease commitments and is classified within restructuring costs in our
condensed consolidated statements of operations for the nine months ended
December 31, 2003.

In January 2004, we approved a plan for our print and premedia services
segments designed to improve operating efficiency and profitability. This plan
included a consolidation of capacity and the related downsizing of our print
facility in Stevensville, Ontario, a reduction of personnel in certain of our
other print and premedia facilities and the elimination of certain selling and
administrative positions. These actions in total will result in the
elimination of approximately 170 positions within the Company. As a result,
we plan to record a pre-tax restructuring charge of approximately $5.8
million in the quarter ending March 31, 2004 associated with this plan. This
restructuring charge is composed primarily of severance and related termination
benefits. The cost of this restructuring plan will be accounted for in
accordance with the guidance set forth in SFAS 146.

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ACG HOLDINGS, INC.
Managements Discussion and Analysis ofFinancial 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 December 31, 2003 (the 2003 Three-Month Period),
the three months ended December 31, 2002 (the 2002 Three-Month Period), the
nine months ended December 31, 2003 (the 2003 Nine-Month Period) and the nine
months ended December 31, 2002 (the 2002 Nine-Month Period):

|                         |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |         |         |  
|------------------------ | --------------------- | ----- | - | ------------------ | ------- | ----------------- |  | ---------------------- | ------- | ---- |  | ------- | ------- | - |  | ------- | ------- | -
|                         |                       |       |   | Three Months Ended |         | Nine Months Ended
|                         |                       |       |   | December 31,       |         | December 31,     
|                         |                       |       |   |                    |         |                  
|                         |                       |       |   | 2003               |         | 2002              |  | 2003                   |         | 2002
|                         |                       |       |   |                    |         |                   |  |                        |         |     
|                         |                       |       |   |                    |         |                   |  | (Dollars in thousands) |         |      |  |        
|Sales:                   |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |        
|                         | Print                 |       | $ | 115,340            |         |                   |  | 128,349                |         |      |  | 325,848 |         |   |  | 358,835 |        
|                         | Premedia Services     |       |   | 13,229             |         |                   |  | 13,564                 |         |      |  | 39,688  |         |   |  | 40,609  |        
|                         |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |         |        
|                         |                       | Total |   | $                  | 128,569 |                   |  |                        | 141,913 |      |  |         | 365,536 |   |  |         | 399,444 |  
|Gross Profit:            |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |        
|                         | Print                 |       | $ | 13,653             |         |                   |  | 15,815                 |         |      |  | 39,986  |         |   |  | 48,097  |        
|                         | Premedia Services     |       |   | 3,566              |         |                   |  | 3,707                  |         |      |  | 10,612  |         |   |  | 10,152  |        
|                         | Other (a)             |       |   | 11                 |         |                   |  | 1                      |         |      |  | 7       |         |   |  | 2       |        
|                         |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |         |        
|                         |                       | Total |   | $                  | 17,230  |                   |  |                        | 19,523  |      |  |         | 50,605  |   |  |         | 58,251  |  
|Gross Margin:            |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |        
|                         | Print                 |       |   | 11.8               | %       |                   |  | 12.3                   | %       |      |  | 12.3    | %       |   |  | 13.4    | %      
|                         | Premedia Services     |       |   | 27.0               | %       |                   |  | 27.3                   | %       |      |  | 26.7    | %       |   |  | 25.0    | %      
|                         |                       | Total |   |                    | 13.4    | %                 |  |                        | 13.8    | %    |  |         | 13.8    | % |  |         | 14.6    | %
|Operating Income (Loss): |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |        
|                         | Print (b)             |       | $ | 8,442              |         |                   |  | 9,585                  |         |      |  | 22,282  |         |   |  | 31,699  |        
|                         | Premedia Services (b) |       |   | 1,905              |         |                   |  | 1,518                  |         |      |  | 4,834   |         |   |  | 2,893   |        
|                         | Other (a)             |       |   | (636               | )       |                   |  | (1,040                 | )       |      |  | (2,353  | )       |   |  | (2,821  | )      
|                         |                       |       |   |                    |         |                   |  |                        |         |      |  |         |         |   |  |         |        
|                         |                       | Total |   | $                  | 9,711   |                   |  |                        | 10,063  |      |  |         | 24,763  |   |  |         | 31,771  |  



|(a) |  | Includes corporate general and administrative expenses.                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | In the 2003 Nine-Month Period, print and premedia services operating
incomes include the impact of restructuring costs of $1.7 million and $0.3
million, respectively.

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

Print

Sales.In the 2003 Nine-Month Period, print sales decreased $33.0 million to
$325.8 million from $358.8 million in the 2002 Nine-Month Period. The decrease
in the 2003 Nine-Month Period includes an increase in customer supplied paper,
the impact of competitive pricing pressures and certain changes in product and
customer mix. These decreases were offset in part by increased paper prices
and an approximate 2% increase in print production volume. See Value Added
Revenue and Print Impressions for the Print Segment below.

In the 2003 Three-Month Period, print sales decreased $13.0 million to $115.3
million from $128.3 million in the 2002 Three-Month Period. The decrease in
the 2003 Three-Month Period includes an increase in customer supplied paper,
the impact of competitive pricing pressures and certain changes in product and
customer mix. These decreases were offset in part by increased paper prices.

Gross Profit.In the 2003 Nine-Month Period, print gross profit decreased $8.1
million to $40.0 million from $48.1 million in the 2002 Nine-Month Period. In
the 2003 Nine-Month Period, print gross margin decreased to 12.3% from 13.4% in
the 2002 Nine-Month Period. The decrease in gross profit includes the impact
of competitive pricing pressures, certain changes in product and customer mix,
foreign exchange losses associated with our Canadian operations and increases
in certain operating expenses including energy, pension and health costs. These
decreases were offset in part by the increased print production volume. The
decrease in gross margin includes these items, coupled with the impact of
increased paper prices and increased levels of customer supplied paper
reflected in sales. Our gross margin may not be comparable from period to
period because of the impact of changes in paper prices and levels of customer
supplied paper included in sales.

In the 2003 Three-Month Period, print gross profit decreased $2.1 million to
$13.7 million from $15.8 million in the 2002 Three-Month Period. In the 2003
Three-Month Period, print gross margin decreased to 11.8% from 12.3% in the
2002 Three-Month Period. The decrease in gross profit includes the impact of
competitive pricing pressures, certain changes in product and customer mix,
foreign exchange losses associated with our Canadian operations and increases
in certain operating expenses including energy, pension and health costs. These
decreases were offset in part by benefits from productivity improvements and
various cost containment programs at our facilities. The decrease in gross
margin includes these items, coupled with the impact of increased paper prices
and increased levels of customer supplied paper reflected in sales. Our gross
margin may not be comparable from period to period because of the impact of
changes in paper prices and levels of customer supplied paper included in
sales.

Selling, General and Administrative Expenses.In the 2003 Nine-Month Period,
print selling, general and administrative expenses decreased $0.4 million to
$16.0 million, or 4.9% of print sales, from $16.4 million, or 4.6% of print
sales in the 2002 Nine-Month Period. This decrease includes reductions in
certain administrative costs, offset in part by the impact of the change in our
estimates related to the allowance for doubtful accounts.

In the 2003 Three-Month Period, print selling, general and administrative
expenses decreased $1.0 million to $5.2 million, or 4.5% of print sales, from
$6.2 million, or 4.9% of print sales in the 2002 Three-Month Period. This
decrease primarily includes reductions in certain administrative costs.

Restructuring Costs.Restructuring costs were $1.7 million in the 2003
Nine-Month Period and none were incurred in the 2003 Three-Month Period. We
incurred no restructuring costs in the 2002 Three or Nine-Month Periods. See
note 8 to our condensed consolidated financial statements appearing elsewhere
in this Report.

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

Operating Income.As a result of the factors discussed above, print operating
income decreased to $22.3 million in the 2003 Nine-Month Period from $31.7
million in the 2002 Nine-Month Period and decreased to $8.4 million in the 2003
Three-Month Period from $9.6 million in the 2002 Three-Month Period.

Premedia Services

Sales.In the 2003 Nine-Month Period, premedia services sales decreased $0.9
million to $39.7 million from $40.6 million in the 2002 Nine-Month Period.
These results include the impact of competitive pricing pressures and the
continuance of weak premedia market conditions.

In the 2003 Three-Month Period, premedia services sales decreased $0.3 million
to $13.2 million from $13.5 million in the 2002 Three-Month Period. These
results include the impact of competitive pricing pressures and the continuance
of weak premedia market conditions.

Gross Profit.In the 2003 Nine-Month Period, premedia services gross profit
increased $0.4 million to $10.6 million from $10.2 million in the 2002
Nine-Month Period. In the 2003 Nine-Month Period, premedia services gross
margin increased to 26.7% from 25.0% in the 2002 Nine-Month Period. The
increase in gross profit and gross margin for the 2003 Nine-Month Period is
primarily the result of reduced manufacturing costs related to various cost
containment programs and the closure of a premedia facility.

In the 2003 Three-Month Period, premedia services gross profit remained
relatively unchanged at $3.6 million versus $3.7 million in the 2002
Three-Month Period. In the 2003 Three-Month Period, premedia services gross
margin decreased to 27.0% from 27.3% in the 2002 Three-Month Period.

Selling, General and Administrative Expenses.In the 2003 Nine-Month Period,
premedia services selling, general and administrative expenses decreased $1.8
million to $5.5 million, or 13.8% of premedia services sales, from $7.3
million, or 17.9% of premedia services sales in the 2002 Nine-Month Period.
The decrease in the 2003 Nine-Month Period includes decreases in both the
selling and administrative areas due to various cost containment initiatives.

In the 2003 Three-Month Period, premedia services selling, general and
administrative expenses decreased $0.5 million to $1.7 million, or 12.6% of
premedia services sales, from $2.2 million, or 16.1% of premedia services
sales in the 2002 Three-Month Period. The decrease in the 2003 Three-Month
Period includes decreases in both the selling and administrative areas due to
various cost containment initiatives.

Restructuring Costs.Restructuring costs were $0.3 million in the 2003
Nine-Month Period and none were incurred in the 2003 Three-Month Period. We
incurred no restructuring costs in the 2002 Three or Nine-Month Periods. See
note 8 to our condensed consolidated financial statements appearing elsewhere
in this Report.

Operating Income.As a result of the factors discussed above, premedia
services operating income increased to $4.8 million in the 2003 Nine-Month
Period from $2.9 million in the 2002 Nine-Month Period and increased to $1.9
million in the 2003 Three-Month Period from $1.5 million in the 2002
Three-Month Period.

Other Operations

Other operations consist of corporate general and administrative expenses. In
the 2003 Nine-Month Period, operating losses from other operations improved to
a loss of $2.4 million from a loss of $2.8 million in the 2002 Nine-Month
Period. In the 2003 Three-Month Period, operating losses from other operations
improved to a loss of $0.6 million from a loss of $1.0 million in the 2002
Three-Month Period. The decreases in both the 2003 Nine-Month Period and the
2003 Three-Month Period include decreases in certain employee related expenses.

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

Interest Expense

In the 2003 Nine-Month Period, interest expense increased to $25.7 million from
$21.5 million in the 2002 Nine-Month Period and increased to $8.4 million in
the 2003 Three-Month Period from $7.1 million in the 2002 Three-Month Period.
These increases include the impact of higher levels of indebtedness associated
with our 2003 Refinancing. In addition, interest expense in the 2003
Nine-Month Period, includes incremental interest expense of approximately $1.7
million, related to the 30 day call provision associated with
the 12 3/4%
Notes.

Loss on Early Extinguishment of Debt

In the 2003 Nine-Month Period, we incurred a charge of approximately $3.2
million, net of $0 taxes, related to the write-off of deferred financing costs
associated with our old bank credit agreement and the 12 3/4% Notes. See note
4 to our condensed consolidated financial statements appearing elsewhere in
this Report.

Income Taxes

In the 2003 Nine-Month Period, income tax expense increased to $11.7 million
from $1.3 million in the 2002 Nine-Month Period. In the 2003 Three-Month Period
income tax expense improved to a benefit of $1.8 million from expense of $0.4
million in the 2002 Three-Month Period. The increase in the 2003 Nine-Month
Period is primarily due to an adjustment, recorded in the quarter ended
September 30, 2003, to increase the deferred tax asset valuation allowance by
$12.8 million. This adjustment reflected a change in circumstances which
resulted in a judgment that, based on the provisions of SFAS 109 that restrict
our ability to consider forecasts of future income, a corresponding amount of
deferred tax assets may not be realized. The change in circumstances arose
from our assessment of the economic climate, particularly the continuance of
competitive pricing pressures in our industry, and the expected increase in
annual interest costs arising from the issuance of our 10% Notes in July 2003
(see note 4 to our condensed consolidated financial statements appearing
elsewhere in this Report) that have provided negative evidence about our
ability to realize certain deferred tax assets. We will reverse our valuation
allowance into income when and to the extent sufficient positive evidence
arises to support the realization of the related deferred tax assets. The
increase in the income tax benefit in the 2003 Three-Month Period is primarily
due to an adjustment of $2.2 million to reflect a change in estimate with
respect to our income tax liability.

Discontinued Operations

In June 2003, we sold the operations of Digiscope for a de minimis amount,
which resulted in a net loss of approximately $0.4 million, which is net of
zero income tax benefits. The sale of Digiscope has been accounted for as a
discontinued operation, and accordingly, Digiscopes operations for the 2002
Three and Nine-Month Periods have been reclassified and presented within
discontinued operations in the accompanying condensed consolidated statements
of operations.

Net Income (Loss)

As a result of the factors discussed above, net income (loss) decreased to a
loss of $16.6 million in the 2003 Nine-Month Period from income of $7.8 million
in the 2002 Nine-Month Period and in the 2003 Three-Month Period, net income
increased to $3.0 million from $2.2 million in the 2002 Three-Month Period.

Liquidity and Capital Resources

On July 3, 2003, we refinanced all of our existing indebtedness (excluding
capital leases) in connection with the 2003 Refinancing. The primary
objectives of this refinancing included the placement of a long-term capital

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

structure which (1) eliminated the near-term amortization requirements of our
old bank credit agreement and our 12 3⁄4% Notes, (2) provided strong
liquidity and greater operating and financial flexibility and (3) reduced our
overall cost of capital. As part of the 2003 Refinancing, we sold $280 million
aggregate principal amount of our 10% Notes and also entered into the Revolving
Credit Facility. We repaid substantially all existing indebtedness (excluding
capital leases) through:



| |  |  | the repayment of all amounts outstanding under our old bank credit
agreement, and the concurrent termination of all related commitments
thereunder;                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the issuance of letters of credit under the Revolving Credit Facility
to replace outstanding letters of credit; and                                                                   
|
| |  |  | effective August 3, 2003, the
redemption of all of the 12 3⁄4%
Notes, at a redemption price equal to 100% of their aggregate principal
amount, plus accrued and unpaid interest thereon.

In addition, we repurchased, and concurrently retired, all 5,223 outstanding
shares of preferred stock of Holdings, and canceled all outstanding options to
purchase shares of preferred stock of Holdings held by certain key officers,
for an aggregate purchase price of $56.9 million. The canceled options would
have been exercisable for 582 shares of preferred stock of Holdings.

As part of the 2003 Refinancing, we incurred $13.6 million of deferred
financing fees through December 31, 2003. Of the total deferred financing
fees, $4.9 million was paid to affiliates of Morgan Stanley for the services
they performed in conjunction with the Revolving Credit Facility and the
original private placement of the 10% Notes. We also incurred a charge of
approximately $3.2 million in the 2003 Nine-Month Period related to the
write-off of deferred financing costs associated with the old bank credit
agreement and the 12 3⁄4% Notes. In addition, we recorded incremental
interest expense of approximately $1.7 million in the 2003 Nine-Month Period
related to the 30 day call provision associated with the 12 3⁄4% Notes.

Our primary sources of liquidity are cash provided by operating activities and
borrowings under the Revolving Credit Facility. The Revolving Credit Facility,
as amended, provides for:



| |  |  | maximum borrowings of $70 million subject to a borrowing base
limitation based on certain percentages of eligible accounts receivable,
eligible inventory and the appraised value of eligible machinery and
equipment and real estate, subject to certain limitations, maturing on
July 3, 2008, including a letter of credit sub-facility of up to $40
million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2003, we had borrowings outstanding under the Revolving Credit
Facility of $7.2 million and had letters of credit outstanding of approximately
$31.1 million. We had additional borrowing availability under the Revolving
Credit Facility of approximately $31.7 million. Payments due on existing
capital lease obligations during the remainder of our fiscal year ending March
31, 2004 (Fiscal Year 2004) are approximately $2.2 million.

During the 2003 Nine-Month Period, we used net cash provided by operating
activities of $8.2 million (see Condensed Consolidated Statements of Cash Flows
appearing elsewhere in this Report), proceeds from the 2003 Refinancing of $280
million and net revolver borrowings of $7.2 million primarily to fund the
following expenditures:



| |  |  | $39.2 million to repay indebtedness outstanding under the old bank credit agreement,                                                                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $170.1 million to redeem the
12 3⁄4% Notes,                                                                                                                                          
|
| |  |  | $56.9 million to repurchase and retire all outstanding shares of
preferred stock of Holdings, and cancel all outstanding options to
purchase shares of preferred stock of Holdings,
|
| |  |  | $13.6 million for fees and expenses paid to date related to the 2003
Refinancing,                                                                                                  

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



| |  |  | $10.5 million in cash capital expenditures, and                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $5.1 million to service other indebtedness (including capital lease
obligations of $4.8 million and deferred financing fees related to the
old bank credit agreement and the 12 3⁄4% Notes of $0.3 million).

Our cash-on-hand of approximately $6.2 million is presented net of outstanding
checks within trade accounts payable at December 31, 2003. Accordingly, cash
is presented at a balance of $0 million in the December 31, 2003 condensed
consolidated balance sheet.

We plan to continue our program of upgrading our print and premedia services
equipment. We anticipate that total Fiscal Year 2004 capital expenditures,
including maintenance, cost reduction and customer support capital,
will approximate $16 million. This will include cash capital expenditures of
approximately $13 million and capital lease spending of approximately $3
million.

Our primary sources of liquidity have been 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 our 10%
Notes in privately negotiated transactions, or in open market purchases, to the
extent permitted by the Revolving Credit Facility, as amended.

At December 31, 2003, we had total indebtedness of $307.7 million, including
borrowings under the Revolving Credit Facility of $7.2 million, capital lease
obligations of $20.5 million and $280.0 million of our 10% Notes. We have no
off-balance sheet financial instruments. We are currently in compliance with
all financial covenants set forth in the Revolving Credit Facility, as amended.

A significant portion of Graphics long-term obligations, including
indebtedness under the Revolving Credit Facility and the 10% Notes, has been
fully and unconditionally guaranteed by Holdings. Holdings is subject to
certain restrictions under its guarantee of indebtedness under the Revolving
Credit Facility, including among other things, restrictions on mergers,
acquisitions, incurrence of additional debt and payment of cash dividends.

EBITDA and EBITDA Margin

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 and amortization.
This calculation of EBITDA differs from the EBITDA disclosed in note 9 to our
condensed consolidated financial statements appearing elsewhere in this Report.
The definition in note 9 follows the guidelines required under the provisions
of Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 131 Disclosures about Segments of an Enterprise and Related
Information and is reflective of managements calculation of EBITDA. EBITDA
Margin is defined as EBITDA as a percentage of net sales. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered an alternative to net income
(or any other measure of performance under accounting principles generally
accepted in the United States) 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 10% Senior Second
Secured Notes Indenture and the Revolving Credit Facility, as amended, are
based on, or include EBITDA, subject to certain adjustments.

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

|                      |       |   |                    |        |                   |  |                        |        |      |  |        |        |   |  |        |        |  
|--------------------- | ----- | - | ------------------ | ------ | ----------------- |  | ---------------------- | ------ | ---- |  | ------ | ------ | - |  | ------ | ------ | -
|                      |       |   | Three Months Ended |        | Nine Months Ended
|                      |       |   | December 31,       |        | December 31,     
|                      |       |   |                    |        |                  
|                      |       |   | 2003               |        | 2002              |  | 2003                   |        | 2002
|                      |       |   |                    |        |                   |  |                        |        |     
|                      |       |   |                    |        |                   |  | (Dollars in thousands) |        |      |  |       
|EBITDA:               |       |   |                    |        |                   |  |                        |        |      |  |        |        |   |  |        |       
|Print (a)             |       | $ | 13,613             |        |                   |  | 14,831                 |        |      |  | 37,700 |        |   |  | 46,093 |       
|Premedia Services (a) |       |   | 2,748              |        |                   |  | 2,553                  |        |      |  | 7,517  |        |   |  | 5,851  |       
|Other (b)             |       |   | (670               | )      |                   |  | (1,222                 | )      |      |  | (6,169 | )      |   |  | (3,365 | )     
|                      |       |   |                    |        |                   |  |                        |        |      |  |        |        |   |  |        |       
|                      | Total |   | $                  | 15,691 |                   |  |                        | 16,162 |      |  |        | 39,048 |   |  |        | 48,579 |  
|EBITDA Margin:        |       |   |                    |        |                   |  |                        |        |      |  |        |        |   |  |        |       
|Print                 |       |   | 11.8               | %      |                   |  | 11.6                   | %      |      |  | 11.6   | %      |   |  | 12.8   | %     
|Premedia Services     |       |   | 20.8               | %      |                   |  | 18.8                   | %      |      |  | 18.9   | %      |   |  | 14.4   | %     
|                      | Total |   |                    | 12.2   | %                 |  |                        | 11.4   | %    |  |        | 10.7   | % |  |        | 12.2   | %



|(a) |  | In the 2003 Nine-Month Period, EBITDA for the print and premedia
services segments includes the impact of restructuring costs of $1.7
million and $0.3 million, respectively.                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Other operations includes corporate general and administrative expenses
as well as discontinued operations. In addition, other operations includes
the write-off of deferred financing costs related to the 2003 Refinancing
of $3.2 million in the 2003 Nine-Month Period.

The following table provides a reconciliation (in thousands) of EBITDA to net
income (loss):

|                                     |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |        |  
|------------------------------------ | ----------------------------- | - | ------ | ------ | -------- |  | -------- | ------ | ----- |  | ------ | ------ | - |  | ------ | ------ | -
|                                     |                               |   |        |        |          |  | Premedia |        |       |  |        |        |   |  |       
|                                     |                               |   | Print  |        | Services |  | Other    |        | Total
|                                     |                               |   |        |        |          |  |          |        |      
|Three Months Ended December
31, 2003 |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       
|EBITDA                               |                               | $ | 13,613 |        |          |  | 2,748    |        |       |  | (670   | )      |   |  | 15,691 |       
|                                     | Depreciation and amortization |   |        | (5,215 | )        |  |          | (848   | )     |  |        |       |   |  |        | (6,063 | )
|                                     | Interest expense, net         |   |        |       |          |  |          |       |       |  |        | (8,411 | ) |  |        | (8,411 | )
|                                     | Income tax benefit            |   |        |       |          |  |          |       |       |  |        | 1,790  |   |  |        | 1,790  |  
|                                     |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       
|Net income (loss)                    |                               | $ | 8,398  |        |          |  | 1,900    |        |       |  | (7,291 | )      |   |  | 3,007  |       
|                                     |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       
|Three Months Ended December
31, 2002 |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       
|EBITDA                               |                               | $ | 14,831 |        |          |  | 2,553    |        |       |  | (1,222 | )      |   |  | 16,162 |       
|                                     | Depreciation and amortization |   |        | (5,224 | )        |  |          | (1,085 | )     |  |        | (71    | ) |  |        | (6,380 | )
|                                     | Interest expense, net         |   |        |       |          |  |          |       |       |  |        | (7,143 | ) |  |        | (7,143 | )
|                                     | Income tax expense            |   |        |       |          |  |          |       |       |  |        | (418   | ) |  |        | (418   | )
|                                     |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       
|Net income (loss)                    |                               | $ | 9,607  |        |          |  | 1,468    |        |       |  | (8,854 | )      |   |  | 2,221  |       
|                                     |                               |   |        |        |          |  |          |        |       |  |        |        |   |  |        |       

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

|                                    |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |         |  
|----------------------------------- | ----------------------------- | - | ------ | ------- | -------- |  | -------- | ------ | ----- |  | ------- | ------- | - |  | ------- | ------- | -
|                                    |                               |   |        |         |          |  | Premedia |        |       |  |         |         |   |  |        
|                                    |                               |   | Print  |         | Services |  | Other    |        | Total
|                                    |                               |   |        |         |          |  |          |        |      
|Nine Months Ended December 31, 2003 |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        
|EBITDA                              |                               | $ | 37,700 |         |          |  | 7,517    |        |       |  | (6,169  | )       |   |  | 39,048  |        
|                                    | Depreciation and amortization |   |        | (15,493 | )        |  |          | (2,712 | )     |  |         | (26     | ) |  |         | (18,231 | )
|                                    | Interest expense, net         |   |        |        |          |  |          |       |       |  |         | (25,705 | ) |  |         | (25,705 | )
|                                    | Income tax expense            |   |        |        |          |  |          |       |       |  |         | (11,684 | ) |  |         | (11,684 | )
|                                    |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        
|Net income (loss)                   |                               | $ | 22,207 |         |          |  | 4,805    |        |       |  | (43,584 | )       |   |  | (16,572 | )      
|                                    |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        
|Nine Months Ended December 31, 2002 |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        
|EBITDA                              |                               | $ | 46,093 |         |          |  | 5,851    |        |       |  | (3,365  | )       |   |  | 48,579  |        
|                                    | Depreciation and amortization |   |        | (14,573 | )        |  |          | (3,192 | )     |  |         | (308    | ) |  |         | (18,073 | )
|                                    | Interest expense, net         |   |        |        |          |  |          |       |       |  |         | (21,371 | ) |  |         | (21,371 | )
|                                    | Income tax expense            |   |        |        |          |  |          |       |       |  |         | (1,333  | ) |  |         | (1,333  | )
|                                    |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        
|Net income (loss)                   |                               | $ | 31,520 |         |          |  | 2,659    |        |       |  | (26,377 | )       |   |  | 7,802   |        
|                                    |                               |   |        |         |          |  |          |        |       |  |         |         |   |  |         |        

Value Added Revenue and Print Impressions for the Print Segment

We have included value-added revenue, or VAR, information to provide a better
understanding of sales activity within our print segment. VAR is a non-GAAP
measure and is defined as sales less the cost of paper, ink and subcontract
services. We generally pass these expenses through to our customers. We have
also included print impressions because we use this as an internal measure of
production throughput. Although we believe print impressions to be indicative
of overall production volume, total impressions may not be fully comparable
period to period due to (1) differences in the type, performance and width of
press equipment utilized and (2) product mix produced.

|                                        |  |                    |        |                   |  |      |        |      |  |  |         |  |  |  |         | 
|--------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  |  | ------- |  |  |  | ------- | 
|                                        |  | Three Months Ended |        | Nine Months Ended
|                                        |  | December 31,       |        | December 31,     
|                                        |  |                    |        |                  
|                                        |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                        |  |                    |        |                   |  |      |        |     
|Print Segment VAR (in thousands)        |  | $                  | 56,618 |                   |  |      | 59,671 |      |  |  | 166,790 |  |  |  | 170,713 | 
|Print Segment Impressions (in
millions) |  |                    | 3,573  |                   |  |      | 3,573  |      |  |  | 9,995   |  |  |  | 9,804   | 

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

The following table provides a reconciliation of print segment sales to print
segment VAR:

|                    |                                     |   |                    |        |                   |  |                |        |      |  |         |         |  |  |         |         | 
|------------------- | ----------------------------------- | - | ------------------ | ------ | ----------------- |  | -------------- | ------ | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                    |                                     |   | Three Months Ended |        | Nine Months Ended
|                    |                                     |   | December 31,       |        | December 31,     
|                    |                                     |   |                    |        |                  
|                    |                                     |   | 2003               |        | 2002              |  | 2003           |        | 2002
|                    |                                     |   |                    |        |                   |  |                |        |     
|                    |                                     |   |                    |        |                   |  | (In thousands) |        |      |  |        
|Print Segment Sales |                                     | $ | 115,340            |        |                   |  | 128,349        |        |      |  | 325,848 |         |  |  | 358,835 |        
|                    | Paper, Ink and Subcontract Services |   |                    | 58,722 |                   |  |                | 68,678 |      |  |         | 159,058 |  |  |         | 188,122 | 
|                    |                                     |   |                    |        |                   |  |                |        |      |  |         |         |  |  |         |        
|Print Segment VAR   |                                     | $ | 56,618             |        |                   |  | 59,671         |        |      |  | 166,790 |         |  |  | 170,713 |        
|                    |                                     |   |                    |        |                   |  |                |        |      |  |         |         |  |  |         |        

New Accounting Pronouncements

In April 2002, the FASB issued SFAS 145. SFAS 145 rescinds 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 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 makes various 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.
In accordance with the guidance set forth in SFAS 145, we classified the $3.2
million charge incurred in the 2003 Nine-Month Period related to the write-off
of deferred financing costs associated with our old bank credit agreement and
the 12 3/4% Notes as Other expense in the accompanying condensed consolidated
statements of operations.

In January 2003, the FASB issued FIN 46 to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
Until now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN 46 changes that guidance by requiring a variable interest entity, as
defined, to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities or
is entitled to receive a majority of the entitys residual returns or both.
FIN 46 also requires disclosure about variable interest entities that the
company is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31, 2003 and to existing
entities in the first fiscal year or interim period ending after December 15,
2003. Certain of the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We have evaluated the requirements of FIN 46 and do not
expect any effect on our consolidated financial position or operating results.

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

Contractual Obligations and Commercial Commitments

The following table gives information about our existing material commitments
under our indebtedness and contractual obligations, which excludes the effect
of imputed interest:

|                              |                                    |       |         |         |  |       |                        |       |     |       |       |        |     |  |       |        |  |  |         |         | 
|----------------------------- | ---------------------------------- | ----- | ------- | ------- |  | ----- | ---------------------- | ----- | --- | ----- | ----- | ------ | --- |  | ----- | ------ |  |  | ------- | ------- | 
|                              |                                    |       |         |         |  |       | Payments Due          
|                              |                                    |       |         |         |  |       |                       
|                              |                                    |       |         |         |  |       | < 1                    |       | 1-3 |       | 3-5   |        | > 5
|Contractual Obligations       |                                    | Total |         | year    |  | years |                        | years |     | years
|                              |                                    |       |         |         |  |       |                        |       |     |      
|                              |                                    |       |         |         |  |       | (Dollars in thousands)
|Long-term debt                |                                    | $     | 287,164 |         |  |       |                       |       |     |       |      |        |     |  | 7,164 |        |  |  | 280,000 |        
|Capitalized lease obligations |                                    |       | 20,555  |         |  |       | 5,348                  |       |     |       | 8,093 |        |     |  | 6,886 |        |  |  | 228     |        
|Operating lease obligations   |                                    |       | 9,920   |         |  |       | 4,517                  |       |     |       | 3,419 |        |     |  | 1,670 |        |  |  | 314     |        
|                              |                                    |       |         |         |  |       |                        |       |     |       |       |        |     |  |       |        |  |  |         |        
|                              | Total contractual cash
obligations |       | $       | 317,639 |  |       |                        | 9,865 |     |       |       | 11,512 |     |  |       | 15,720 |  |  |         | 280,542 | 
|                              |                                    |       |         |         |  |       |                        |       |     |       |       |        |     |  |       |        |  |  |         |        

In the quarter ended December 31, 1997, we entered into multi-year contracts to
purchase a portion of our raw materials to be used in our normal operations.
In connection with such purchase agreements, pricing for a portion of our raw
materials is adjusted for certain movements in market prices, changes in raw
material costs and other specific price increases. We are deferring certain
contractual provisions over the life of the contracts, which are being
recognized as the purchase commitments are achieved. The amount deferred at
December 31, 2003 is $45.6 million and is included within Other liabilities in
our consolidated balance sheet. At December 31, 2003, we had no other
significant contingent commitments. The following table gives information
about our other commercial commitments:

|                          |  |       |        |      |  |                        |        |       |  |       |   |     |  |  |     |  |  |  |       | 
|------------------------- |  | ----- | ------ | ---- |  | ---------------------- | ------ | ----- |  | ----- | - | --- |  |  | --- |  |  |  | ----- | 
|                          |  |       |        |      |  | Commitment Due        
|                          |  |       |        |      |  |                       
|Other Commercial          |  |       |        |      |  | < 1                    |        | 1-3   |  | 3-5   |   | > 5
|Commitments               |  | Total |        | year |  | years                  |        | years |  | years
|                          |  |       |        |      |  |                        |        |       |  |      
|                          |  |       |        |      |  | (Dollars in thousands)
|Standby letters of credit |  | $     | 31,164 |      |  |                        | 26,638 |       |  |       |  |     |  |  | 750 |  |  |  | 3,776 | 

The standby letters of credit generally serve as collateral and generally are
renewable quarterly pursuant to the terms of certain long-term arrangements.

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##### Table of Contents



ACG HOLDINGS, INC.
Part I




Item 3. Quantitative and Qualitative Disclosures About Market Risk.



| |  | Qualitative Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the ordinary course of business, our exposure to market risks is
limited as is described below. Market risk is the potential loss arising
from adverse changes in market rates and prices, such as interest and
foreign currency exchange rates. Currently, we do not utilize derivative
financial instruments such as forward exchange contracts, future
contracts, options and swap agreements.                                                                                                                                                                       
|
| |  | Interest rate risk for us primarily relates to interest rate fluctuations
on variable rate debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Foreign currency exchange rate risk is minimal as we have only one print
facility outside the United States, in Canada, and any fluctuations in
net asset values as a result of changes in foreign currency exchange
rates associated with activity at this one facility would be immaterial
to our company as a whole.                                                                                                                                                                                                                                                    
|
| |  | Quantitative Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | At December 31, 2003, we had fixed rate debt and variable rate debt (both
excluding capitalized lease obligations) approximating $280.0 million and
$7.2 million, respectively. The carrying values of such debt instruments
approximated their estimated fair values as of December 31, 2003. At our
December 31, 2003 borrowing levels, a 1% adverse change in interest rates
would result in an approximate $15 million reduction in the fair value of
our fixed rate debt and would have an immaterial impact on earnings and
cash flows relating to our variable rate.
|
| |  | The above market risk discussions are forward-looking statements of
market risk assuming the occurrence of certain adverse market conditions.
Actual results in the future may differ materially from those projected
as a result of actual developments in the market.                                                                                                                                                                                                                                                                                                    




Item 4. Controls and Procedures.



| |  | As of December 31, 2003, 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
December 31, 2003. There have been no significant changes in the
Companys internal controls or in other factors that could significantly
affect internal controls subsequent to December 31, 2003.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






ACG HOLDINGS, INC.
Part II Other Information




Item 1. Legal Proceedings.



| |  | There have been no significant changes since March 31, 2003.
Reference is made to Business  Legal Proceedings disclosure in
our Amendment No. 1 on Form S-1 to Form S-4 as filed with the
Securities and Exchange Commission on November 26, 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.



| |  | Recent Sales of Unregistered Securities                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During the quarter ended December 31,2003, an officer exercised options
to purchase an aggregate of 1,125 shares of Holdings common stock for
$.01/share. The securities that were sold were exempt from
registration on the basis that such an officer is an accredited
investor 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                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|10.12 (a)   |  | First Amendment to Credit Agreement dated as of February 9, 2004 to Credit Agreement dated as of July 3, 2003, among
Graphics, Bank of America, N. A., as Administrative Agent,
Collateral Agent and as a Lender, Morgan Stanley Senior Funding,
Inc., as Documentation Agent, GECC Capital Markets Group Inc.,
as Syndication Agent, and the financial institutions named
therein as Lenders
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|12.1        |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|31.1        |  | Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|31.2        |  | Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                              
|32.1        |  | 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 the Securities and Exchange Commission on
November 6, 2003 under Item 7 announced American Color Graphics,
Inc.s financial results for the second fiscal quarter and the six
month period ended September 30, 2003 and under Item 9 announced
that the financial results for the fiscal years ended March 31,
2003, 2002 and 2001 had been reclassified.
|
| |     | There were no other reports filed on Form 8-K in the quarter ended
December 31, 2003.                                                                                                                                                                                                                                                                                        
|
| |     | Form 8-K filed with the Securities and Exchange Commission on
February 9, 2004 under Item 5, announced American Color Graphics,
Inc. will host a teleconference to discuss its financial results of
the third quarter of fiscal year ending March 31, 2004.                                                                                                                  

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
Holdings and Graphics have duly caused this Report to be signed on their behalf
by the undersigned thereunto duly authorized.

|                        |  |                                                                       |  |                       
|----------------------- |  | --------------------------------------------------------------------- |  | ----------------------
|                        |  | ACG Holdings, Inc.                                                   
|                        |  | American Color Graphics, Inc.                                        
|                        |  |                                                                       |  |                       
|Date: February 12, 2004 |  | By                                                                    |  | /s/ Patrick W. Kellick
|                        |  |                                                                       |  |                       
|                        |  | Patrick W. Kellick                                                   
|                        |  | Senior Vice President/Chief Financial Officer
and Assistant Secretary
|                        |  | (Authorized Officer and
Principal Financial Officer)                 
|                        |  |                                                                       |  |                       
|Date: February 12, 2004 |  | By                                                                    |  | /s/ Angela C. Marshall
|                        |  |                                                                       |  |                       
|                        |  | Angela C. Marshall                                                   
|                        |  | Corporate Controller                                                 
|                        |  | (Chief Accounting Officer)                                           

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##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |      |    | 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                   |  | Page
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |     
|10.12 (a)   |  | First Amendment to Credit Agreement dated as
of February 9, 2004 to Credit Agreement dated as of July 3, 2003, among Graphics, Bank of America, N. A., as
Administrative Agent, Collateral Agent and as a Lender, Morgan
Stanley Senior Funding, Inc., as Documentation Agent, GECC Capital
Markets Group Inc., as Syndication Agent, and the financial institutions
named therein as Lenders |  |      | 34 | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |      |    | 
|12.1        |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                               |  |      | 48 | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |      |    | 
|31.1        |  | Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                           |  |      | 49 | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |      |    | 
|31.2        |  | Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                           |  |      | 50 | 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                               |  |      |    | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                       |  |      | 51 | 

33