##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 33-97090
 ACG HOLDINGS, INC.
  Delaware
    
    62-1395968(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 100 Winners Circle, Brentwood, Tennessee
    
    37027(Address of Principal Executive Offices)
    
    (Zip Code)
 (615) 377-0377
 AMERICAN COLOR GRAPHICS, INC.
  New York
    
    16-1003976(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 100 Winners Circle, Brentwood, Tennessee
    
    37027(Address of Principal Executive Offices)
    
    (Zip Code)
 (615) 377-0377
 þ o
 o þ
 o þ




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INDEX
 PAGEPART I.FINANCIAL INFORMATIONItem 1.Financial Statements.Condensed Consolidated Balance Sheets as of
September 30, 2005 and March 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Operations for the
Six Months Ended September 30, 2005 and 2004
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2005 and 2004
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    20Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
    
    
    29Item 4. Controls and Procedures.
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    30Item 6. Exhibits.
    
    
    30SIGNATURES
    
    
    31EXHIBIT INDEX
    
    
    32EX-12.1 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGSEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO
  2




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  September 30, 2005
    
    
    March 31, 2005(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,386 and
$1,783 at September 30, 2005 and
March 31, 2005, respectively
    
    
    49,327
    
    
    
    46,992Income tax receivable
    
    
    65
    
    
    
    78Other
    
    
    3,750
    
    
    
    3,420Total receivables
    
    
    53,142
    
    
    
    50,490Inventories
    
    
    11,390
    
    
    
    10,447Deferred income taxes
    
    
    2,235
    
    
    
    2,235Prepaid expenses and other current assets
    
    
    4,513
    
    
    
    5,192Assets held for sale
    
    
    
    
    
    
    8,112Total current assets
    
    
    71,280
    
    
    
    76,476Property, plant and equipment
    
    
    287,998
    
    
    
    287,095Less accumulated depreciation
    
    
    (195,984
    )
    
    
    (189,626
    )Net property, plant and equipment
    
    
    92,014
    
    
    
    97,469Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    20,851
    
    
    
    18,405Total assets
    
    $
    250,693
    
    
    
    258,898
  3




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  September 30, 2005
    
    
    March 31, 2005(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current installments of capitalized leases
    
    $
    3,588
    
    
    
    3,631Obligations under capital leases held for sale
    
    
    
    
    
    
    1,036Trade accounts payable
    
    
    32,324
    
    
    
    40,365Accrued expenses
    
    
    40,692
    
    
    
    42,104Total current liabilities
    
    
    76,604
    
    
    
    87,136Long-term debt and capitalized leases,
excluding current installments
    
    
    322,459
    
    
    
    305,284Deferred income taxes
    
    
    8,216
    
    
    
    8,148Other liabilities
    
    
    62,805
    
    
    
    71,070Total liabilities
    
    
    470,084
    
    
    
    471,638Commitments and contingencies (note 8)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 160,067 shares issued and
outstanding at September 30, 2005 and
March 31, 2005
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,023
    
    
    
    2,203Accumulated deficit
    
    
    (201,771
    )
    
    
    (195,183
    )Other accumulated comprehensive loss, net of tax
    
    
    (19,645
    )
    
    
    (19,762
    )Total stockholders deficit
    
    
    (219,391
    )
    
    
    (212,740
    )Total liabilities and stockholders deficit
    
    $
    250,693
    
    
    
    258,898
  4




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedSeptember 30,2005
    
    
    2004Sales
    
    $
    105,460
    
    
    
    106,605Cost of sales
    
    
    93,684
    
    
    
    95,982Gross profit
    
    
    11,776
    
    
    
    10,623Selling, general and administrative expenses
    
    
    6,308
    
    
    
    6,883Operating income
    
    
    5,468
    
    
    
    3,740Other expense (income):Interest expense
    
    
    9,486
    
    
    
    8,519Interest income
    
    
    (10
    )
    
    
    Other, net
    
    
    291
    
    
    
    (11
    )Total other expense
    
    
    9,767
    
    
    
    8,508Loss before income taxes
    
    
    (4,299
    )
    
    
    (4,768
    )Income tax expense (benefit):Current
    
    
    (60
    )
    
    
    (1,199
    )Deferred
    
    
    (41
    )
    
    
    (106
    )Total income tax benefit
    
    
    (101
    )
    
    
    (1,305
    )Net loss
    
    $
    (4,198
    )
    
    
    (3,463
    )
  5




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##### Table of Contents



ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
 Six Months EndedSeptember 30,2005
    
    
    2004Sales
    
    $
    213,730
    
    
    
    217,455Cost of sales
    
    
    189,304
    
    
    
    193,969Gross profit
    
    
    24,426
    
    
    
    23,486Selling, general and administrative expenses
    
    
    11,994
    
    
    
    13,453Operating income
    
    
    12,432
    
    
    
    10,033Other expense (income):Interest expense
    
    
    18,563
    
    
    
    16,857Interest income
    
    
    (63
    )
    
    
    Other, net
    
    
    482
    
    
    
    (148
    )Total other expense
    
    
    18,982
    
    
    
    16,709Loss before income taxes
    
    
    (6,550
    )
    
    
    (6,676
    )Income tax expense (benefit):Current
    
    
    87
    
    
    
    (956
    )Deferred
    
    
    (49
    )
    
    
    (69
    )Total income tax expense (benefit)
    
    
    38
    
    
    
    (1,025
    )Net loss
    
    $
    (6,588
    )
    
    
    (5,651
    )
  6




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##### Table of Contents



ACG
HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
 
 Six Months EndedSeptember 30,2005
    
    
    2004Cash flows provided (used) by operating activities:Net loss
    
    $
    (6,588
    )
    
    
    (5,651
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    9,717
    
    
    
    11,440Amortization of other assets
    
    
    144
    
    
    
    228Amortization of deferred financing costs
    
    
    1,483
    
    
    
    1,223Deferred income tax benefit
    
    
    (49
    )
    
    
    (69
    )Increase in working capital and other
    
    
    (19,910
    )
    
    
    (16,964
    )Net cash used by operating activities
    
    
    (15,203
    )
    
    
    (9,793
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (4,312
    )
    
    
    (3,201
    )Proceeds from sale of property, plant and equipment held for sale (note 3)
    
    
    6,877
    
    
    
    Proceeds from other sales of property, plant and equipment
    
    
    167
    
    
    
    170Other
    
    
    (162
    )
    
    
    (60
    )Net cash provided (used) by investing activities
    
    
    2,570
    
    
    
    (3,091
    )Cash flows provided (used) by financing activities:Proceeds from 2005 term loan facility (note 4)
    
    
    35,000
    
    
    
    Net increase (decrease) in revolver borrowings
    
    
    (16,000
    )
    
    
    15,394Repayment and buyout of capital lease obligations
    
    
    (2,904
    )
    
    
    (2,039
    )Payment of deferred financing costs
    
    
    (3,457
    )
    
    
    (435
    )Net cash provided by financing activities
    
    
    12,639
    
    
    
    12,920Effect of exchange rates on cash
    
    
    (6
    )
    
    
    (36
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
  7




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ACG HOLDINGS, INC.
 
 Notes to Condensed Consolidated Financial Statements
 Description of the Company
  1. Basis of Presentation
   2. Inventories
  September 30,
    
    
    March 31,2005
    
    
    2005Paper
    
    $
    9,433
    
    
    
    8,503Ink
    
    
    135
    
    
    
    171Supplies and other
    
    
    1,822
    
    
    
    1,773Total inventories
    
    $
    11,390
    
    
    
    10,447
 3. Assets and Liabilities held for Sale
  8




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
  4. May 5, 2005 Refinancing Transaction
  
    
    $55 million
revolving credit
facility ($40
million of which
may be used for
letters of credit),
which is not
subject to a
borrowing base
limitation,
maturing on
December 15, 2009
(the 2005
Revolving Credit Facility); and
    
    $35 million
non-amortizing term
loan facility
maturing on
December 15, 2009
(the 2005 Term
Loan Facility).
     
    
    change the nature of its business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to the Company or Holdings
from its subsidiaries;
    
    create or permit to exist certain liens, and
    
    pledge assets or engage in sale-leaseback transactions.
 9




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
    5. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (4,198
    )
    
    
    (3,463
    )
    
    
    (6,588
    )
    
    
    (5,651
    )Foreign currency
translation
adjustment, net
of tax
    
    
    358
    
    
    
    803
    
    
    
    117
    
    
    
    389Total comprehensive loss
    
    $
    (3,840
    )
    
    
    (2,660
    )
    
    
    (6,471
    )
    
    
    (5,262
    )
 6. Income Taxes
    10




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
 7. Employee Benefit Plans
 Components of Net Periodic Benefit Cost (in thousands)
 Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanThree months ended
    
    
    Three months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    97
    
    
    
    111
    
    
    
    12
    
    
    
    10Interest cost
    
    
    967
    
    
    
    1,005
    
    
    
    62
    
    
    
    65Expected return on plan assets
    
    
    (861
    )
    
    
    (829
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (55
    )Amortization of unrecognized
loss
    
    
    409
    
    
    
    478
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (7
    )Net periodic benefit cost
    
    $
    612
    
    
    
    765
    
    
    
    12
    
    
    
    13
 Six months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    232
    
    
    
    235
    
    
    
    25
    
    
    
    23Interest cost
    
    
    2,242
    
    
    
    2,121
    
    
    
    124
    
    
    
    134Expected return on plan assets
    
    
    (2,131
    )
    
    
    (1,755
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    (111
    )Amortization of unrecognized
loss
    
    
    1,002
    
    
    
    1,011
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (21
    )Net periodic benefit cost
    
    $
    1,345
    
    
    
    1,612
    
    
    
    25
    
    
    
    25
   11




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
  8. Commitments and Contingencies
       12




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
 9. Restructuring Costs
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
    03/31/05
    
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    195
    
    
    
    (155
    )
    
    
    40Lease termination costs
    
    
    1,271
    
    
    
    (206
    )
    
    
    1,065Other costs
    
    
    15
    
    
    
    
    
    
    
    15$
    1,481
    
    
    
    (361
    )
    
    
    1,120
  Pittsburg Facility Closure Plan
   13




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
  03/31/05
    
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    1,329
    
    
    
    (465
    )
    
    
    864Lease termination costs
    
    
    774
    
    
    
    (44
    )
    
    
    730Other costs
    
    
    37
    
    
    
    (11
    )
    
    
    26$
    2,140
    
    
    
    (520
    )
    
    
    1,620
  Plant and SG&A Reduction Plan
    03/31/05
    
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    3,208
    
    
    
    (1,271
    )
    
    
    1,937Other costs
    
    
    249
    
    
    
    (19
    )
    
    
    230$
    3,457
    
    
    
    (1,290
    )
    
    
    2,167
  14




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
 Fiscal Year 2004 Restructuring Costs
 January 2004 Plan
    03/31/05
    
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    813
    
    
    
    (316
    )
    
    
    497Other costs
    
    
    77
    
    
    
    (30
    )
    
    
    47$
    890
    
    
    
    (346
    )
    
    
    544
  July 2003 Plan
   15




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
  03/31/05
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other employee costs
    
    $
    430
    
    
    
    (158
    )
    
    
    272
  Fiscal Year 2002 Restructuring Costs
    03/31/05
    
    
    
    
    
    09/30/05Restructuring
    
    
    
    
    
    RestructuringReserve
    
    
    
    
    
    ReserveBalance
    
    Activity
    
    BalanceLease termination costs
    
    $
    1,524
    
    
    
    (248
    )
    
    
    1,276
 16




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
  10. Industry Segment Information
     Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalSix Months Ended September 30, 2005Sales
    
    $
    186,213
    
    
    
    27,517
    
    
    
    
    
    
    
    213,730EBITDA
    
    $
    17,438
    
    
    
    6,019
    
    
    
    (1,646
    )
    
    
    21,811Depreciation and amortization
    
    
    (8,509
    )
    
    
    (1,352
    )
    
    
    
    
    
    
    (9,861
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (18,563
    )
    
    
    (18,563
    )Interest income
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Income tax expense
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Net income (loss)
    
    $
    8,929
    
    
    
    4,667
    
    
    
    (20,184
    )
    
    
    (6,588
    )Total assets
    
    $
    220,261
    
    
    
    15,242
    
    
    
    15,190
    
    
    
    250,693Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    3,799
    
    
    
    513
    
    
    
    
    
    
    
    4,312
 17




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##### Table of Contents



ACG HOLDINGS, INC.
 Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalSix Months Ended September 30, 2004Sales
    
    $
    189,648
    
    
    
    27,807
    
    
    
    
    
    
    
    217,455EBITDA
    
    $
    16,886
    
    
    
    6,522
    
    
    
    (1,559
    )
    
    
    21,849Depreciation and amortization
    
    
    (10,085
    )
    
    
    (1,583
    )
    
    
    
    
    
    
    (11,668
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (16,857
    )
    
    
    (16,857
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,025
    
    
    
    1,025Net income (loss)
    
    $
    6,801
    
    
    
    4,939
    
    
    
    (17,391
    )
    
    
    (5,651
    )Total assets
    
    $
    240,637
    
    
    
    15,643
    
    
    
    15,479
    
    
    
    271,759Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,559
    
    
    
    642
    
    
    
    
    
    
    
    3,201Three Months Ended September 30, 2005Sales
    
    $
    91,671
    
    
    
    13,789
    
    
    
    
    
    
    
    105,460EBITDA
    
    $
    7,997
    
    
    
    3,077
    
    
    
    (1,014
    )
    
    
    10,060Depreciation and amortization
    
    
    (4,227
    )
    
    
    (656
    )
    
    
    
    
    
    
    (4,883
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (9,486
    )
    
    
    (9,486
    )Interest income
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Income tax benefit
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Net income (loss)
    
    $
    3,770
    
    
    
    2,421
    
    
    
    (10,389
    )
    
    
    (4,198
    )Total assets
    
    $
    220,261
    
    
    
    15,242
    
    
    
    15,190
    
    
    
    250,693Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,153
    
    
    
    218
    
    
    
    
    
    
    
    2,371Three Months Ended September 30, 2004Sales
    
    $
    92,447
    
    
    
    14,158
    
    
    
    
    
    
    
    106,605EBITDA
    
    $
    6,943
    
    
    
    3,429
    
    
    
    (818
    )
    
    
    9,554Depreciation and amortization
    
    
    (5,004
    )
    
    
    (799
    )
    
    
    
    
    
    
    (5,803
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,519
    )
    
    
    (8,519
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    1,305Net income (loss)
    
    $
    1,939
    
    
    
    2,630
    
    
    
    (8,032
    )
    
    
    (3,463
    )Total assets
    
    $
    240,637
    
    
    
    15,643
    
    
    
    15,479
    
    
    
    271,759Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    1,619
    
    
    
    341
    
    
    
    
    
    
    
    1,960
 18




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 11. Impact of Recently Issued Accounting Standards
   19




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ACG HOLDINGS, INC.
 
 Managements Discussion and Analysis of
 Financial Condition and Results of Operations
 Special Note Regarding Forward Looking Statements
  
    
    a failure to achieve expected cost reductions or to execute other key strategies,
    
    fluctuations in the cost of paper, ink and other key raw materials,
    
    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.
   20




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales:Print
    
    $
    91,671
    
    
    
    92,447
    
    
    
    186,213
    
    
    
    189,648Premedia Services
    
    
    13,789
    
    
    
    14,158
    
    
    
    27,517
    
    
    
    27,807Total
    
    $
    105,460
    
    
    
    106,605
    
    
    
    213,730
    
    
    
    217,455Gross Profit:Print
    
    $
    7,751
    
    
    
    6,484
    
    
    
    16,718
    
    
    
    15,600Premedia Services
    
    
    4,026
    
    
    
    4,140
    
    
    
    7,710
    
    
    
    7,888Other
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Total
    
    $
    11,776
    
    
    
    10,623
    
    
    
    24,426
    
    
    
    23,486Gross Margin:Print
    
    
    8.5
    %
    
    
    7.0
    %
    
    
    9.0
    %
    
    
    8.2
    %Premedia Services
    
    
    29.2
    %
    
    
    29.2
    %
    
    
    28.0
    %
    
    
    28.4
    %Total
    
    
    11.2
    %
    
    
    10.0
    %
    
    
    11.4
    %
    
    
    10.8
    %EBITDA:Print
    
    $
    7,997
    
    
    
    6,943
    
    
    
    17,438
    
    
    
    16,886Premedia Services
    
    
    3,077
    
    
    
    3,429
    
    
    
    6,019
    
    
    
    6,522Other (a)
    
    
    (1,014
    )
    
    
    (818
    )
    
    
    (1,646
    )
    
    
    (1,559
    )Total
    
    $
    10,060
    
    
    
    9,554
    
    
    
    21,811
    
    
    
    21,849EBITDA Margin:Print
    
    
    8.7
    %
    
    
    7.5
    %
    
    
    9.4
    %
    
    
    8.9
    %Premedia Services
    
    
    22.3
    %
    
    
    24.2
    %
    
    
    21.9
    %
    
    
    23.5
    %Total
    
    
    9.5
    %
    
    
    9.0
    %
    
    
    10.2
    %
    
    
    10.0
    %
    21




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended September
30, 2005EBITDA
    
    $
    7,997
    
    
    
    3,077
    
    
    
    (1,014
    )
    
    
    10,060Depreciation and amortization
    
    
    (4,227
    )
    
    
    (656
    )
    
    
    
    
    
    
    (4,883
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,476
    )
    
    
    (9,476
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Net income (loss)
    
    $
    3,770
    
    
    
    2,421
    
    
    
    (10,389
    )
    
    
    (4,198
    )Three Months Ended September
30, 2004EBITDA
    
    $
    6,943
    
    
    
    3,429
    
    
    
    (818
    )
    
    
    9,554Depreciation and amortization
    
    
    (5,004
    )
    
    
    (799
    )
    
    
    
    
    
    
    (5,803
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (8,519
    )
    
    
    (8,519
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    1,305Net income (loss)
    
    $
    1,939
    
    
    
    2,630
    
    
    
    (8,032
    )
    
    
    (3,463
    )Six Months Ended September 30, 2005EBITDA
    
    $
    17,438
    
    
    
    6,019
    
    
    
    (1,646
    )
    
    
    21,811Depreciation and amortization
    
    
    (8,509
    )
    
    
    (1,352
    )
    
    
    
    
    
    
    (9,861
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (18,500
    )
    
    
    (18,500
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Net income (loss)
    
    $
    8,929
    
    
    
    4,667
    
    
    
    (20,184
    )
    
    
    (6,588
    )Six Months Ended September 30, 2004EBITDA
    
    $
    16,886
    
    
    
    6,522
    
    
    
    (1,559
    )
    
    
    21,849Depreciation and amortization
    
    
    (10,085
    )
    
    
    (1,583
    )
    
    
    
    
    
    
    (11,668
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (16,857
    )
    
    
    (16,857
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,025
    
    
    
    1,025Net income (loss)
    
    $
    6,801
    
    
    
    4,939
    
    
    
    (17,391
    )
    
    
    (5,651
    )
 Print
 Sales.
 22




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Gross Profit
  Selling, General and Administrative Expenses.
  Other Expense (Income).
  EBITDA.
 23




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##### Table of Contents



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




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Interest Expense, Net
  Income Taxes
    Net Income (Loss)
  Liquidity and Capital Resources
  
    
    $55 million revolving credit facility ($40 million of which may be used for letters
of credit), which is not subject to a borrowing base limitation, maturing on December
15, 2009 (the 2005 Revolving Credit Facility); and
    
    $35 million non-amortizing term loan facility maturing on December 15, 2009 (the
2005 Term Loan Facility).
   25




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our subsidiaries;
    
    create or permit to exist certain liens, and
    
    pledge assets or engage in sale-leaseback transactions.
     
    
    $15.2 million of operating activities (see our condensed consolidated statements of cash
flows appearing elsewhere in this Report),
    
    $4.3 million in cash capital expenditures; and
    
    $6.4 million to service other indebtedness (including repayment of capital lease
obligations of $1.9 million, buyout of capital lease obligations associated with assets
sold from the Pittsburg facility of $1.0 million and the payment of deferred financing fees
of $3.5 million).
 26




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
     Value Added Revenue and Print Impressions for the Print Segment
  Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Print segment VAR (in thousands)
    
    $
    44,257
    
    
    
    44,986
    
    
    
    89,685
    
    
    
    93,607Print segment impressions (in
millions)
    
    
    2,760
    
    
    
    2,605
    
    
    
    5,448
    
    
    
    5,466
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Print segment sales
    
    $
    91,671
    
    
    
    92,447
    
    
    
    186,213
    
    
    
    189,648Paper, ink and subcontract services
    
    
    (47,414
    )
    
    
    (47,461
    )
    
    
    (96,528
    )
    
    
    (96,041
    )Print segment VAR
    
    $
    44,257
    
    
    
    44,986
    
    
    
    89,685
    
    
    
    93,607
 27




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 New Accounting Pronouncements
   Contractual Obligations
  28




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##### Table of Contents



ACG HOLDINGS, INC.
PART I  FINANCIAL INFORMATION
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Qualitative Information .
   Quantitative Information.
  
 Item 4. Controls and Procedures.
  29




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##### Table of Contents



ACG HOLDINGS, INC.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350
 30




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##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.American Color Graphics, Inc.Date: November 8, 2005
    
    By
    
    /s/ Stephen M. DyottStephen M. DyottChairman, President and Chief Executive Officer(Authorized Officer)Date: November 8, 2005
    
    By
    
    /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officerand Assistant Secretary(Authorized Officer andPrincipal Financial Officer)
 31




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Page12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges
    
    
    3331.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer
    
    
    3431.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer
    
    
    3532.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    
    36
 32