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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One) þ
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2004 or  o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to  Commission file number 33-97090 ACG HOLDINGS, INC.  Delaware
    
    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
(Registrants Telephone Number, Including Area Code) 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
(Registrants Telephone Number, Including Area Code) 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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ ACG Holdings, Inc. has 160,067 shares outstanding of its Common Stock, $.01 Par Value, as of
January 31, 2005 (all of which are privately owned and not traded on a public market).




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INDEX PAGEPART
I. FINANCIAL INFORMATIONItem 1. Financial Statements.Condensed Consolidated Balance Sheets as of
December 31, 2004 and March 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended December 31, 2004 and 2003
    
    
    5Condensed Consolidated Statements of Operations for the
Nine Months Ended December 31, 2004 and 2003
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 2004 and 2003
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    19Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
    
    
    28Item 4. Controls and Procedures.
    
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    29Item 6. Exhibits.
    
    
    29SIGNATURES
    
    
    30EXHIBIT INDEX
    
    
    31EX-10.12.B  SECOND AGREEMENT TO CREDIT AGREEMENTEX-12.1  STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXEDC CHARGESEX-31.1  RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CEOEX-31.2  RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CFOEX-32.1  CERTIFICATION OF ECO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350
  2




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ACG HOLDINGS, INC. 
 Condensed Consolidated Balance Sheets
  December 31, 2004
    
    
    March 31, 2004(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $2,023 and
$2,853 at December 31, 2004 and March
31, 2004, respectively
    
    
    50,723
    
    
    
    42,452Other
    
    
    3,788
    
    
    
    2,533Total receivables
    
    
    54,511
    
    
    
    44,985Inventories
    
    
    10,929
    
    
    
    8,524Income tax receivable
    
    
    91
    
    
    
    Deferred income taxes
    
    
    2,313
    
    
    
    2,313Prepaid expenses and other current assets
    
    
    4,667
    
    
    
    4,836Total current assets
    
    
    72,511
    
    
    
    60,658Property, plant and equipment
    
    
    308,505
    
    
    
    303,425Less accumulated depreciation
    
    
    (199,687
    )
    
    
    (182,874
    )Net property, plant and equipment
    
    
    108,818
    
    
    
    120,551Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    20,231
    
    
    
    20,156Total assets
    
    $
    268,108
    
    
    
    267,913
 See accompanying notes to condensed consolidated financial statements. 3




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ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values and liquidation preference) December 31, 2004
    
    
    March 31, 2004(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current installments of long-term debt and
capitalized leases
    
    $
    4,675
    
    
    
    4,144Trade accounts payable
    
    
    39,526
    
    
    
    29,727Accrued expenses
    
    
    32,180
    
    
    
    42,550Income tax payable
    
    
    
    
    
    
    9Total current liabilities
    
    
    76,381
    
    
    
    76,430Long-term debt and capitalized leases,
excluding current installments
    
    
    311,312
    
    
    
    294,154Deferred income taxes
    
    
    8,365
    
    
    
    8,624Other liabilities
    
    
    68,171
    
    
    
    77,480Total liabilities
    
    
    464,229
    
    
    
    456,688Commitments and contingencies (Note 8)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 160,067 shares issued and
outstanding at December 31, 2004 and
March 31, 2004
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,168
    
    
    
    2,103Accumulated deficit
    
    
    (177,453
    )
    
    
    (169,516
    )Other accumulated comprehensive loss, net of tax
    
    
    (20,838
    )
    
    
    (21,364
    )Total stockholders deficit
    
    
    (196,121
    )
    
    
    (188,775
    )Total liabilities and stockholders deficit
    
    $
    268,108
    
    
    
    267,913
 See accompanying notes to condensed consolidated financial statements. 4




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ACG HOLDINGS, INC. 
 Condensed Consolidated Statements of Operations
   Three Months EndedDecember 31,2004
    
    
    2003Sales
    
    $
    123,652
    
    
    
    128,569Cost of sales
    
    
    110,260
    
    
    
    111,339Gross profit
    
    
    13,392
    
    
    
    17,230Selling, general and administrative expenses
    
    
    7,642
    
    
    
    7,519Operating income
    
    
    5,750
    
    
    
    9,711Other expense (income):Interest expense
    
    
    8,560
    
    
    
    8,412Interest income
    
    
    (35
    )
    
    
    (1
    )Other, net
    
    
    (16
    )
    
    
    83Total other expense
    
    
    8,509
    
    
    
    8,494Income (loss) before income taxes
    
    
    (2,759
    )
    
    
    1,217Income tax expense (benefit):Current
    
    
    81
    
    
    
    406Deferred
    
    
    (554
    )
    
    
    (2,196
    )Total income tax benefit
    
    
    (473
    )
    
    
    (1,790
    )Net income (loss)
    
    $
    (2,286
    )
    
    
    3,007
 See accompanying notes to condensed consolidated financial statements. 5




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ACG HOLDINGS, INC. 
 Condensed Consolidated Statements of Operations
   Nine Months EndedDecember 31,2004
    
    
    2003Sales
    
    $
    341,107
    
    
    
    365,536Cost of sales
    
    
    304,229
    
    
    
    314,931Gross profit
    
    
    36,878
    
    
    
    50,605Selling, general and administrative expenses
    
    
    21,095
    
    
    
    23,842Restructuring costs
    
    
    
    
    
    
    2,000Operating income
    
    
    15,783
    
    
    
    24,763Other expense (income):Interest expense
    
    
    25,417
    
    
    
    25,713Interest income
    
    
    (35
    )
    
    
    (8
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    3,196Other, net
    
    
    (164
    )
    
    
    294Total other expense
    
    
    25,218
    
    
    
    29,195Loss from continuing operations before
income taxes
    
    
    (9,435
    )
    
    
    (4,432
    )Income tax expense (benefit):Current
    
    
    (875
    )
    
    
    1,030Deferred
    
    
    (623
    )
    
    
    10,654Total income tax expense (benefit)
    
    
    (1,498
    )
    
    
    11,684Loss from continuing operations
    
    
    (7,937
    )
    
    
    (16,116
    )Discontinued operations:Loss from operations, net of $0 tax
    
    
    
    
    
    
    12Loss on disposal, net of $0 tax
    
    
    
    
    
    
    444Net loss
    
    $
    (7,937
    )
    
    
    (16,572
    )
 See accompanying notes to condensed consolidated financial statements. 6




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ACG HOLDINGS, INC. 
 Condensed Consolidated Statements of Cash Flows
   Nine Months EndedDecember 31,2004
    
    
    2003Cash flows provided (used) by operating activities:Net loss
    
    $
    (7,937
    )
    
    
    (16,572
    )Adjustments to reconcile net loss to net cash provided (used)
by operating activities:Depreciation
    
    
    17,099
    
    
    
    17,708Depreciation related to discontinued operations
    
    
    
    
    
    
    26Amortization of other assets
    
    
    358
    
    
    
    497Amortization of deferred financing costs
    
    
    1,847
    
    
    
    1,591Loss on early extinguishment of debt  non-cash
    
    
    
    
    
    
    3,196Deferred income tax expense (benefit)
    
    
    (623
    )
    
    
    10,654Discontinued operations, net of tax
    
    
    
    
    
    
    873Increase in working capital and other
    
    
    (23,149
    )
    
    
    (9,803
    )Net cash provided (used) by operating activities
    
    
    (12,405
    )
    
    
    8,170Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (4,521
    )
    
    
    (10,501
    )Proceeds from sales of property, plant and equipment
    
    
    170
    
    
    
    24Other
    
    
    (350
    )
    
    
    260Net cash used by investing activities
    
    
    (4,701
    )
    
    
    (10,217
    )Cash flows provided (used) by financing activities:Repayment of long-term debt, net
    
    
    
    
    
    
    (39,185
    )Net increase in revolver borrowings
    
    
    20,752
    
    
    
    7,164Repayment of 12 3/4% senior subordinated notes
    
    
    
    
    
    
    (170,055
    )Proceeds from issuance of 10% senior second secured notes
    
    
    
    
    
    
    280,000Repayment of capital lease obligations
    
    
    (3,094
    )
    
    
    (4,832
    )Payment of deferred financing costs
    
    
    (468
    )
    
    
    (13,979
    )Repurchase and retire preferred stock and cancel preferred stock options
    
    
    
    
    
    
    (56,942
    )Net cash provided by financing activities
    
    
    17,190
    
    
    
    2,171Effect of exchange rates on cash
    
    
    (84
    )
    
    
    (124
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    Non-cash investing activity:Equipment purchases under capital leases
    
    $
    31
    
    
    
    2,870
 See accompanying notes to condensed consolidated financial statements. 7




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ACG HOLDINGS, INC. 
 Notes to Condensed
Consolidated Financial Statements
  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 U.S. generally accepted accounting principles 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 U.S. generally
accepted accounting principles 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, 2004 are not necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 2005. 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, 2004 and the Companys Post-Effective
Amendment No. 1 to Registration Statement No. 333-110291 on Form S-1. The preparation of the financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the condensed consolidated 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 loss of approximately $0.4 million, which is net of zero income tax
benefit. As a result of this sale, 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. 3. Inventories The components of inventories are as follows (in thousands): December 31,
    
    
    March 31,2004
    
    
    2004Paper
    
    $
    8,847
    
    
    
    6,307Ink
    
    
    178
    
    
    
    185Supplies and other
    
    
    1,904
    
    
    
    2,032Total inventories
    
    $
    10,929
    
    
    
    8,524
 8




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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 $14.4 million of deferred financing
fees. 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, 2004, the Company had borrowings outstanding
under the Revolving Credit Facility of $20.8 million and had letters of credit outstanding of
approximately $28.8 million. The Company had additional borrowing availability under the Revolving
Credit Facility of approximately $20.2 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. 9




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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, capital
expenditures, new subsidiaries, uses of proceeds,
indebtedness, liens, dividends and distributions, prepayments of certain indebtedness,
affiliate transactions, loans, asset dispositions and Holdings business operations. The Company was in compliance with all such covenant requirements at December 31, 2004. In February 2005, the Company
executed the second amendment to the Revolving Credit Facility. This
amendment included, along with certain other provisions,
modifications to the minimum fixed charge coverage ratio requirements
for various quarterly periods beginning March 31, 2005. 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, 2004 and 2003
are as follows (in thousands): Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income (loss)
    
    $
    (2,286
    )
    
    
    3,007
    
    
    
    (7,937
    )
    
    
    (16,572
    )Foreign currency
translation adjustment,
net of tax
    
    
    137
    
    
    
    331
    
    
    
    526
    
    
    
    1,380Total comprehensive income (loss)
    
    $
    (2,149
    )
    
    
    3,338
    
    
    
    (7,411
    )
    
    
    (15,192
    )
 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 income tax benefit of $0.5 million and $1.5 million for the three and nine
months ended December 31, 2004, respectively, compared to benefit of $1.8 million and expense of
$11.7 million for the three and nine months ended December 31, 2003, respectively. The income tax benefit for the three months ended December 31, 2003 primarily relates to an
adjustment of $2.2 million to reflect a change in estimate with respect to the Companys income tax
liability. The 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, which was partially offset by the $2.2 million
adjustment to reflect a change in estimate with respect to the Companys income tax liability
recorded in the three months ended December 31, 2003. The adjustment to the valuation allowance
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 an assessment
of the economic climate, particularly the continuance of competitive pricing pressures in the
industry, and the 10




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) expected increase in annual interest costs arising from the issuance of the 10% Notes that 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. Income tax benefit
from U.S. losses in the nine months ended December 31, 2003 was primarily offset by an increase in
the valuation allowance and foreign tax expense. The income tax benefit in the three months ended December 31, 2004 relates primarily to an
adjustment of $0.4 million to reflect a change in estimate with respect to the Companys income tax
liability. The income tax benefit in the nine months ended December 31, 2004 relates primarily to
tax benefit in foreign jurisdictions and to the $0.4 million adjustment to reflect a change in
estimate with respect to the Companys income tax liability recorded in the three months ended
December 31, 2004. Income tax benefit from U.S. losses in the three and nine months ended December
31, 2004 was primarily offset by an increase in the valuation allowance. 7. Employee Benefit Plans Components of Net Periodic Benefit Cost (in thousands) Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanThree months ended
    
    
    Three months endedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Service cost
    
    $
    118
    
    
    
    98
    
    
    
    (3
    )
    
    
    (18
    )Interest cost
    
    
    1,065
    
    
    
    1,057
    
    
    
    (33
    )
    
    
    (111
    )Expected return on plan assets
    
    
    (878
    )
    
    
    (675
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Amortization of unrecognized
loss
    
    
    506
    
    
    
    608
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    38Net periodic benefit cost
    
    $
    811
    
    
    
    1,088
    
    
    
    (102
    )
    
    
    (147
    )
 Nine months ended
    
    
    Nine months endedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Service cost
    
    $
    353
    
    
    
    296
    
    
    
    20
    
    
    
    14Interest cost
    
    
    3,186
    
    
    
    3,198
    
    
    
    101
    
    
    
    84Expected return on plan assets
    
    
    (2,633
    )
    
    
    (2,042
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (167
    )
    
    
    (167
    )Amortization of unrecognized loss
    
    
    1,517
    
    
    
    1,839
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    (28
    )Net periodic benefit cost
    
    $
    2,423
    
    
    
    3,291
    
    
    
    (77
    )
    
    
    (97
    )
 11




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003
(the Act) was enacted. The Act introduced a prescription drug benefit under Medicare (Medicare
Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. The accumulated postretirement benefit
obligation and net periodic postretirement benefit cost included in the condensed consolidated
financial statements reflect the effects of applying the Act during the quarter ended December 31,
2004, which were not material. 8. 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. The aggregate commitment for future
compensation at December 31, 2004, excluding bonuses, is approximately $2.8 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, while purchase quantity levels are variable based upon certain contractual
requirements and conditions. The Company is deferring certain contractual provisions over
the life of the contracts, which are being recognized as the purchase commitments are achieved and
the related inventory is sold. The amount deferred at December 31, 2004 is $46.5 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%;
therefore Graphics believes that its share of the anticipated remediation costs at such site will
not be material to its business or the Companys condensed consolidated financial statements as a
whole. Graphics received written notice, dated May 10, 2004, of its potential liability in connection with
the Gibson Environmental Site at 2401 Gibson Street, Bakersfield, California. Gibson
Environmental, Inc. operated the six acre site as a storage and treatment facility for used oil and
contaminated soil from June 1987 through October 1995. Graphics received the notice and a
settlement offer from LECG, a consultant representing approximately 60 companies comprising the
Gibson Group Trust. Graphics has begun its investigation into this matter but it believes its
potential liability in connection with this site will not be material to its business or the
Companys condensed consolidated financial statements as a whole. Based upon an analysis of Graphics volumetric share of waste contributed to the sites, the Company
maintains a reserve of approximately $0.1 million in connection with these liabilities in its
condensed consolidated balance sheet at December 31, 2004. The Company believes this amount is
adequate to cover such liabilities. 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. 12




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 9. Restructuring Costs Fiscal Year 2004 Restructuring Costs January 2004 Plan In January 2004, the Company approved a restructuring 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 included the
elimination of 208 positions within the Company. As a result, the Company recorded a pre-tax restructuring charge of approximately $5.7 million in
the quarter ended March 31, 2004 associated with this plan. This charge was classified within
restructuring costs and other charges in the consolidated statements of operations for the fiscal
year ended March 31, 2004. 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). This restructuring charge was composed primarily of severance and
related termination benefits. The following table summarizes the activity related to this restructuring plan for the nine months
ended December 31, 2004 (in thousands): 03/31/04
    
    
    
    
    
    
    12/31/04Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    3,515
    
    
    
    (2,052
    )
    
    
    1,463Lease termination costs
    
    
    3
    
    
    
    
    
    
    
    3Other costs
    
    
    442
    
    
    
    (13
    )
    
    
    429$
    3,960
    
    
    
    (2,065
    )
    
    
    1,895
 During the fiscal year ended March 31, 2004, $1.8 million of these costs were paid. As of December
31, 2004, the Company believes the restructuring reserve of approximately $1.9 million is adequate.
The Company anticipates that approximately $0.6 million of the restructuring balance will be paid
by March 31, 2005 and the remaining $1.3 million will be paid during the fiscal year ending March
31, 2006. These costs will be funded through cash generated from operations and borrowings under
the Revolving Credit Facility, as amended. July 2003 Plan 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 condensed consolidated statements of operations in the quarter ended September 30,
2003. The cost of this restructuring plan was accounted for in accordance with the guidance set
forth in SFAS 146. The restructuring charge was composed of severance and related termination
benefits. 13




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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, 2004 (in thousands): 03/31/04
    
    
    
    
    
    
    12/31/04Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    1,117
    
    
    
    (555
    )
    
    
    562
 During the fiscal year ended March 31, 2004, $0.7 million of these costs were paid. As of December
31, 2004, the Company believes the restructuring reserve of approximately $0.6 million is adequate.
The Company anticipates that approximately $0.2 million of the restructuring balance will be paid
by March 31, 2005, approximately $0.3 million will be paid during the fiscal year ending March 31,
2006 and the remaining $0.1 million will be paid during the 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 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 was composed
primarily of severance and related termination benefits. The Company reduced the restructuring
reserve related to this plan by approximately $0.2 million in the quarter ended March 31, 2004.
This reduction was primarily the result of lower than anticipated severance and other employee
costs due to the terminated employees obtaining other employment during their severance periods. The following table summarizes the activity related to this restructuring plan for the nine months
ended December 31, 2004 (in thousands): 03/31/04
    
    
    
    
    
    
    12/31/04Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    12
    
    
    
    (7
    )
    
    
    5Other costs
    
    
    24
    
    
    
    (11
    )
    
    
    13$
    36
    
    
    
    (18
    )
    
    
    18
 The process of closing a premedia services facility and the elimination of certain personnel within
the Company were completed by March 31, 2003. During the fiscal years ended March 31, 2004 and
March 31, 2003, $0.9 million and $0.1 million of these costs were paid, respectively. As of
December 31, 2004, the Company believes the remaining restructuring reserve of less than $0.1
million is adequate. The Company anticipates that the remaining costs will be paid before March 31,
2005. These costs will be funded through cash generated from operations and borrowings under the
Revolving Credit Facility, as amended. 14




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##### Table of Contents



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 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 including primarily 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 each of the quarters ended March 31, 2004 and September 30, 2003. These
charges were related to future lease commitments and were classified within restructuring costs and
other charges in the consolidated statements of operations for the fiscal year ended March 31,
2004. The following table summarizes the activity related to this restructuring plan for the nine months
ended December 31, 2004 (in thousands): 03/31/04
    
    
    
    
    
    
    12/31/04Restructuring
    
    
    
    
    
    
    RestructuringReserve
    
    
    
    
    
    
    ReserveBalance
    
    
    Activity
    
    
    BalanceSeverance and other employee costs
    
    $
    100
    
    
    
    (41
    )
    
    
    59Lease termination costs
    
    
    1,232
    
    
    
    (308
    )
    
    
    924$
    1,332
    
    
    
    (349
    )
    
    
    983
 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 year ended March 31, 2004, $0.9 million of these
costs were paid. During each of the fiscal years ended March 31, 2003 and March 31, 2002, $3.4
million of these costs were paid. As of December 31, 2004, the Company believes the restructuring
reserve of approximately $1.0 million is adequate. The Company anticipates that $0.2 million of the
restructuring reserve balance will be paid by March 31, 2005 and the remaining $0.8 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. 15




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 10. 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 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 which is defined as earnings before net interest expense, income tax expense, depreciation
and amortization. The Company generally accounts for intersegment sales and transfers as if the
sales or transfers were to third parties; that is, at current market prices. 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
benefit. As a result of this sale, 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. 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 sales, long-lived assets and other assets of the
Companys reportable segments are attributed to or located in the United States. EBITDA for the print and premedia services'
segments includes the impact of restructuring costs of
$1.7 million and $0.3 million, respectively, recorded in
the quarter ended September 30, 2003. In addition,
EBITDA for other operations includes the write-off of deferred
financing costs related to the 2003 Refinancing of $3.2 million,
which was recorded in the quarter ended September 30, 2003,
and discontinued operations losses of $0.4 million, which were
recorded in the quarter ended June 30, 2003. Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalNine Months Ended December 31, 2004Sales
    
    $
    298,705
    
    
    
    42,402
    
    
    
    
    
    
    
    341,107EBITDA
    
    $
    25,901
    
    
    
    9,796
    
    
    
    (2,293
    )
    
    
    33,404Depreciation and amortization
    
    
    (15,061
    )
    
    
    (2,396
    )
    
    
    
    
    
    
    (17,457
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (25,417
    )
    
    
    (25,417
    )Interest income
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,498
    
    
    
    1,498Net income (loss)
    
    $
    10,840
    
    
    
    7,400
    
    
    
    (26,177
    )
    
    
    (7,937
    )Total assets
    
    $
    238,139
    
    
    
    16,341
    
    
    
    13,628
    
    
    
    268,108Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    3,367
    
    
    
    1,185
    
    
    
    
    
    
    
    4,552
 16




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalNine Months Ended December 31, 2003Sales
    
    $
    325,848
    
    
    
    39,688
    
    
    
    
    
    
    
    365,536EBITDA
    
    $
    37,700
    
    
    
    7,517
    
    
    
    (6,169
    )
    
    
    39,048Depreciation and amortization
    
    
    (15,493
    )
    
    
    (2,712
    )
    
    
    (26
    )
    
    
    (18,231
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (25,713
    )
    
    
    (25,713
    )Interest income
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Income tax expense
    
    
    
    
    
    
    
    
    
    
    (11,684
    )
    
    
    (11,684
    )Net income (loss)
    
    $
    22,207
    
    
    
    4,805
    
    
    
    (43,584
    )
    
    
    (16,572
    )Total assets
    
    $
    248,765
    
    
    
    15,631
    
    
    
    15,030
    
    
    
    279,426Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    12,331
    
    
    
    1,040
    
    
    
    
    
    
    
    13,371Three Months Ended December 31, 2004Sales
    
    $
    109,057
    
    
    
    14,595
    
    
    
    
    
    
    
    123,652EBITDA
    
    $
    9,015
    
    
    
    3,274
    
    
    
    (734
    )
    
    
    11,555Depreciation and amortization
    
    
    (4,976
    )
    
    
    (813
    )
    
    
    
    
    
    
    (5,789
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,560
    )
    
    
    (8,560
    )Interest income
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Income tax benefit
    
    
    
    
    
    
    
    
    
    
    473
    
    
    
    473Net income (loss)
    
    $
    4,039
    
    
    
    2,461
    
    
    
    (8,786
    )
    
    
    (2,286
    )Total assets
    
    $
    238,139
    
    
    
    16,341
    
    
    
    13,628
    
    
    
    268,108Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    808
    
    
    
    543
    
    
    
    
    
    
    
    1,351Three Months Ended December 31, 2003Sales
    
    $
    115,340
    
    
    
    13,229
    
    
    
    
    
    
    
    128,569EBITDA
    
    $
    13,613
    
    
    
    2,748
    
    
    
    (670
    )
    
    
    15,691Depreciation and amortization
    
    
    (5,215
    )
    
    
    (848
    )
    
    
    
    
    
    
    (6,063
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,412
    )
    
    
    (8,412
    )Interest income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,790
    
    
    
    1,790Net income (loss)
    
    $
    8,398
    
    
    
    1,900
    
    
    
    (7,291
    )
    
    
    3,007Total assets
    
    $
    248,765
    
    
    
    15,631
    
    
    
    15,030
    
    
    
    279,426Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    870
    
    
    
    361
    
    
    
    
    
    
    
    1,231
 17




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 11. Impact of Recently Issued Accounting Standards In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), which was later revised in December 2003,
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.
Historically, a company generally has included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN 46, as revised and
interpreted, 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 a 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 December 31, 2003 and to existing entities
created before December 31, 2003 in the first fiscal year beginning after December 15, 2004. The
Company has no variable interest entities created after December 31, 2003. The Company has
evaluated the requirements of FIN 46 and does not expect any effect on its condensed consolidated
financial statements as a whole. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised),
Accounting for Stock-Based Compensation (SFAS 123R). The Company accounts for share-based
payments using the fair value based method described in Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123). The requirements of SFAS 123R
generally are the same as SFAS 123, except that SFAS 123R provides significant additional guidance
regarding the valuation of employee stock options. The Company currently uses the
Black-Scholes-Merton formula to estimate the value of stock options granted to employees and
expects to continue to use this acceptable option valuation model upon the required adoption of
SFAS 123R on April 1, 2006. SFAS 123R also requires that the benefits of tax deductions in excess
of recognized compensation cost be reported as a financing cash flow, rather than as an operating
cash flow as required under current guidance. For the fiscal years ended March 31, 2004, 2003 and
2002, the Company recognized no operating cash flows for such excess tax deductions. The Company
does not anticipate the adoption of SFAS 123R will have a material impact on its condensed
consolidated financial statements as a whole. 18




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Special Note Regarding Forward Looking Statements This Quarterly Report on Form 10-Q (this Report) contains forward-looking statements within the
meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and 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. 19




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations The following table summarizes our results of operations for the three months ended December 31,
2004 (the 2004 Three-Month Period), the three months ended December 31, 2003 (the 2003
Three-Month Period), the nine months ended December 31, 2004 (the 2004 Nine-Month Period) and
the nine months ended December 31, 2003 (the 2003 Nine-Month Period): Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Sales:Print
    
    $
    109,057
    
    
    
    115,340
    
    
    
    298,705
    
    
    
    325,848Premedia Services
    
    
    14,595
    
    
    
    13,229
    
    
    
    42,402
    
    
    
    39,688Total
    
    $
    123,652
    
    
    
    128,569
    
    
    
    341,107
    
    
    
    365,536Gross Profit:Print
    
    $
    9,118
    
    
    

    13,653
    
    
    
    24,718
    
    
    
    39,986Premedia Services
    
    
    4,267
    
    
    
    3,566
    
    
    
    12,155
    
    
    
    10,612Other
    
    
    7
    
    
    
    11
    
    
    
    5
    
    
    
    7Total
    
    $
    13,392
    
    
    
    17,230
    
    
    
    36,878
    
    
    
    50,605Gross Margin:Print
    
    
    8.4
    %
    
    
    11.8
    %
    
    
    8.3
    %
    
    
    12.3
    %Premedia Services
    
    
    29.2
    %
    
    
    27.0
    %
    
    
    28.7
    %
    
    
    26.7
    %Total
    
    
    10.8
    %
    
    
    13.4
    %
    
    
    10.8
    %
    
    
    13.8
    %Operating Income (Loss):Print (b)
    
    $
    4,095
    
    
    
    8,442
    
    
    
    10,803
    
    
    
    22,282Premedia Services (b)
    
    
    2,416
    
    
    
    1,905
    
    
    
    7,257
    
    
    
    4,834Other (a)
    
    
    (761
    )
    
    
    (636
    )
    
    
    (2,277
    )
    
    
    (2,353
    )Total
    
    $
    5,750
    
    
    
    9,711
    
    
    
    15,783
    
    
    
    24,763
   (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. Print Sales.In the 2004 Nine-Month Period, print sales decreased $27.1 million to $298.7 million from
$325.8 million in the 2003 Nine-Month Period. The decrease in the 2004 Nine-Month Period includes
a decrease in print production volume of approximately 15% and the impact of continued competitive
pricing pressures. The volume decline was largely attributable to certain customer share losses
associated with the aggressive pricing strategies of certain competitors. These decreases were
offset in part by increased paper prices. In the 2004 Three-Month Period, print sales decreased $6.3 million to $109.0 million from $115.3
million in the 2003 Three-Month Period. The decrease in the 2004 Three-Month Period includes a
decrease in print production volume of approximately 15% and the impact of continued competitive
pricing pressures. The volume decline was largely attributable to certain customer share losses
associated with the aggressive pricing strategies of certain competitors. These decreases were
offset in part by increased paper prices and a decrease in the level of customer supplied paper. 20




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Gross Profit. In the 2004 Nine-Month Period, print gross profit decreased $15.3 million to $24.7
million from $40.0 million in the 2003 Nine-Month Period. In the 2004 Nine-Month Period, print
gross margin decreased to 8.3% from 12.3% in the 2003 Nine-Month Period. The decrease in gross
profit includes the impact of reduced print production volume and continued competitive pricing
pressures. These decreases were offset in part by net benefits from productivity improvements and
various cost reduction programs at our facilities. The decrease in gross margin includes these
items, coupled with the impact of increased paper prices reflected in sales. Our gross margin may
not be comparable from period to period because of the impact of changes in paper prices included
in sales. In the 2004 Three-Month Period, print gross profit decreased $4.6 million to $9.1 million from
$13.7 million in the 2003 Three-Month Period. In the 2004 Three-Month Period, print gross margin
decreased to 8.4% from 11.8% in the 2003 Three-Month Period. The decrease in gross profit includes
the impact of reduced print production volume and continued competitive pricing pressures. These
decreases were offset in part by net benefits from productivity improvements and various cost
reduction programs at our facilities. The decrease in gross margin includes these items, coupled
with the impact of increased paper prices reflected in sales. Our gross margin may not be
comparable from period to period because of the impact of changes in paper prices included in
sales. Selling, General and Administrative Expenses.In the 2004 Nine-Month Period, print selling,
general and administrative expenses decreased $2.1 million, or 13.0%, to $13.9 million, or 4.7% of
print sales, from $16.0 million, or 4.9% of print sales, in the 2003 Nine-Month Period. This
decrease includes the impact of the change in our estimates related to the allowance for doubtful
accounts and other reductions in certain administrative costs as a result of our ongoing cost
containment initiatives. In the 2004 Three-Month Period, print selling, general and administrative expenses decreased $0.2
million, or 3.6%, to $5.0 million, or 4.6% of print sales, from $5.2 million, or 4.5% of print
sales, in the 2003 Three-Month Period. This decrease includes the impact of reductions in certain
administrative costs as a result of our ongoing cost containment initiatives. Restructuring Costs.Restructuring costs were $1.7 million in the 2003 Nine-Month Period. We
incurred no restructuring costs in the 2004 Three- or Nine-Month Periods. See note 9 to our
condensed consolidated financial statements appearing elsewhere in this Report for further

discussion of our restructuring initiatives. Operating Income.As a result of the factors discussed above, print operating income decreased to
$10.8 million in the 2004 Nine-Month Period from $22.3 million in the 2003 Nine-Month Period and
decreased to $4.1 million in the 2004 Three-Month Period from $8.4 million in the 2003 Three-Month
Period. Premedia Services Sales.In the 2004 Nine-Month Period, premedia services sales increased $2.7 million to $42.4
million from $39.7 million in the 2003 Nine-Month Period. These results are attributable primarily
to increases in our premedia production volume, including increases in our premedia packaging
business. These increases were offset in part by continued competitive pricing pressures in this
segment. In the 2004 Three-Month Period, premedia services sales increased approximately $1.4 million to
$14.6 million from $13.2 million in the 2003 Three-Month Period. These results are attributable
primarily to increases in our premedia production volume, including increases in our premedia
packaging business. These increases were offset in part by continued competitive pricing pressures
in this segment. 21




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Gross Profit.In the 2004 Nine-Month Period, premedia services gross profit increased $1.6
million to $12.2 million from $10.6 million in the 2003 Nine-Month Period. In the 2004 Nine-Month
Period, premedia services gross margin increased to 28.7% from 26.7% in the 2003 Nine-Month
Period. The increase in both gross profit and gross margin include the increases in premedia
production volume and the impact of continued cost containment initiatives. In the 2004 Three-Month Period, premedia services gross profit increased $0.7 million to $4.3
million from $3.6 million in the 2003 Three-Month Period. In the 2004 Three-Month Period, premedia
services gross margin increased to 29.2% from 27.0% in the 2003 Three-Month Period. The increase
in both gross profit and gross margin include the increases in premedia production volume and the
impact of continued cost containment initiatives. Selling, General and Administrative Expenses.In the 2004 Nine-Month Period, premedia services
selling, general and administrative expenses decreased $0.6 million, or 10.9%, to $4.9 million, or
11.6% of premedia services sales, from $5.5 million, or 13.8% of premedia services sales in the
2003 Nine-Month Period. The decrease in the 2004 Nine-Month Period includes decreases in both the
selling and administrative areas due to our ongoing cost containment initiatives. In the 2004 Three-Month Period, premedia services selling, general and administrative expenses
increased $0.2 million, to $1.9 million, or 12.7% of premedia services sales, from $1.7 million,
or 12.6% of premedia services sales in the 2003 Three-Month Period. Restructuring Costs.Restructuring costs were $0.3 million in the 2003 Nine-Month Period. We
incurred no restructuring costs in the 2004 Three- or Nine-Month Periods. See note 9 to our
condensed consolidated financial statements appearing elsewhere in this Report for further
discussion of our restructuring initiatives. Operating Income.As a result of the factors discussed above, premedia services operating income
increased to $7.3 million in the 2004 Nine-Month Period from $4.8 million in the 2003 Nine-Month
Period and increased to $2.4 million in the 2004 Three-Month Period from $1.9 million in the 2003
Three-Month Period. Other Operations Other operations consist primarily of corporate general and administrative expenses. In the 2004
Nine-Month Period, operating losses from other operations improved slightly to a loss of $2.3
million from a loss of $2.4 million in the 2003 Nine-Month Period. In the 2004 Three-Month Period,
operating losses from other operations increased slightly to a loss of $0.7 million from a loss of
$0.6 million in the 2003 Three-Month Period. Interest Expense In the 2004 Nine-Month Period, interest expense decreased to $25.4 million from $25.7 million in
the 2003 Nine-Month Period and increased to $8.6 million in the 2004 Three-Month Period from $8.4
million in the 2003 Three-Month Period. The decrease in the 2004 Nine-Month Period includes the
$1.7 million of incremental interest expense included in the 2003 Nine-Month Period related to the
30 day call provision associated with the 12 3/4% Notes, offset in part by higher overall levels of
indebtedness. The increase in the 2004 Three-Month Period is a result of higher levels of
indebtedness and increased borrowing costs. 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. 22




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Income Taxes In the 2004 Nine-Month Period, income tax expense (benefit) improved to a benefit of $1.5 million
from expense of $11.7 million in the 2003 Nine-Month Period. In the 2004 Three-Month Period,
income tax expense (benefit) decreased to a benefit of $0.5 million from a benefit of $1.8 million
in the 2003 Three-Month Period. The income tax benefit recorded in the 2004 Nine-Month Period relates primarily to tax benefit in
foreign jurisdictions and to an adjustment of $0.4 million to reflect a change in estimate with
respect to our income tax liability. The income tax benefit recorded in the 2004 Three-Month
Period relates primarily to an adjustment of $0.4 million to reflect a change in estimate with
respect to our income tax liability. Income tax benefit from U.S. losses in the 2004 Three- and
Nine-Month Periods was primarily offset by an increase in the valuation allowance. The income tax expense recorded in the 2003 Nine-Month Period relates primarily to an adjustment,
recorded in the quarter ended September 30, 2003, to increase the deferred tax asset valuation
allowance by $12.8 million, which was partially offset by an adjustment of $2.2 million, recorded
in the quarter ended December 31, 2003, to reflect a change in estimate with respect to our income
tax liability. The adjustment to the valuation allowance 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 the 10% Notes in July 2003 (see note
4 to our condensed consolidated financial statements appearing elsewhere in this Report) that
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 income tax benefit
recorded in the 2003 Three-Month Period relates primarily to an adjustment of $2.2 million to
reflect a change in estimate with respect to our income tax liability. Income tax benefit from
U.S. losses in the 2003 Nine-Month Period was primarily offset by an increase in the valuation
allowance and foreign tax expense. Discontinued Operations In June 2003, we sold our 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
benefit. As a result of this sale, Digiscope has been accounted for as a discontinued operation. Net Income (Loss) As a result of the factors discussed above, net loss improved to $7.9 million in the 2004
Nine-Month Period from $16.6 million in the 2003 Nine-Month Period and in the 2004 Three-Month
Period net income (loss) decreased to a loss of $2.3 million from income of $3.0 million in the
2003 Three-Month Period. Liquidity and Capital Resources 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. 23




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations The borrowing base arrangement includes a provision whereby proceeds from collection of
substantially all of our 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, 2004, we had borrowings outstanding under the Revolving Credit Facility of $20.8
million and letters of credit outstanding of approximately $28.8 million. We had additional
borrowing availability under the Revolving Credit Facility of approximately $20.2 million.
Payments due on existing capital lease obligations during the remainder of our fiscal year ending
March 31, 2005 are approximately $1.1 million. During the 2004 Nine-Month Period, we used net revolver borrowings of $20.8 million and $0.2
million in proceeds from the sale of fixed assets primarily to fund the following:  
    $12.4 million of operating activities (see our condensed consolidated statements of cash
flows appearing elsewhere in this Report),
    $4.5 million in cash capital expenditures; and
    $3.6 million to service other indebtedness (including capital lease obligations of $3.1
million and deferred financing fees related to the Revolving Credit Facility and the 10%
Notes of $0.5 million). Our cash-on-hand of approximately $3.2 million is presented net of outstanding checks within trade
accounts payable at December 31, 2004. Accordingly, cash is presented at a balance of $0 million
in the December 31, 2004 condensed consolidated balance sheet. 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. Based upon our current financial projections,
including the anticipated cash provided by operating activities,
capital spending levels, required debt and related payments and the
resulting borrowing availability under the Revolving Credit Facility,
we believe that we have sufficient liquidity to meet our requirements
over the next 12 months. These projections assume volume
improvements, continued price erosion and benefits from cost
reduction actions we anticipate implementing over the next
12 months. At December 31, 2004, we had total indebtedness of $316.0 million, including borrowings under the
Revolving Credit Facility of $20.8 million, capital lease obligations of $15.2 million and $280.0
million of our 10% Notes. We have no off-balance sheet financial instruments. We are currently in
compliance with the financial covenant requirements set forth in the Revolving Credit Facility, as
amended. In February 2005, we executed
the second amendment to the Revolving Credit Facility. This amendment
included, along with certain other provisions, modifications to the
minimum fixed charge coverage ratio requirements for various
quarterly periods beginning March 31, 2005. This was necessary as a
result of the continued aggressive pricing environment which has
resulted in reduced earnings projections. The amendment also provides
for flexibility related to certain cost reduction actions under
review. 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. 24




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations 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. EBITDA Margin is defined as EBITDA as a percentage of net sales.
EBITDA is not a measure of financial performance under U.S. generally accepted accounting
principles and should not be considered an alternative to net income (loss), or any other measure
of performance under U.S. generally accepted accounting principles, as a measure of performance, or to cash flows from operating,
investing or financing activities as an indicator of cash flows, or as a measure of liquidity.
Certain covenants in the indenture governing the 10% Notes and the Revolving Credit Facility, as
amended, are based on, or include EBITDA, subject to certain adjustments. Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003(Dollars in thousands)EBITDA:Print (a)
    
    $
    9,015
    
    
    
    13,613
    
    
    
    25,901
    
    
    
    37,700Premedia Services (a)
    
    
    3,274
    
    
    
    2,748
    
    
    
    9,796
    
    
    
    7,517Other (b)
    
    
    (734
    )
    
    
    (670
    )
    
    
    (2,293
    )
    
    
    (6,169
    )Total
    
    $
    11,555
    
    
    
    15,691
    
    
    
    33,404
    
    
    
    39,048EBITDA Margin:Print
    
    
    8.3
    %
    
    
    11.8
    %
    
    
    8.7
    %
    
    
    11.6
    %Premedia Services
    
    
    22.4
    %
    
    
    20.8
    %
    
    
    23.1
    %
    
    
    18.9
    %Total
    
    
    9.3
    %
    
    
    12.2
    %
    
    
    9.8
    %
    
    
    10.7
    %
  (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. In addition, other
operations includes the write-off of deferred financing costs related to our 2003 Refinancing
of $3.2 million in the 2003 Nine-Month Period and discontinued operations losses of $0.4
million in the 2003 Nine-Month Period. The following table provides a reconciliation (in thousands) of EBITDA to net income (loss): PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended December 31, 2004EBITDA
    
    $
    9,015
    
    
    
    3,274
    
    
    
    (734
    )
    
    
    11,555Depreciation and amortization
    
    
    (4,976
    )
    
    
    (813
    )
    
    
    
    
    
    
    (5,789
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (8,525
    )
    
    
    (8,525
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    473
    
    
    
    473Net income (loss)
    
    $
    4,039
    
    
    
    2,461
    
    
    
    (8,786
    )
    
    
    (2,286
    )
 25




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operation PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended December 31, 2003EBITDA
    
    $
    13,613
    
    
    
    2,748
    
    
    
    (670
    )
    
    
    15,691Depreciation and amortization
    
    
    (5,215
    )
    
    
    (848
    )
    
    
    
    
    
    
    (6,063
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (8,411
    )
    
    
    (8,411
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,790
    
    
    
    1,790Net income (loss)
    
    $
    8,398
    
    
    
    1,900
    
    
    
    (7,291
    )
    
    
    3,007Nine Months Ended December 31, 2004EBITDA
    
    $
    25,901
    
    
    
    9,796
    
    
    
    (2,293
    )
    
    
    33,404Depreciation and amortization
    
    
    (15,061
    )
    
    
    (2,396
    )
    
    
    
    
    
    
    (17,457
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (25,382
    )
    
    
    (25,382
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,498
    
    
    
    1,498Net income (loss)
    

    $
    10,840
    
    
    
    7,400
    
    
    
    (26,177
    )
    
    
    (7,937
    )Nine Months Ended December 31, 2003EBITDA
    
    $
    37,700
    
    
    
    7,517
    
    
    
    (6,169
    )
    
    
    39,048Depreciation 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
    )
 Value Added Revenue and Print Impressions for the Print Segment We have included value-added revenue (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 also have 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 EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Print segment VAR (in thousands)
    
    $
    49,520
    
    
    
    56,618
    
    
    
    143,127
    
    
    
    166,790Print segment impressions (in
millions)
    
    
    3,043
    
    
    
    3,573
    
    
    
    8,509
    
    
    
    9,995
 26




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operation The following table provides a reconciliation of print segment sales to print segment VAR: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003(In thousands)Print segment sales
    
    $
    109,057
    
    
    
    115,340
    
    
    
    298,705
    
    
    
    325,848Paper, ink and subcontract services
    
    
    (59,537
    )
    
    
    (58,722
    )
    
    
    (155,578
    )
    
    
    (159,058
    )Print segment VAR
    
    $
    49,520
    
    
    
    56,618
    
    
    
    143,127
    
    
    
    166,790
 New Accounting Pronouncements In January 2003, the FASB issued FIN 46, which was later revised in December 2003, 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. Historically, a
company generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. FIN 46, as revised and interpreted,
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 a 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 December 31, 2003 and to
existing entities created before December 31, 2003 in the first fiscal year beginning after
December 15, 2004. We have no variable interest entities created after December 31, 2003. We have
evaluated the requirements of FIN 46 and do not expect any effect on our condensed consolidated
financial statements as a whole. In December 2004, the FASB issued SFAS 123R. We account for share-based payments using the fair
value based method described in SFAS 123. The requirements of SFAS 123R generally are the same as
SFAS 123, except that SFAS 123R provides significant additional guidance regarding the valuation of
employee stock options. We currently use the Black-Scholes-Merton formula to estimate the value
of stock options granted to employees and expect to continue to use this acceptable option
valuation model upon the required adoption of SFAS 123R on April 1, 2006. SFAS 123R also requires
that the benefits of tax deductions in excess of recognized compensation cost be reported as a
financing cash flow, rather than as an operating cash flow as required under current guidance. For
the fiscal years ended March 31, 2004, 2003 and 2002, we recognized no operating cash flows for
such excess tax deductions. We do not anticipate the adoption of SFAS 123R will have a material
impact on our condensed consolidated financial statements as a whole. 27




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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.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 to mitigate such exposures. Interest rate risk for us primarily relates to interest rate fluctuations on variable rate
debt. We have only one print facility outside the United States, in Canada, which is subject to
foreign currency exchange rate risk; however, any fluctuations in net asset values as a
result of changes in foreign currency exchange rates associated with activity at this one
facility have been, and are expected to continue to be, immaterial to our company as a
whole. Quantitative Information.At December 31, 2004, we had fixed and variable rate debt (both
excluding capital lease obligations) of approximately $280.0 million and $20.8 million,
respectively. At March 31, 2004, we had only fixed rate debt approximating $280.0 million,
excluding capital lease obligations. The estimated fair value of our fixed rate debt
instruments, excluding capital lease obligations, at December 31, 2004 was $238.0 million,
or $42.0 million less than the carrying value, and at March 31, 2004 was $249.2 million, or
$30.8 million less than the carrying value. At our December 31, 2004 and March 31, 2004
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. 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, 2004, 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, 2004. 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, 2004. There have not been any changes in our internal controls over financial
reporting during the period covered by this quarterly report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting. 28




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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, 2004. Reference is made
to Business  Legal Proceedings disclosure in our Form 10-K filed for the fiscal
year ended March 31, 2004. 
 Item 6. Exhibits. Exhibit No.
    
    Description10.12 (b)
    
    Second Amendment to Credit Agreement dated as of February 11, 2005 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, GECC Capital Markets Group, Inc., as Syndication Agent,
and the financial institutions named therein as Lenders12.1
    
    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
 29




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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 14, 2005
    By


/s/
Stephen M. DyottStephen M. DyottChairman, President and Chief
Executive Officer
(Authorized Officer)Date: February 14, 2005
    By

    /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officer
and Assistant Secretary
(Authorized Officer and
Principal Financial Officer) 30




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description
    
    Page10.12 (b)
    
    Second Amendment to Credit Agreement dated as of February 11,
2005 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, GECC Capital Markets Group, Inc., as Syndication Agent, and
the financial institutions named therein as Lenders
    
    
    3212.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges
    
    
    4231.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer
    
    
    4331.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer
    
    
    4432.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    
    45
 31