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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2004or[   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toCommission 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 [X]  No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [  ]  No [X] ACG Holdings, Inc. has 160,067 shares outstanding of its Common Stock, $.01 Par
Value, as of October 31, 2004 (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
September 30, 2004 and March 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2004 and 2003
    
    
    5Condensed Consolidated Statements of Operations for the
Six Months Ended September 30, 2004 and 2003
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 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-12.1  STATEMENT RE: COMPUTATION OF RATIO OF EARNINGSEX-31.1  CEO CERTIFICATIONEX-31.2   CFO CERTIFICATIONEX-32.1  SECTION 1350 CERTIFICATION OF THE CEO & CFO
  2




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ACG HOLDINGS, INC. 
 Condensed Consolidated Balance Sheets
  September 30, 2004
    
    March 31, 2004(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $2,024 and
$2,853 at September 30, 2004 and
March 31, 2004, respectively
    
    
    49,925
    
    
    
    42,452Other
    
    
    2,992
    
    
    
    2,533Total receivables
    
    
    52,917
    
    
    
    44,985Inventories
    
    
    10,351
    
    
    
    8,524Income tax receivable
    
    
    1,351
    
    
    
    Deferred income taxes
    
    
    2,313
    
    
    
    2,313Prepaid expenses and other current assets
    
    
    5,504
    
    
    
    4,836Total current assets
    
    
    72,436
    
    
    
    60,658Property, plant and equipment
    
    
    307,047
    
    
    
    303,425Less accumulated depreciation
    
    
    (194,313
    )
    
    
    (182,874
    )Net property, plant and equipment
    
    
    112,734
    
    
    
    120,551Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    20,041
    
    
    
    20,156Total assets
    
    $
    271,759
    
    
    
    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) September 30, 2004
    
    March 31, 2004(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current installments of long-term debt and
capitalized leases
    

    $
    4,687
    
    
    
    4,144Trade accounts payable
    
    
    39,319
    
    
    
    29,727Accrued expenses
    
    
    36,018
    
    
    
    42,550Income tax payable
    
    
    
    
    
    
    9Total current liabilities
    
    
    80,024
    
    
    
    76,430Long-term debt and capitalized leases,
excluding current installments
    
    
    306,966
    
    
    
    294,154Deferred income taxes
    
    
    8,555
    
    
    
    8,624Other liabilities
    
    
    70,220
    
    
    
    77,480Total liabilities
    
    
    465,765
    
    
    
    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 September 30, 2004 and
March 31, 2004
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,134
    
    
    
    2,103Accumulated deficit
    
    
    (175,167
    )
    
    
    (169,516
    )Other accumulated comprehensive loss, net of tax
    
    
    (20,975
    )
    
    
    (21,364
    )Total stockholders deficit
    
    
    (194,006
    )
    
    
    (188,775
    )Total liabilities and stockholders deficit
    
    $
    271,759
    
    
    
    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 EndedSeptember 30,2004
    
    2003Sales
    
    $
    106,605
    
    
    
    115,280Cost of sales
    
    
    95,982
    
    
    
    100,606Gross profit
    
    
    10,623
    
    
    
    14,674Selling, general and administrative expenses
    
    
    6,883
    
    
    
    8,954Restructuring costs
    
    
    
    
    
    
    2,000Operating income
    
    
    3,740
    
    
    
    3,720Other expense (income):Interest expense
    
    
    8,519
    
    
    
    10,110Interest income
    
    
    
    
    
    
    (6
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    3,196Other, net
    
    
    (11
    )
    
    
    175Total other expense
    
    
    8,508
    
    
    
    13,475Loss from continuing operations before
income taxes
    
    
    (4,768
    )
    
    
    (9,755
    )Income tax expense (benefit):Current
    
    
    (1,199
    )
    
    
    102Deferred
    
    
    (106
    )
    
    
    12,823Total income tax expense (benefit)
    
    
    (1,305
    )
    
    
    12,925Net loss
    
    $
    (3,463
    )
    
    
    (22,680
    )
 See accompanying notes to condensed consolidated financial statements. 5




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ACG HOLDINGS, INC. 
 Condensed Consolidated Statements of Operations
 
 Six Months EndedSeptember 30,2004
    
    2003Sales
    
    $
    217,455
    
    
    
    236,967Cost of sales
    
    
    193,969
    
    
    
    203,592Gross profit
    
    
    23,486
    
    
    
    33,375Selling, general and administrative expenses
    
    
    13,453
    
    
    
    16,323Restructuring costs
    
    
    
    
    
    
    2,000Operating income
    
    
    10,033
    
    
    
    15,052Other expense (income):Interest expense
    
    
    16,857
    
    
    
    17,301Interest income
    
    
    
    
    
    
    (7
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    3,196Other, net
    
    
    (148
    )
    
    
    211Total other expense
    
    
    16,709
    
    
    
    20,701Loss from continuing operations before
income taxes
    
    
    (6,676
    )
    
    
    (5,649
    )Income tax expense (benefit):Current
    
    
    (956
    )
    
    
    624Deferred
    
    
    (69
    )
    
    
    12,850Total income tax expense (benefit)
    
    
    (1,025
    )
    
    
    13,474Loss from continuing operations
    
    
    (5,651
    )
    
    
    (19,123
    )Discontinued operations:Loss from operations, net of $0 tax
    
    
    
    
    
    
    12Loss on disposal, net of $0 tax
    
    
    
    
    
    
    444Net loss
    
    $
    (5,651
    )
    
    
    (19,579
    )
 See accompanying notes to condensed consolidated financial statements. 6




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ACG HOLDINGS, INC. 
 Condensed Consolidated Statements of Cash Flows
 
 Six Months EndedSeptember 30,2004
    
    2003Cash flows provided (used) by operating activities:Net loss
    
    $
    (5,651
    )
    
    
    (19,579
    )Adjustments to reconcile net loss to net cash provided (used)
by operating activities:Depreciation
    
    
    11,440
    
    
    
    11,829Depreciation related to discontinued operations
    
    
    
    
    
    
    26Amortization of other assets
    
    
    228
    
    
    
    313Amortization of deferred financing costs
    
    
    1,223
    
    
    
    1,037Loss on early extinguishment of debt  non-cash
    
    
    
    
    
    
    3,196Deferred income tax expense (benefit)
    
    
    (69
    )
    
    
    12,850Discontinued operations, net of tax
    
    
    
    
    
    
    873Decrease (increase) in working capital and other
    
    
    (16,964
    )
    
    
    2,415Net cash provided (used) by operating activities
    
    
    (9,793
    )
    
    
    12,960Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (3,201
    )
    
    
    (10,105
    )Proceeds from sales of property, plant and equipment
    
    
    170
    
    
    
    24Other
    
    
    (60
    )
    
    
    271Net cash used by investing activities
    
    
    (3,091
    )
    
    
    (9,810
    )Cash flows provided (used) by financing activities:Repayment of long-term debt, net
    
    
    
    
    
    
    (39,185
    )Net increase in revolver borrowings
    
    
    15,394
    
    
    
    Repayment of 12 3⁄4% senior subordinated notes
    
    
    
    
    
    
    (170,055
    )Proceeds from issuance of 10% senior second secured notes
    
    
    
    
    
    
    280,000Repayment of capital lease obligations
    
    
    (2,039
    )
    
    
    (3,253
    )Payment of deferred financing costs
    
    
    (435
    )
    
    
    (13,585
    )Repurchase and retire preferred stock and cancel preferred stock options
    
    
    
    
    
    
    (56,942
    )Net cash provided (used) by financing activities
    
    
    12,920
    
    
    
    (3,020
    )Effect of exchange rates on cash
    
    
    (36
    )
    
    
    (130
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    Non-cash investing activity:Equipment purchases under capital leases
    
    $
    
    
    
    
    2,035
 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 six-month periods ended September 30,
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. 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): September 30,
    
    March 31,2004
    
    2004Paper
    
    $
    8,337
    
    
    
    6,307Ink
    
    
    179
    
    
    
    185Supplies and other
    
    
    1,835
    
    
    
    2,032Total inventories
    
    $
    10,351
    
    
    
    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 123⁄4%
Senior Subordinated Notes Due 2005 (the 123⁄4% 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 has 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 quarter ended September 30, 2003 related to
the write-off of deferred financing costs associated with the old bank credit
agreement and the 123⁄4% Notes. In addition, the Company recorded
incremental interest expense of approximately $1.7 million in the quarter ended
September 30, 2003 as a result of the 30 day call provision related to the
123⁄4% 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 September 30, 2004, the Company had borrowings
outstanding under the Revolving Credit Facility of $15.4 million and had
letters of credit outstanding of approximately $28.7 million. The Company had
additional borrowing availability under the Revolving Credit Facility of
approximately $25.9 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, 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 September
30, 2004. 5. Comprehensive 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 loss. Total comprehensive loss for the three and six months ended September 30, 2004
and 2003 are as follows (in thousands): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (3,463
    )
    
    
    (22,680
    )
    
    
    (5,651
    )
    
    
    (19,579
    )Foreign currency
translation
adjustment, net
of tax
    
    
    803
    
    
    
    (7
    )
    
    
    389
    
    
    
    1,049Total comprehensive loss
    
    $
    (2,660
    )
    
    
    (22,687
    )
    
    
    (5,262
    )
    
    
    (18,530
    )
 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 $1.3 million and $1.0 million for
the three and six months ended September 30, 2004, respectively, compared to
expense of $12.9 million and $13.5 million for the three and six months ended
September 30, 2003, respectively. The income tax expense for both the three and six months ended September 30,
2003 primarily relates to an adjustment, recorded in the three months ended
September 30, 2003, to increase the deferred tax asset valuation allowance by
$12.8 million. This adjustment reflected a change in circumstances which
resulted in a judgment that, based on the provisions in SFAS 109 that restrict
the Companys ability to consider forecasts of future income, a corresponding
amount of deferred tax assets may not be realized. The change in circumstances
arose from an assessment of the economic climate, particularly the continuance
of competitive pricing pressures in the industry, and the expected increase in
annual interest costs arising from the issuance of the 10% Notes that 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 10




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) positive evidence arises to support the realization of the related deferred tax
assets. Tax benefit from U.S. losses in the three and six months ended
September 30, 2003 was primarily offset by an increase in the valuation
allowance and foreign tax expense. The income tax benefit in the three and six months ended September 30, 2004
relates primarily to tax benefit in foreign jurisdictions. Tax benefit from
U.S. losses in the three and six months ended September 30, 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 endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    111
    
    
    
    99
    
    
    
    10
    
    
    
    16Interest cost
    
    
    1,005
    
    
    
    1,071
    
    
    
    65
    
    
    
    98Expected return on plan assets
    
    
    (829
    )
    
    
    (684
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    (56
    )Amortization of unrecognized
loss
    
    
    478
    
    
    
    616
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (33
    )Net periodic benefit cost
    
    $
    765
    
    
    
    1,102
    
    
    
    13
    
    
    
    25
 Six months ended
    
    Six months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    235
    
    
    
    198
    
    
    
    23
    
    
    
    32Interest cost
    
    
    2,121
    
    
    
    2,141
    
    
    
    134
    
    
    
    195Expected return on plan assets
    
    
    (1,755
    )
    
    
    (1,367
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    (111
    )Amortization of unrecognized loss
    
    
    1,011
    
    
    
    1,231
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (66
    )Net periodic benefit cost
    
    $
    1,612
    
    
    
    2,203
    
    
    
    25
    
    
    
    50
 In December 2003, the Medicare Prescription Drug Improvement and Modernization
Act of 2003 (the Act) was enacted. The Act introduces 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. Due to uncertainties in
determining the impact the Act could have on the Companys accumulated
postretirement benefit obligation and net periodic postretirement benefit cost,
the condensed consolidated financial statements do not reflect the effect the
Act may have on the Companys 11




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) postretirement plan. Upon resolution of such uncertainties, which are
substantially beyond the Companys control, the Companys postretirement plan
will recognize the effects of the Act, which are not likely to be 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 September 30,
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 September 30, 2004 is $47.7 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 September 30, 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 statement 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 six months ended September 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    09/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other employee costs
    
    $
    3,515
    
    
    
    (1,717
    )
    
    
    1,798Lease termination costs
    
    
    3
    
    
    
    
    
    
    
    3Other costs
    
    
    442
    
    
    
    (12
    )
    
    
    430$
    3,960
    
    
    
    (1,729
    )
    
    
    2,231
 During the fiscal year ended March 31, 2004, $1.8 million of these costs were
paid. As of September 30, 2004, the Company believes the restructuring reserve
of approximately $2.2 million is adequate. The Company anticipates that
approximately $1.0 million of the restructuring balance will be paid by March
31, 2005 and the remaining $1.2 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 six months ended September 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    09/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other employee costs
    
    $
    1,117
    
    
    
    (391
    )
    
    
    726
 During the fiscal year ended March 31, 2004, $0.7 million of these costs were
paid. As of September 30, 2004, the Company believes the restructuring reserve
of approximately $0.7 million is adequate. The Company anticipates that
approximately $0.3 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 six months ended September 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    09/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other employee costs
    
    $
    12
    
    
    
    (7
    )
    
    
    5Other costs
    
    
    24
    
    
    
    (9
    )
    
    
    15$
    36
    
    
    
    (16
    )
    
    
    20
 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 September 30, 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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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 six months ended September 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    09/30/04Restructuring
    
    
    
    
    
    RestructuringReserve
    
    
    
    
    
    ReserveBalance
    
    Activity
    
    BalanceSeverance and other employee costs
    
    $
    100
    
    
    
    (41
    )
    
    
    59Lease termination costs
    
    
    1,232
    
    
    
    (175
    )
    
    
    1,057$
    1,332
    
    
    
    (216
    )
    
    
    1,116
 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 September 30, 2004, the Company believes the
restructuring reserve of approximately $1.1 million is adequate. The Company
anticipates that $0.3 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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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 as calculated by management,
which is defined as earnings before net interest expense, income tax expense,
depreciation, amortization, other expense (income) and discontinued operations.
This calculation differs from the EBITDA disclosed in Managements Discussion
and Analysis of Financial Condition and Results of Operations as that
definition includes the impact of other expense (income) and discontinued
operations. 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. Premedia
    
    Corporate(In thousands)
    
    Print
    
    Services
    
    and Other
    
    TotalSix Months Ended September 30, 2004Sales
    
    $
    189,648
    
    
    
    27,807
    
    
    
    
    
    
    
    217,455EBITDA as calculated by management
    
    $
    16,793
    
    
    
    6,424
    
    
    
    (1,516
    )
    
    
    21,701Depreciation and amortization
    
    
    (10,085
    )
    
    
    (1,583
    )
    
    
    
    
    
    
    (11,668
    )Operating income (loss)
    
    
    6,708
    
    
    
    4,841
    
    
    
    (1,516
    )
    
    
    10,033Interest expense
    
    
    
    
    
    
    
    
    
    
    (16,857
    )
    
    
    (16,857
    )Other, net
    
    
    93
    
    
    
    98
    
    
    
    (43
    )
    
    
    148Income 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
    
    
    
    
    
    
    
    3,201
 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
    
    TotalSix Months Ended September 30, 2003Sales
    
    $
    210,508
    
    
    
    26,459
    
    
    
    
    
    
    
    236,967EBITDA as calculated by management
    
    $
    25,834
    
    
    
    5,077
    
    
    
    (1,717
    )
    
    
    29,194Depreciation and amortization
    
    
    (10,278
    )
    
    
    (1,864
    )
    
    
    
    
    
    
    (12,142
    )Restructuring costs
    
    
    (1,716
    )
    
    
    (284
    )
    
    
    
    
    
    
    (2,000
    )Operating income (loss)
    
    
    13,840
    
    
    
    2,929
    
    
    
    (1,717
    )
    
    
    15,052Interest expense
    
    
    
    
    
    
    
    
    
    
    (17,301
    )
    
    
    (17,301
    )Interest income
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,196
    )
    
    
    (3,196
    )Other, net
    
    
    (31
    )
    
    
    (24
    )
    
    
    (156
    )
    
    
    (211
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (13,474
    )
    
    
    (13,474
    )Depreciation from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )Discontinued operations excluding
depreciation
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    (430
    )Net income (loss)
    
    $
    13,809
    
    
    
    2,905
    
    
    
    (36,293
    )
    
    
    (19,579
    )Total assets
    
    $
    252,038
    
    
    
    16,360
    
    
    
    15,340
    
    
    
    283,738Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    11,461
    
    
    
    679
    
    
    
    
    
    
    
    12,140Three Months Ended September 30, 2004Sales
    
    $
    92,447
    
    
    
    14,158
    
    
    
    
    
    
    
    106,605EBITDA as calculated by management
    
    $
    6,898
    
    
    
    3,420
    
    
    
    (775
    )
    
    
    9,543Depreciation and amortization
    
    
    (5,004
    )
    
    
    (799
    )
    
    
    
    
    
    
    (5,803
    )Operating income (loss)
    
    
    1,894
    
    
    
    2,621
    
    
    
    (775
    )
    
    
    3,740Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,519
    )
    
    
    (8,519
    )Other, net
    
    
    45
    
    
    
    9
    
    
    
    (43
    )
    
    
    11Income 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
 17




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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
    
    TotalThree Months Ended September 30, 2003Sales
    
    $
    102,132
    
    
    
    13,148
    
    
    
    
    
    
    
    115,280EBITDA as calculated by management
    
    $
    10,426
    
    
    
    2,362
    
    
    
    (1,007
    )
    
    
    11,781Depreciation and amortization
    
    
    (5,140
    )
    
    
    (921
    )
    
    
    
    
    
    
    (6,061
    )Restructuring costs
    
    
    (1,716
    )
    
    
    (284
    )
    
    
    
    
    
    
    (2,000
    )Operating income (loss)
    
    
    3,570
    
    
    
    1,157
    
    
    
    (1,007
    )
    
    
    3,720Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,110
    )
    
    
    (10,110
    )Interest income
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,196
    )
    
    
    (3,196
    )Other, net
    
    
    (37
    )
    
    
    (17
    )
    
    
    (121
    )
    
    
    (175
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (12,925
    )
    
    
    (12,925
    )Net income (loss)
    
    $
    3,533
    
    
    
    1,140
    
    
    
    (27,353
    )
    
    
    (22,680
    )Total assets
    
    $
    252,038
    
    
    
    16,360
    
    
    
    15,340
    
    
    
    283,738Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    5,307
    
    
    
    522
    
    
    
    
    
    
    
    5,829
 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 2003, the FASB issued Statement of Financial Accounting Standards
No. 132 (revised), Employers Disclosures about Pensions and other
Postretirement Benefits (SFAS 132R). This standard prescribes employers
disclosures about pension plans and other postretirement benefit plans, but
does not change the measurement of recognition of those plans. SFAS 132R
retains and revises the disclosure requirements contained in the original
standard. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit costs of defined benefit
pension plans and other postretirement benefit plans. Further, it requires
certain disclosures in interim financial statements. For public companies,
SFAS 132R was generally effective for fiscal years ending after December 15,
2003. The revised disclosure requirements are incorporated in note 7. 18




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Special Note Regarding Forward Looking Statements This Quarterly Report on Form 10-Q (this Report) contains forward-looking
statements within the meaning of 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 September 30, 2004 (the 2004 Three-Month Period), the three months
ended September 30, 2003 (the 2003 Three-Month Period), the six months ended
September 30, 2004 (the 2004 Six-Month Period) and the six months ended
September 30, 2003 (the 2003 Six-Month Period): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Sales:Print
    
    $
    92,447
    
    
    
    102,132
    
    
    
    189,648
    
    
    
    210,508Premedia Services
    
    
    14,158
    
    
    
    13,148
    
    
    
    27,807
    
    
    
    26,459Total
    
    $
    106,605
    
    
    
    115,280
    
    
    
    217,455
    
    
    
    236,967Gross Profit:Print
    
    $
    6,484
    
    
    
    11,329
    
    
    
    15,600
    
    
    
    26,333Premedia Services
    
    
    4,140
    
    
    
    3,348
    
    
    
    7,888
    
    
    
    7,046Other
    
    
    (1
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (4
    )Total
    
    $
    10,623
    
    
    
    14,674
    
    
    
    23,486
    
    
    
    33,375Gross Margin:Print
    
    
    7.0
    %
    
    
    11.1
    %
    
    
    8.2
    %
    
    
    12.5
    %Premedia Services
    
    
    29.2
    %
    
    
    25.5
    %
    
    
    28.4
    %
    
    
    26.6
    %Total
    
    
    10.0
    %
    
    
    12.7
    %
    
    
    10.8
    %
    
    
    14.1
    %Operating Income (Loss):Print (b)
    
    $
    1,894
    
    
    
    3,570
    
    
    
    6,708
    
    
    
    13,840Premedia Services (b)
    
    
    2,621
    
    
    
    1,157
    
    
    
    4,841
    
    
    
    2,929Other (a)
    
    
    (775
    )
    
    
    (1,007
    )
    
    
    (1,516
    )
    
    
    (1,717
    )Total
    
    $
    3,740
    
    
    
    3,720
    
    
    
    10,033
    
    
    
    15,052
  (a)
    
    Includes corporate general and administrative expenses.(b)
    
    In both the 2003 Three and Six-Month Periods, 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 Six-Month Period, print sales decreased $20.9 million to
$189.6 million from $210.5 million in the 2003 Six-Month Period. The decrease
in the 2004 Six-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 $9.7 million to $92.4
million from $102.1 million in the 2003 Three-Month Period. The decrease in
the 2004 Three-Month Period includes a decrease in print production volume of
approximately 16% 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. 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 Six-Month Period, print gross profit decreased $10.7
million to $15.6 million from $26.3 million in the 2003 Six-Month Period. In
the 2004 Six-Month Period, print gross margin decreased to 8.2% from 12.5% in
the 2003 Six-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 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 $4.8 million to
$6.5 million from $11.3 million in the 2003 Three-Month Period. In the 2004
Three-Month Period, print gross margin decreased to 7.0% from 11.1% 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 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 Six-Month Period,
print selling, general and administrative expenses decreased $1.9 million, or
17.5%, to $8.9 million, or 4.7% of print sales, from $10.8 million, or 5.1% of
print sales, in the 2003 Six-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 $1.4 million, or 24.0%, to $4.6 million, or 5.0% of print
sales, from $6.0 million, or 5.9% of print sales, in the 2003 Three-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. Restructuring Costs.Restructuring costs were $1.7 million in both the 2003
Three and Six-Month Period. We incurred no restructuring costs in the 2004
Three or Six-Month Period. 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 $6.7 million in the 2004 Six-Month Period from $13.8
million in the 2003 Six-Month Period and decreased to $1.9 million in the 2004
Three-Month Period from $3.6 million in the 2003 Three-Month Period. Premedia Services Sales.In the 2004 Six-Month Period, premedia services sales increased $1.3
million to $27.8 million from $26.5 million in the 2003 Six-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 $1.1 million to $14.2 million from $13.1 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 Six-Month Period, premedia services gross profit
increased $0.9 million to $7.9 million from $7.0 million in the 2003 Six-Month
Period. In the 2004 Six-Month Period, premedia services gross margin
increased to 28.4% from 26.6% in the 2003 Six-Month Period. The increase in
both gross profit and gross margin include the increases in premedia production
volume. In the 2004 Three-Month Period, premedia services gross profit increased $0.8
million to $4.1 million from $3.3 million in the 2003 Three-Month Period. In
the 2004 Three-Month Period, premedia services gross margin increased to 29.2%
from 25.5% in the 2003 Three-Month Period. The increase in both gross profit
and gross margin include the increases in premedia production volume. Selling, General and Administrative Expenses.In the 2004 Six-Month Period,
premedia services selling, general and administrative expenses decreased $0.8
million, or 20.5%, to $3.0 million, or 11.0% of premedia services sales, from
$3.8 million, or 14.5% of premedia services sales in the 2003 Six-Month
Period. The decrease in the 2004 Six-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 decreased $0.4 million, or 20.4%, to $1.5 million, or
10.7% of premedia services sales, from $1.9 million, or 14.5% of premedia
services sales in the 2003 Three-Month Period. The decrease in the 2004
Three-Month Period includes decreases in both the selling and administrative
areas due to our ongoing cost containment initiatives. Restructuring Costs.Restructuring costs were $0.3 million in both the 2003
Three and Six-Month Period. We incurred no restructuring costs in the 2004
Three or Six-Month Period. 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 $4.8 million in the 2004 Six-Month
Period from $2.9 million in the 2003 Six-Month Period and increased to $2.6
million in the 2004 Three-Month Period from $1.2 million in the 2003
Three-Month Period. Other Operations Other operations consist primarily of corporate general and administrative
expenses. In the 2004 Six-Month Period, operating losses from other operations
improved slightly to a loss of $1.5 million from a loss of $1.7 million in the
2003 Six-Month Period. In the 2004 Three-Month Period, operating losses from
other operations improved slightly to a loss of $0.8 million from a loss of
$1.0 million in the 2003 Three-Month Period. Interest Expense In the 2004 Six-Month Period, interest expense decreased to $16.9 million from
$17.3 million in the 2003 Six-Month Period and decreased to $8.5 million in the
2004 Three-Month Period from $10.1 million in the 2003 Three-Month Period.
These decreases include the $1.7 million of incremental interest expense
included in both the 2003 Three and Six-Month Periods, related to the 30 day
call provision associated with the 123⁄4% Notes, offset in part by the higher
overall levels of indebtedness associated with the 2003 Refinancing. Loss on Early Extinguishment of Debt In the 2003 Three and Six-Month Periods, 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 123⁄4% Notes.
See note 4 to our condensed consolidated financial statements appearing
elsewhere in this Report. 22




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Income Taxes In the 2004 Six-Month Period, income tax expense improved to a benefit of $1.0
million from expense of $13.5 million in the 2003 Six-Month Period. In the
2004 Three-Month Period, income tax expense improved to a benefit of $1.3
million from expense of $12.9 million in the 2003 Three-Month Period. The improvement in both the 2004 Six-Month Period and the 2004 Three-Month
Period is primarily due to an adjustment, recorded in the 2003 Three-Month
Period, to increase the deferred tax asset valuation allowance by $12.8
million. This adjustment reflected a change in circumstances which resulted in
a judgment that, based on the provisions of SFAS 109 that restrict our ability
to consider forecasts of future income, a corresponding amount of deferred tax
assets may not be realized. The change in circumstances arose from our
assessment of the economic climate, particularly the continuance of competitive
pricing pressures in our industry, and the expected increase in annual interest
costs arising from the issuance of 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. Tax benefit from U.S. losses
in the 2003 Three and Six-Month Periods was primarily offset by an increase in
the valuation allowance and foreign tax expense. The income tax benefit in the 2004 Three and Six-Month Periods relates
primarily to tax benefit in foreign jurisdictions. Tax benefit from U.S.
losses in the 2004 Three and Six-Month Periods was primarily offset by an
increase in the valuation allowance. 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 Loss As a result of the factors discussed above, net loss improved to $5.7 million
in the 2004 Six-Month Period from $19.6 million in the 2003 Six-Month Period
and in the 2004 Three-Month Period net loss improved to $3.5 million from $22.7
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. 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. 23




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations At September 30, 2004, we had borrowings outstanding under the Revolving Credit
Facility of $15.4 million and letters of credit outstanding of approximately
$28.7 million. We had additional borrowing availability under the Revolving
Credit Facility of approximately $25.9 million. Payments due on existing
capital lease obligations during the remainder of our fiscal year ending March
31, 2005 are approximately $2.1 million. During the 2004 Six-Month Period, we used net revolver borrowings of $15.4
million and $0.2 million in proceeds from the sale of fixed assets primarily to
fund the following:  
    
    $9.8 million of operating activities (see our condensed consolidated
statements of cash flows appearing elsewhere in this Report),
    
    $3.2 million in cash capital expenditures; and
    
    $2.5 million to service other indebtedness (including capital lease
obligations of $2.1 million and deferred financing fees related to the
Revolving Credit Facility and the 10% Notes of $0.4 million). Our cash-on-hand of approximately $0.9 million is presented net of outstanding
checks within trade accounts payable at September 30, 2004. Accordingly, cash
is presented at a balance of $0 million in the September 30, 2004 condensed
consolidated balance sheet. Our primary sources of liquidity have been cash provided by operating
activities and borrowings under the Revolving Credit Facility. We anticipate
that our primary needs for liquidity will be to conduct our business, meet our
debt service requirements, make capital expenditures and, if we elect, redeem,
repay or repurchase outstanding indebtedness including repurchases of our 10%
Notes in privately negotiated transactions, or in open market purchases, to the
extent permitted by the Revolving Credit Facility, as amended. We believe
that we have sufficient liquidity to meet our requirements over the next 12
months. At September 30, 2004, we had total indebtedness of $311.7 million, including
borrowings under the Revolving Credit Facility of $15.4 million, capital lease
obligations of $16.3 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. A significant portion of Graphics long-term obligations, including
indebtedness under the Revolving Credit Facility and the 10% Notes, has been
fully and unconditionally guaranteed by Holdings. Holdings is subject to
certain restrictions under its guarantee of indebtedness under the Revolving
Credit Facility, including among other things, restrictions on mergers,
acquisitions, incurrence of additional debt and payment of cash dividends. EBITDA and EBITDA Margin EBITDA is presented and discussed because management believes that investors
regard EBITDA as a key measure of a leveraged companys performance and ability
to meet its future debt service requirements. EBITDA is defined as earnings
before net interest expense, income tax expense, depreciation and amortization.
This calculation of EBITDA differs from the EBITDA disclosed in note 10 to our
condensed consolidated financial statements appearing elsewhere in this Report.
The definition in note 10 follows the guidelines required under the provisions
of Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 131, Disclosures about Segments of an Enterprise and Related
Information and is reflective of managements calculation of EBITDA. EBITDA
Margin is defined as EBITDA as a percentage of net sales. EBITDA is not a
measure of financial performance under U.S. generally accepted accounting
principles and should not be considered an alternative to net income (loss), or
any other measure of 24




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations 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
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)EBITDA:Print (a)
    
    $
    6,943
    
    
    
    8,673
    
    
    
    16,886
    
    
    
    24,087Premedia Services (a)
    
    
    3,429
    
    
    
    2,061
    
    
    
    6,522
    
    
    
    4,769Other (b)
    
    
    (818
    )
    
    
    (4,324
    )
    
    
    (1,559
    )
    
    
    (5,499
    )Total
    
    $
    9,554
    
    
    
    6,410
    
    
    
    21,849
    
    
    
    23,357EBITDA Margin:Print
    
    
    7.5
    %
    
    
    8.5
    %
    
    
    8.9
    %
    
    
    11.4
    %Premedia Services
    
    
    24.2
    %
    
    
    15.7
    %
    
    
    23.5
    %
    
    
    18.0
    %Total
    
    
    9.0
    %
    
    
    5.6
    %
    
    
    10.0
    %
    
    
    9.9
    %
  (a)
    
    In both the 2003 Three and Six-Month Periods, 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 include the write-off of deferred financing
costs related to our 2003 Refinancing of $3.2 million in both the 2003
Three and Six-Month Periods and discontinued operations losses of $0.4
million in the 2003 Six-Month Period. The following table provides a reconciliation (in thousands) of EBITDA to net
income (loss): PremediaPrint
    
    Services
    
    Other
    
    TotalThree 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
    )
 25




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operation PremediaPrint
    
    Services
    
    Other
    
    TotalThree Months Ended September 30,
2003EBITDA
    
    $
    8,673
    
    
    
    2,061
    
    
    
    (4,324
    )
    
    
    6,410Depreciation and amortization
    
    
    (5,140
    )
    
    
    (921
    )
    
    
    
    
    
    
    (6,061
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (10,104
    )
    
    
    (10,104
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (12,925
    )
    
    
    (12,925
    )Net income (loss)
    
    $
    3,533
    
    
    
    1,140
    
    
    
    (27,353
    )
    
    
    (22,680
    )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
    )Six Months Ended September 30, 2003EBITDA
    
    $
    24,087
    
    
    
    4,769
    
    
    
    (5,499
    )
    
    
    23,357Depreciation and amortization
    
    
    (10,278
    )
    
    
    (1,864
    )
    
    
    (26
    )
    
    
    (12,168
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (17,294
    )
    
    
    (17,294
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (13,474
    )
    
    
    (13,474
    )Net income (loss)
    
    $
    13,809
    
    
    
    2,905
    
    
    
    (36,293
    )
    
    
    (19,579
    )
 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. 26




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operation Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Print segment VAR (in thousands)
    
    $
    44,986
    
    
    
    53,428
    
    
    
    93,607
    
    
    
    110,172Print segment impressions (in
millions)
    
    
    2,605
    
    
    
    3,100
    
    
    
    5,466
    
    
    
    6,423
 The following table provides a reconciliation of print segment sales to print
segment VAR: Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(In thousands)Print segment sales
    
    $
    92,447
    
    
    
    102,132
    
    
    
    189,648
    
    
    
    210,508Paper, ink and subcontract services

    
    
    (47,461
    )
    
    
    (48,704
    )
    
    
    (96,041
    )
    
    
    (100,336
    )Print segment VAR
    
    $
    44,986
    
    
    
    53,428
    
    
    
    93,607
    
    
    
    110,172
 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 2003, the FASB issued SFAS 132R. This standard prescribes
employers disclosures about pension plans and other postretirement benefit
plans, but does not change the measurement of recognition of those plans. SFAS
132R retains and revises the disclosure requirements contained in the original
standard. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit costs of defined benefit
pension plans and other postretirement benefit plans. Further, it requires
certain disclosures in interim financial statements. For public companies,
SFAS 132R was generally effective for fiscal years ending after December 15,
2003. The revised disclosure requirements are incorporated in note 7 to our
condensed consolidated financial statements appearing elsewhere in this Report. 27




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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 September 30, 2004 we had fixed and
variable rate debt (both excluding capital lease obligations) of
approximately $280.0 million and $15.4 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
debt instruments, excluding capital lease obligations, at September 30,
2004 was $224.0 million, or $56.0 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 September 30, 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 September 30, 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
September 30, 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 September 30, 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.
    
    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
 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: November 2, 2004
    
    By
    
    /s/ Patrick W. KellickPatrick W. Kellick
Senior Vice President/Chief Financial Officer
and Assistant Secretary
(Authorized Officer and
Principal Financial Officer)Date: November 2, 2004
    
    By
    
    /s/ Angela C. MarshallAngela C. Marshall
Corporate Controller
(Chief Accounting Officer)
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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description
    
    Page12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges
    
    
    3231.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer
    
    
    3331.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer
    
    
    3432.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    
    35
 31