##### Table of Contents



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




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##### 



INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Condensed Consolidated Balance Sheets as of
December 31, 2007 and March 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended December 31, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Operations for the
Nine Months Ended December 31, 2007 and 2006
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 2007 and 2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    21Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
    
    
    29Item 4. Controls and Procedures.
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    30Item 6. Exhibits.
    
    
    30SIGNATURES
    
    
    31EXHIBIT INDEX
    
    
    32Ex-10.1(f) Sixth Amendment to May 5, 2005 Amended and Restated Credit AgreementEx-10.11(b) Amendment, dated February 5, 2008, to Amended and Restated American Color Graphics, Inc. Supplemental Executive Retirement PlanEx-10.31 Second Amendment and Tempory Waiver AgreementEX-12.1 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO
  2




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  December 31,
    
    
    March 31,2007
    
    
    2007(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,224 and $1,017
at December 31, 2007 and March 31,
2007, respectively
    
    
    46,016
    
    
    
    44,385Other
    
    
    3,034
    
    
    
    2,645Total receivables
    
    
    49,050
    
    
    
    47,030Inventories
    
    
    7,756
    
    
    
    7,146Deferred income taxes
    
    
    623
    
    
    
    962Prepaid expenses and other current assets
    
    
    5,207
    
    
    
    4,914Total current assets
    
    
    62,636
    
    
    
    60,052Property, plant and equipment
    
    
    304,879
    
    
    
    296,556Less accumulated depreciation
    
    
    (228,002
    )
    
    
    (214,772
    )Net property, plant and equipment
    
    
    76,877
    
    
    
    81,784Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    18,019
    
    
    
    17,840Total assets
    
    $
    224,080
    
    
    
    226,224
  3




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ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
 December 31,
    
    
    March 31,2007
    
    
    2007(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current portion of long-term debt and capital leases
    
    $
    379,851
    
    
    
    352,110Trade accounts payable
    
    
    37,116
    
    
    
    33,091Accrued expenses
    
    
    21,994
    
    
    
    30,312Income tax payable
    
    
    28
    
    
    
    487Total current liabilities
    
    
    438,989
    
    
    
    416,000Deferred income taxes
    
    
    6,194
    
    
    
    2,677Other liabilities
    
    
    48,790
    
    
    
    52,499Total liabilities
    
    
    493,973
    
    
    
    471,176Commitments and contingencies (note 8)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 175,532 shares and 158,205
shares issued and outstanding at December 31,
2007 and March 31, 2007, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (258,758
    )
    
    
    (232,083
    )Other accumulated comprehensive loss, net of tax
    
    
    (13,175
    )
    
    
    (14,909
    )Total stockholders deficit
    
    
    (269,893
    )
    
    
    (244,952
    )Total liabilities and stockholders deficit
    
    $
    224,080
    
    
    
    226,224
  4




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedDecember 31,2007
    
    
    2006(Restated)Sales
    
    $
    118,892
    
    
    
    120,065Cost of sales
    
    
    105,776
    
    
    
    106,934Gross profit
    
    
    13,116
    
    
    
    13,131Selling, general and administrative expenses
    
    
    6,498
    
    
    
    6,724Restructuring costs (benefit)
    
    
    (250
    )
    
    
    51Operating income
    
    
    6,868
    
    
    
    6,356Other expense (income):Interest expense
    
    
    11,403
    
    
    
    10,203Interest income
    
    
    (11
    )
    
    
    (43
    )Other, net
    
    
    2,631
    
    
    
    581Total other expense
    
    
    14,023
    
    
    
    10,741Loss before income taxes
    
    
    (7,155
    )
    
    
    (4,385
    )Income tax expense (benefit):Current
    
    
    86
    
    
    
    223Deferred
    
    
    (38
    )
    
    
    (85
    )Total income tax expense
    
    
    48
    
    
    
    138Net loss
    
    $
    (7,203
    )
    
    
    (4,523
    )
  5




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Nine Months EndedDecember 31,2007
    
    
    2006(Restated)Sales
    
    $
    326,111
    
    
    
    341,729Cost of sales
    
    
    291,646
    
    
    
    303,805Gross profit
    
    
    34,465
    
    
    
    37,924Selling, general and administrative expenses
    
    
    19,390
    
    
    
    19,097Restructuring benefit
    
    
    (161
    )
    
    
    (105
    )Operating income
    
    
    15,236
    
    
    
    18,932Other expense (income):Interest expense
    
    
    32,820
    
    
    
    29,666Interest income
    
    
    (23
    )
    
    
    (93
    )Other, net
    
    
    5,132
    
    
    
    1,256Total other expense
    
    
    37,929
    
    
    
    30,829Loss before income taxes
    
    
    (22,693
    )
    
    
    (11,897
    )Income tax expense (benefit):Current
    
    
    437
    
    
    
    494Deferred
    
    
    3,545
    
    
    
    (642
    )Total income tax expense (benefit)
    
    
    3,982
    
    
    
    (148
    )Net loss
    
    $
    (26,675
    )
    
    
    (11,749
    )
  6




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Nine Months EndedDecember 31,2007
    
    
    2006(Restated)Cash flows provided (used) by operating activities:Net loss
    
    $
    (26,675
    )
    
    
    (11,749
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    13,417
    
    
    
    13,854Amortization of other assets
    
    
    17
    
    
    
    32Amortization of deferred financing costs
    
    
    3,077
    
    
    
    2,295Deferred income tax expense (benefit)
    
    
    3,545
    
    
    
    (642
    )Increase (decrease) in working capital deficiency
and other
    
    
    4,228
    
    
    
    (19,685
    )Net cash used by operating activities
    
    
    (2,391
    )
    
    
    (15,895
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (7,069
    )
    
    
    (9,184
    )Proceeds from sales of property, plant and equipment
    
    
    60
    
    
    
    62Other
    
    
    (316
    )
    
    
    (135
    )Net cash used by investing activities
    
    
    (7,325
    )
    
    
    (9,257
    )Cash flows provided (used) by financing activities:Net increase in revolver borrowings
    
    
    10,731
    
    
    
    30,471Proceeds from additional term loan borrowings
    
    
    5,000
    
    
    
    Repayment of capital lease obligations
    
    
    (2,665
    )
    
    
    (2,813
    )Payment of deferred financing costs
    
    
    (3,374
    )
    
    
    (2,506
    )Net cash provided by financing activities
    
    
    9,692
    
    
    
    25,152Effect of exchange rates on cash
    
    
    24
    
    
    
    Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
  7




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




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Three Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    
    
    
    
    EndedDecember 31,
    
    
    Restatement
    
    
    December 31,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    120,065
    
    
    
    
    
    
    
    120,065Cost of sales(b)(c)(e)
    
    
    106,947
    
    
    
    (13
    )
    
    
    106,934Gross profit
    
    
    13,118
    
    
    
    13
    
    
    
    13,131Selling, general and administrative
expenses(a)(b)(e)
    
    
    6,595
    
    
    
    129
    
    
    
    6,724Restructuring costs(d)
    
    
    
    
    
    
    51
    
    
    
    51Operating income
    
    
    6,523
    
    
    
    (167
    )
    
    
    6,356Other expense (income):Interest expense(a)
    
    
    10,301
    
    
    
    (98
    )
    
    
    10,203Interest income
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Other, net
    
    
    581
    
    
    
    
    
    
    
    581Total other expense
    
    
    10,839
    
    
    
    (98
    )
    
    
    10,741Loss before income taxes
    
    
    (4,316
    )
    
    
    (69
    )
    
    
    (4,385
    )Income tax expense
    
    
    138
    
    
    
    
    
    
    
    138Net loss
    
    $
    (4,454
    )
    
    
    (69
    )
    
    
    (4,523
    )
 (a)
    
    The revised treatment of deferred financing costs resulted in an increase of $138,000
in selling, general and administrative expenses and a decrease of $98,000 in interest
expense.(b)
    
    The adjustment related to the revision of the accrued vacation liability calculation
resulted in an increase in cost of sales of $71,000 and a decrease in selling, general and
administrative expenses of $8,000.(c)
    
    The adjustment related to the utility liability resulted in a decrease in cost of sales
of $85,000.(d)
    
    The adjustment related to the restructuring liability resulted in a restructuring
expense of $51,000.(e)
    
    Other immaterial adjustments resulted in a net increase in cost of sales of $1,000 and
a net decrease in selling, general and administrative expenses of $1,000.
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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Nine Months
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    EndedDecember 31,
    
    
    Restatement
    
    
    December 31,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    341,729
    
    
    
    
    
    
    
    341,729Cost of sales(b)(c)(e)
    
    
    304,118
    
    
    
    (313
    )
    
    
    303,805Gross profit
    
    
    37,611
    
    
    
    313
    
    
    
    37,924Selling, general and administrative
expenses(a)(b)(e)
    
    
    18,840
    
    
    
    257
    
    
    
    19,097Restructuring costs (benefit)(d)
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )Operating income
    
    
    18,771
    
    
    
    161
    
    
    
    18,932Other expense (income):Interest expense(a)
    
    
    29,926
    
    
    
    (260
    )
    
    
    29,666Interest income
    
    
    (93
    )
    
    
    
    
    
    
    (93
    )Other, net
    
    
    1,256
    
    
    
    
    
    
    
    1,256Total other expense
    
    
    31,089
    
    
    
    (260
    )
    
    
    30,829Loss before income taxes
    
    
    (12,318
    )
    
    
    421
    
    
    
    (11,897
    )Income tax benefit
    
    
    (148
    )
    
    
    
    
    
    
    (148
    )Net loss
    
    $
    (12,170
    )
    
    
    421
    
    
    
    (11,749
    )
 (a)
    
    The revised treatment of deferred financing costs resulted in an increase of $283,000
in selling, general and administrative expenses and a decrease of $260,000 in interest
expense.(b)
    
    The adjustment related to the revision of the accrued vacation liability calculation
resulted in an increase in cost of sales of $217,000 and a decrease in selling, general and
administrative expenses of $23,000.(c)
    
    The adjustment related to the utility liability resulted in a decrease in cost of sales
of $532,000.(d)
    
    The adjustment related to the restructuring liability resulted in a restructuring
benefit of $105,000.(e)
    
    Other immaterial adjustments resulted in an increase in cost of sales of $2,000 and a
decrease in selling, general and administrative expenses of $3,000.
 3. Inventories
  December 31,
    
    
    March 31,2007
    
    
    2007Paper
    
    $
    5,833
    
    
    
    5,036Ink
    
    
    138
    
    
    
    152Supplies and other
    
    
    1,785
    
    
    
    1,958Total inventories
    
    $
    7,756
    
    
    
    7,146
 10




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4. Notes Payable and Long-Term Debt
 *       *       *
  *       *       *
 Covenant Compliance and Liquidity




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May 5, 2005 Refinancing Transaction




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
    
    a $55 million revolving credit facility ($40 million of which may be used for letters of
credit), maturing on December 15, 2009 which is not subject to a borrowing base limitation,
(the 2005 Revolving Credit Facility);
 
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009 (the 2005
Term Loan Facility); and
 
    
    a $5 million addition to the 2005 Term Loan Facility maturing on March 14, 2008.
     
    
    incur or guarantee additional debt;
 
    
    create or permit to exist certain liens;
 
    
    pledge assets or engage in sale-leaseback transactions;
 
    
    make capital expenditures, other investments or acquisitions;




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##### Table of Contents




    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes, defined below), subject to certain exceptions;
 
    
    repurchase or redeem equity interests;
 
    
    change the nature of its business;
 
    
    pay dividends or make other distributions;
 
    
    enter into transactions with affiliates;
 
    
    dispose of assets or enter into mergers or other business combinations; and
 
    
    place restrictions on dividends, distributions or transfers to the Company from its
subsidiaries.
   September 26, 2006 Revolving Trade Receivables Facility




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10% Senior Second Secured Notes
  2007 Promissory Notes




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Amendments to Credit Facilities
    5. Comprehensive Income (Loss)




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Net loss
    
    $
    (7,203
    )
    
    
    (4,523
    )
    
    
    (26,675
    )
    
    
    (11,749
    )Foreign currency translation
adjustment, net of tax
    
    
    223
    
    
    
    (471
    )
    
    
    1,734
    
    
    
    (91
    )Total comprehensive loss
    
    $
    (6,980
    )
    
    
    (4,994
    )
    
    
    (24,941
    )
    
    
    (11,840
    )
 6. Income Taxes
     11




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  7. Employee Benefit Plans
 Components of Net Periodic Benefit Cost (in thousands)
 Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanThree months ended
    
    
    Three months endedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    112
    
    
    
    111
    
    
    
    8
    
    
    
    (5
    )Interest cost
    
    
    1,061
    
    
    
    1,037
    
    
    
    33
    
    
    
    (31
    )Expected return on plan assets
    
    
    (1,384
    )
    
    
    (1,209
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (71
    )Amortization of unrecognized loss
    
    
    239
    
    
    
    497
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    (2
    )Net periodic benefit cost
    
    $
    28
    
    
    
    436
    
    
    
    (28
    )
    
    
    (109
    )
 Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanNine months ended
    
    
    Nine months endedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    342
    
    
    
    342
    
    
    
    20
    
    
    
    18Interest cost
    
    
    3,207
    
    
    
    3,156
    
    
    
    101
    
    
    
    105Expected return on plan assets
    
    
    (4,152
    )
    
    
    (3,652
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    (213
    )Amortization of unrecognized loss
    
    
    727
    
    
    
    1,513
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Net periodic benefit cost
    
    $
    124
    
    
    
    1,359
    
    
    
    (86
    )
    
    
    (84
    )
 8. Commitments and Contingencies
   12




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
      13




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
     9. Restructuring Costs
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
   14




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/07
    
    
    
    
    
    
    
    
    
    
    12/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceLease termination costs
    
    $
    335
    
    
    
    (101
    )
    
    
    (8
    )
    
    
    226Other costs
    
    
    12
    
    
    
    
    
    
    
    (12
    )
    
    
    $
    347
    
    
    
    (101
    )
    
    
    (20
    )
    
    
    226
  Pittsburg Facility Closure Plan
    15




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/07
    
    
    
    
    
    
    
    
    
    
    12/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceLease termination
costs
    
    $
    598
    
    
    
    (19
    )
    
    
    11
    
    
    
    590Other costs
    
    
    16
    
    
    
    
    
    
    
    (16
    )
    
    
    $
    614
    
    
    
    (19
    )
    
    
    (5
    )
    
    
    590
  Plant and SG&A Reduction Plan
    03/31/07
    
    
    
    
    
    
    
    
    
    
    12/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    71
    
    
    
    (79
    )
    
    
    8
    
    
    
    Other costs
    
    
    3
    
    
    
    
    
    
    
    (3
    )
    
    
    $
    74
    
    
    
    (79
    )
    
    
    5
    
    
    
    
 16




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Fiscal Year 2002 Restructuring Costs
     03/31/07
    
    
    
    
    
    
    
    
    
    
    12/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceLease termination costs
    
    $
    1,071
    
    
    
    (196
    )
    
    
    (141
    )
    
    
    734
  17




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  10. Industry Segment Information
     Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalNine Months Ended December 31, 2007Sales
    
    $
    291,818
    
    
    
    34,293
    
    
    
    
    
    
    
    326,111EBITDA
    
    $
    25,729
    
    
    
    5,212
    
    
    
    (7,403
    )
    
    
    23,538Depreciation and amortization
    
    
    (12,200
    )
    
    
    (1,234
    )
    
    
    
    
    
    
    (13,434
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (32,820
    )
    
    
    (32,820
    )Interest income
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,982
    )
    
    
    (3,982
    )Net income (loss)
    
    $
    13,529
    
    
    
    3,978
    
    
    
    (44,182
    )
    
    
    (26,675
    )Total assets
    
    $
    201,811
    
    
    
    10,809
    
    
    
    11,460
    
    
    
    224,080Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    6,655
    
    
    
    414
    
    
    
    
    
    
    
    7,069
 18




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalNine Months Ended December 31, 2006
(Restated)Sales
    
    $
    304,574
    
    
    
    37,155
    
    
    
    
    
    
    
    341,729EBITDA
    
    $
    28,267
    
    
    
    6,972
    
    
    
    (3,677
    )
    
    
    31,562Depreciation and amortization
    
    
    (12,334
    )
    
    
    (1,552
    )
    
    
    
    
    
    
    (13,886
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (29,666
    )
    
    
    (29,666
    )Interest income
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93Income tax benefit
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148Net income (loss)
    
    $
    15,933
    
    
    
    5,420
    
    
    
    (33,102
    )
    
    
    (11,749
    )Total assets
    
    $
    209,522
    
    
    
    10,824
    
    
    
    12,693
    
    
    
    233,039Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    8,626
    
    
    
    558
    
    
    
    
    
    
    
    9,184Sales
    
    $
    107,627
    
    
    
    11,265
    
    
    
    
    
    
    
    118,892EBITDA
    
    $
    10,040
    
    
    
    1,657
    
    
    
    (3,252
    )
    
    
    8,445Depreciation and amortization
    
    
    (3,809
    )
    
    
    (399
    )
    
    
    
    
    
    
    (4,208
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (11,403
    )
    
    
    (11,403
    )Interest income
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Income tax expense
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )Net income (loss)
    
    $
    6,231
    
    
    
    1,258
    
    
    
    (14,692
    )
    
    
    (7,203
    )Total assets
    
    $
    201,811
    
    
    
    10,809
    
    
    
    11,460
    
    
    
    224,080Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,652
    
    
    
    287
    
    
    
    
    
    
    
    2,939Three Months Ended December 31, 2006
(Restated)Sales
    
    $
    108,330
    
    
    
    11,735
    
    
    
    
    
    
    
    120,065EBITDA
    
    $
    10,184
    
    
    
    1,704
    
    
    
    (1,508
    )
    
    
    10,380Depreciation and amortization
    
    
    (4,089
    )
    
    
    (516
    )
    
    
    
    
    
    
    (4,605
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,203
    )
    
    
    (10,203
    )Interest income
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Income tax expense
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Net income (loss)
    
    $
    6,095
    
    
    
    1,188
    
    
    
    (11,806
    )
    
    
    (4,523
    )Total assets
    
    $
    209,522
    
    
    
    10,824
    
    
    
    12,693
    
    
    
    233,039Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    1,735
    
    
    
    199
    
    
    
    
    
    
    
    1,934
 19




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 11. Impact of Recently Issued Accounting Standards
     12. Subsequent Event
  20




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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
  
    
    actions, or failures to act, by the lenders under our bank
credit facilities and our 10% Notes;
    
    actions, or failures to act, by our trade creditors, including
actions that might affect our ability to purchase paper and other raw
materials under satisfactory credit terms or that could increase the
cash required to fund our operations;
    
    actions, or failures to act, by our customers, including with
respect to payment for our products and services;
    
    actions, or failures to act, by third parties that could have
an interest in acquiring the Company;
    
    a failure to achieve expected cost reductions or to execute other key strategies;
    
    fluctuations in the cost of paper, ink and other key raw materials used;
    
    changes in the advertising and print markets;
    
    actions by our competitors, particularly with respect to pricing;
    
    the financial condition of our customers;
    
    downgrades of our credit ratings;
    
    our financial condition and liquidity and our leverage and debt service obligations;
    
    the general condition of the United States economy;
    
    interest rate and foreign currency exchange rate fluctuations;
    
    the level of capital resources required for our operations;
    
    changes in the legal and regulatory environment;
    
    the demand for our products and services; and
    
    other risks and uncertainties, including the matters set forth in this Report
generally and those described from time to time in our filings with the Securities and
Exchange Commission.
   Restated Financial Statements
   21




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Sales:Print
    
    $
    107,627
    
    
    
    108,330
    
    
    
    291,818
    
    
    
    304,574Premedia Services
    
    
    11,265
    
    
    
    11,735
    
    
    
    34,293
    
    
    
    37,155Total
    
    $
    118,892
    
    
    
    120,065
    
    
    
    326,111
    
    
    
    341,729Gross Profit:Print
    
    $
    10,347
    
    
    
    10,446
    
    
    
    26,210
    
    
    
    28,028Premedia Services
    
    
    2,763
    
    
    
    2,677
    
    
    
    8,245
    
    
    
    9,890Other
    
    
    6
    
    
    
    8
    
    
    
    10
    
    
    
    6Total
    
    $
    13,116
    
    
    
    13,131
    
    
    
    34,465
    
    
    
    37,924Gross Margin:Print
    
    
    9.6
    %
    
    
    9.6
    %
    
    
    9.0
    %
    
    
    9.2
    %Premedia Services
    
    
    24.5
    %
    
    
    22.8
    %
    
    
    24.0
    %
    
    
    26.6
    %Total
    
    
    11.0
    %
    
    
    10.9
    %
    
    
    10.6
    %
    
    
    11.1
    %EBITDA:Print
    
    $
    10,040
    
    
    
    10,184
    
    
    
    25,729
    
    
    
    28,267Premedia Services
    
    
    1,657
    
    
    
    1,704
    
    
    
    5,212
    
    
    
    6,972Other (a)
    
    
    (3,252
    )
    
    
    (1,508
    )
    
    
    (7,403
    )
    
    
    (3,677
    )Total
    
    $
    8,445
    
    
    
    10,380
    
    
    
    23,538
    
    
    
    31,562EBITDA Margin:Print
    
    
    9.3
    %
    
    
    9.4
    %
    
    
    8.8
    %
    
    
    9.3
    %Premedia Services
    
    
    14.7
    %
    
    
    14.5
    %
    
    
    15.2
    %
    
    
    18.8
    %Total
    
    
    7.1
    %
    
    
    8.6
    %
    
    
    7.2
    %
    
    
    9.2
    %
 (a)
    
    Other operations include corporate general and administrative expenses and other
non-operating expenses.
  22




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended December 31, 2007EBITDA
    
    $
    10,040
    
    
    
    1,657
    
    
    
    (3,252
    )
    
    
    8,445Depreciation and amortization
    
    
    (3,809
    )
    
    
    (399
    )
    
    
    
    
    
    
    (4,208
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (11,392
    )
    
    
    (11,392
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )Net income (loss)
    
    $
    6,231
    
    
    
    1,258
    
    
    
    (14,692
    )
    
    
    (7,203
    )Three Months Ended December 31, 2006(Restated)EBITDA
    
    $
    10,184
    
    
    
    1,704
    
    
    
    (1,508
    )
    
    
    10,380Depreciation and amortization
    
    
    (4,089
    )
    
    
    (516
    )
    
    
    
    
    
    
    (4,605
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (10,160
    )
    
    
    (10,160
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Net income (loss)
    
    $
    6,095
    
    
    
    1,188
    
    
    
    (11,806
    )
    
    
    (4,523
    )Nine Months Ended December 31, 2007EBITDA
    
    $
    25,729
    
    
    
    5,212
    
    
    
    (7,403
    )
    
    
    23,538Depreciation and amortization
    
    
    (12,200
    )
    
    
    (1,234
    )
    
    
    
    
    
    
    (13,434
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (32,797
    )
    
    
    (32,797
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (3,982
    )
    
    
    (3,982
    )Net income (loss)
    
    $
    13,529
    
    
    
    3,978
    
    
    
    (44,182
    )
    
    
    (26,675
    )Nine Months Ended December 31, 2006(Restated)EBITDA
    
    $
    28,267
    
    
    
    6,972
    
    
    
    (3,677
    )
    
    
    31,562Depreciation and amortization
    
    
    (12,334
    )
    
    
    (1,552
    )
    
    
    
    
    
    
    (13,886
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (29,573
    )
    
    
    (29,573
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148Net income (loss)
    
    $
    15,933
    
    
    
    5,420
    
    
    
    (33,102
    )
    
    
    (11,749
    )
 23




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Print
 Sales. ,
 ,
 Gross Profit
  Selling, General and Administrative Expenses.
  Restructuring Costs (Benefit).
 24




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
  Gross Profit.
  Selling, General and Administrative Expenses.
 Other Expense (Income).
 EBITDA.
 25




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Other Operations
  Interest Expense, Net
  Income Tax Expense (Benefit)
      26




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Net Income (Loss)
  Liquidity and Capital Resources
    Overview of Liquidity and Capital Resources
  
    
    $4.5 million under the 2005 Revolving Credit Facility; and
 
    
    $15.6 million under the Receivables Facility, including $8.5 million based on
receivables purchased from Graphics at December 31, 2007 and an additional $7.1 million if
Graphics Finance, defined below, had purchased from Graphics all other eligible
receivables at December 31, 2007.
      27




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##### Table of Contents




    
    $2.4 million of operating activities (see our Condensed Consolidated Statements of
Cash Flows appearing elsewhere in this Report);
 
    
    $7.1 million in cash capital expenditures; and
 
    
    $6.0 million to service other indebtedness (including repayment of capital lease
obligations of $2.6 million and payment of deferred financing costs of $3.4 million).




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May 2005 Refinancing
  
    
    a $55 million revolving credit facility ($40 million of which may be used for letters
of credit), maturing on December 15, 2009, which is not subject to a borrowing base
limitation, (the 2005 Revolving Credit Facility);
 
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009 (the
2005 Term Loan Facility); and
 
    
    a $5 million addition to the 2005 Term Loan Facility
maturing on March 14, 2008.




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##### Table of Contents




    
    a first lien leverage ratio test; and
 
    
    a minimum total availability test.
  
    
    incur or guarantee additional debt;
 
    
    create or permit to exist certain liens;
 
    
    pledge assets or engage in sale-leaseback transactions;
 
    
    make capital expenditures, other investments or acquisitions;
 
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
 
    
    repurchase or redeem equity interests;
 
    
    change the nature of our business;
 
    
    pay dividends or make other distributions;
 
    
    enter into transactions with affiliates;
 
    
    dispose of assets or enter into mergers or other business combinations; and
 
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our
subsidiaries.
  September 2006 Revolving Trade Receivables Facility




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Value Added Revenue and Print Impressions for the Print Segment
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Print segment VAR (in thousands)
    
    $
    52,010
    
    
    
    51,207
    
    
    
    146,487
    
    
    
    146,272Print segment impressions (in
millions)
    
    
    2,982
    
    
    
    3,098
    
    
    
    8,201
    
    
    
    8,810
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Print segment sales
    
    $
    107,627
    
    
    
    108,330
    
    
    
    291,818
    
    
    
    304,574Paper, ink and subcontract services
    
    
    (55,617
    )
    
    
    (57,123
    )
    
    
    (145,331
    )
    
    
    (158,302
    )Print segment VAR
    
    $
    52,010
    
    
    
    51,207
    
    
    
    146,487
    
    
    
    146,272
 New Accounting Pronouncements




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




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




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ACG HOLDINGS, INC.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description10.1
    (f)
    

Sixth
Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as of
February 12, 2008, among Graphics, Holdings, Bank of America, N.A., as Agent,
and certain lenders.10.11
    (b)
    
    Amendment, dated February 5, 2008, to Amended and Restated American Color
Graphics, Inc. Supplemental Executive Retirement Plan.10.31
    
    
    Second Amendment and Temporary Waiver Agreement dated as of February 12,
2008, among Graphics, Graphics Finance and Bank of America, N.A., as Agent, and
certain lenders.12.1
    
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350
 30




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SIGNATURES
  ACG Holdings, Inc.
American Color Graphics, Inc.Date: February 15, 2008
    By  /s/ Stephen M. DyottStephen M. DyottChairman, President and Chief Executive Officer
ACG Holdings, Inc.
Chairman and Chief Executive Officer
American Color Graphics, Inc.
(Authorized Officer) Date: February 15, 2008
    By  /s/ Patrick W. KellickPatrick W. KellickExecutive Vice President/Chief Financial Officer
and Secretary
(Authorized Officer and
Principal Financial Officer) 31




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EXHIBIT INDEX
 Exhibit
No.
    
    Description10.1
    (f)
    

Sixth
Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as of
February 12, 2008, among Graphics, Holdings, Bank of America, N.A., as Agent,
and certain lenders.10.11
    (b)
    
    Amendment, dated February 5, 2008, to Amended and Restated American Color
Graphics, Inc. Supplemental Executive Retirement Plan.10.31
    
    
    Second Amendment and Temporary Waiver Agreement dated as of February 12,
2008, among Graphics, Graphics Finance and Bank of America, N.A., as Agent, and
certain lenders.12.1
    
    
    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
 32