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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004
 or [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For 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
(615) 377-0377 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) 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
(615) 377-0377 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2) of the Exchange Act.
Yes [  ] No [X] ACG Holdings, Inc. has 160,067 shares outstanding of its Common Stock, $.01 Par
Value, as of July 31, 2004 (all of which are privately owned and not traded on
a public market).




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INDEX Page No.Part I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2004 and March 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and 2003
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2004 and 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    23Signatures
    
    
    24Exhibit Index
    
    
    25EX-12.1 STATEMENT RE COMPUTATION OF EARNINGSEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO
  2




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ACG HOLDINGS, INC. 
   Assets
    
    June 30, 2004
    
    March 31, 2004(Unaudited)Current assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $2,709 and
$2,853 at June 30, 2004 and March 31,
2004, respectively
    
    
    42,420
    
    
    
    42,452Other
    
    
    3,006
    
    
    
    2,533Total receivables
    
    
    45,426
    
    
    
    44,985Inventories
    
    
    9,856
    
    
    
    8,524Deferred income taxes
    
    
    2,313
    
    
    
    2,313Prepaid expenses and other current assets
    
    
    5,784
    
    
    
    4,836Total current assets
    
    
    63,379
    
    
    
    60,658Property, plant and equipment
    
    
    303,784
    
    
    
    303,425Less accumulated depreciation
    
    
    (188,062
    )
    
    
    (182,874
    )Net property, plant and equipment
    
    
    115,722
    
    
    
    120,551Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    19,947
    
    
    
    20,156Total assets
    
    $
    265,596
    
    
    
    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) Liabilities and Stockholders Deficit
    
    June 30, 2004
    
    March 31, 2004(Unaudited)Current liabilities:Current installments of long-term debt and
capitalized leases
    
    $
    4,713
    
    
    
    4,144Trade accounts payable
    
    
    36,995
    
    
    
    29,727Accrued expenses
    
    
    30,343
    
    
    
    42,550Income tax payable
    
    
    110
    
    
    
    9Total current liabilities
    
    
    72,161
    
    
    
    76,430Long-term debt and capitalized leases,
excluding current installments
    
    
    300,905
    
    
    
    294,154Deferred income taxes
    
    
    8,661
    
    
    
    8,624Other liabilities
    
    
    75,251
    
    
    
    77,480Total liabilities
    
    
    456,978
    
    
    
    456,688Commitments
and contingencies (Note 7)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 160,067 shares issued and
outstanding at June 30, 2004 and March 31,
2004
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,098
    
    
    
    2,103Accumulated deficit
    
    
    (171,704
    )
    
    
    (169,516
    )Other accumulated comprehensive loss, net of tax
    
    
    (21,778
    )
    
    
    (21,364
    )Total stockholders deficit
    
    
    (191,382
    )
    
    
    (188,775
    )Total liabilities and stockholders deficit
    
    $
    265,596
    
    
    
    267,913
 See accompanying notes to condensed consolidated financial statements. 4




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ACG HOLDINGS, INC. 
    Three Months EndedJune 30,2004
    
    2003Sales
    
    $
    110,850
    
    
    
    121,687Cost of sales
    
    
    97,987
    
    
    
    102,986Gross profit
    
    
    12,863
    
    
    
    18,701Selling, general and administrative expenses
    
    
    6,570
    
    
    
    7,369Operating income
    
    
    6,293
    
    
    
    11,332Other expense (income):Interest expense
    
    
    8,338
    
    
    
    7,191Interest income
    
    
    
    
    
    
    (1
    )Other, net
    
    
    (137
    )
    
    
    36Total other expense
    
    
    8,201
    
    
    
    7,226Income (loss) from continuing operations
before income taxes
    
    
    (1,908
    )
    
    
    4,106Income tax expense:Current
    
    
    243
    
    
    
    522Deferred
    
    
    37
    
    
    
    27Total income tax expense
    
    
    280
    
    
    
    549Income (loss) from continuing operations
    
    
    (2,188
    )
    
    
    3,557Discontinued operations:Loss from operations, net of $0 tax
    
    
    
    
    
    
    12Loss on disposal, net of $0 tax
    
    
    
    
    
    
    444Net income (loss)
    
    $
    (2,188
    )
    
    
    3,101
 See accompanying notes to condensed consolidated financial statements. 5




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ACG HOLDINGS, INC. 
    Three Months EndedJune 30,2004
    
    2003Cash flows provided (used) by operating activities:Net income (loss)
    
    $
    (2,188
    )
    
    
    3,101Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:Depreciation
    
    
    5,745
    
    
    
    5,925Depreciation related to discontinued operations
    
    
    
    
    
    
    26Amortization of other assets
    
    
    120
    
    
    
    156Amortization of deferred financing costs
    
    
    597
    
    
    
    496Deferred income tax expense
    
    
    37
    
    
    
    27Discontinued operations, net of tax
    
    
    
    
    
    
    873Decrease (increase) in working capital and other
    
    
    (10,249
    )
    
    
    634Net cash provided (used) by operating activities
    
    
    (5,938
    )
    
    
    11,238Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (1,241
    )
    
    
    (4,276
    )Proceeds from sales of property, plant and equipment
    
    
    80
    
    
    
    10Other
    
    
    (89
    )
    
    
    271Net cash used by investing activities
    
    
    (1,250
    )
    
    
    (3,995
    )Cash flows provided (used) by financing activities:Repayment of long-term debt, net
    
    
    
    
    
    
    (5,436
    )Net increase in revolver borrowings
    
    
    8,331
    
    
    
    Repayment of capital lease obligations
    
    
    (1,011
    )
    
    
    (1,428
    )Payment of deferred financing costs
    
    
    (157
    )
    
    
    (256
    )Net cash provided (used) by financing activities
    
    
    7,163
    
    
    
    (7,120
    )Effect of exchange rates on cash
    
    
    25
    
    
    
    (123
    )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. 6




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##### Table of Contents



ACG HOLDINGS, INC. 
   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-month period ended June 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 benefits. 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): June 30,
    
    March 31,2004
    
    2004Paper
    
    $
    7,790
    
    
    
    6,307Ink
    
    
    140
    
    
    
    185Supplies and other
    
    
    1,926
    
    
    
    2,032Total inventories
    
    $
    9,856
    
    
    
    8,524
 7




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 4. Comprehensive Income (Loss) Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, requires foreign currency translation adjustments, minimum pension
liability adjustments and unrealized gains or losses on available-for-sale
securities to be included in comprehensive income (loss). Total comprehensive income (loss) for the three months ended June 30, 2004 and
2003 is as follows (in thousands): Three Months EndedJune 30,2004
    
    2003Net income (loss)
    
    $
    (2,188
    )
    
    
    3,101Foreign currency translation adjustment,
net of tax
    
    
    (414
    )
    
    
    1,056Total comprehensive income (loss)
    
    $
    (2,602
    )
    
    
    4,157
 5.
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. Income tax expense for the three months ended June 30, 2004 and June
30, 2003 relates primarily to current income from foreign operations
that is not offset by U.S. losses. Tax benefit from U.S. losses in
the three months ended June 30, 2004 and tax expense from U.S. income
in the three months ended June 30, 2003 are primarily offset by an
increase and a decrease, respectively, in the valuation allowance. 6. Employee Benefit Plans Components of Net Periodic Benefit Cost (in thousands) Defined Benefit
    
    Defined BenefitPension Plans
    
    Postretirement PlanThree months ended
    
    Three months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    124
    
    
    
    99
    
    
    
    16
    
    
    
    16Interest cost
    
    
    1,116
    
    
    
    1,071
    
    
    
    82
    
    
    
    98Expected return on plan assets
    
    
    (926
    )
    
    
    (684
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (56
    )Amortization of unrecognized
loss
    
    
    533
    
    
    
    616
    
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (33
    )Net periodic benefit cost
    
    $
    847
    
    
    
    1,102
    
    
    
    25
    
    
    
    25
 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 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




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7. Commitments and Contingencies The Company has employment agreements with one of its principal officers and
two other employees. Such agreements provide for minimum salary levels as well
as for incentive bonuses, which are payable if specified management goals are
attained. The aggregate commitment for future compensation at June 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 June 30, 2004 is $48.7 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 June 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. 9




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 8. 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 three months ended June 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    06/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    

    Reserve BalanceSeverance and other employee costs
    
    $
    3,515
    
    
    
    (1,135
    )
    
    
    2,380Lease termination costs
    
    
    3
    
    
    
    
    
    
    
    3Other costs
    
    
    442
    
    
    
    (11
    )
    
    
    431$
    3,960
    
    
    
    (1,146
    )
    
    
    2,814
 During the fiscal year ended March 31, 2004, $1.8 million of these costs were
paid. As of June 30, 2004, the Company believes the restructuring reserve of
approximately $2.8 million is adequate. The Company anticipates that
approximately $2.4 million of the restructuring balance will be paid by March
31, 2005 and the remaining $0.4 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 Companys 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. 10




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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 three months ended June 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    06/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    1,117
    
    
    
    (192
    )
    
    
    925
 During the fiscal year ended March 31, 2004, $0.7 million of these costs were
paid. As of June 30, 2004, the Company believes the restructuring reserve of
approximately $0.9 million is adequate. The Company anticipates that
approximately $0.5 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 Companys 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 three months ended June 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    06/30/04Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    12
    
    
    
    (7
    )
    
    
    5Other costs
    
    
    24
    
    
    
    (8
    )
    
    
    16$
    36
    
    
    
    (15
    )
    
    
    21
 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 June 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 Companys revolving credit facility, as
amended. 11




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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 three months ended June 30, 2004 (in thousands): 03/31/04
    
    
    
    
    
    06/30/04Restructuring
    
    
    
    
    
    RestructuringReserve
    
    
    
    
    
    ReserveBalance
    
    Activity
    
    BalanceSeverance and other
employee costs
    
    $
    100
    
    
    
    (41
    )
    
    
    59Lease termination costs
    
    
    1,232
    
    
    
    (93
    )
    
    
    1,139$
    1,332
    
    
    
    (134
    )
    
    
    1,198
 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 June 30, 2004, the Company believes the restructuring
reserve of approximately $1.2 million is adequate. The Company anticipates that
$0.4 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 Companys revolving credit facility, as amended. 12




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited) 9. Industry Segment Information The Company has significant operations principally in two industry segments:
(1) print and (2) premedia services. All of the Companys print business and
assets are attributed to the print division and all of the Companys premedia
services business and assets are attributed to the premedia services division.
The Companys corporate expenses have been segregated and do not constitute a
reportable segment. The Company has two reportable segments: (1) print and (2) premedia services.
The print business produces advertising inserts, comics 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 benefits. 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
    
    TotalThree Months Ended June 30, 2004Sales
    
    $
    97,201
    
    
    
    13,649
    
    
    
    
    
    
    
    110,850EBITDA as calculated by management
    
    $
    9,895
    
    
    
    3,004
    
    
    
    (741
    )
    
    
    12,158Depreciation and amortization
    
    
    (5,081
    )
    
    
    (784
    )
    
    
    
    
    
    
    (5,865
    )Operating income (loss)
    
    
    4,814
    
    
    
    2,220
    
    
    
    (741
    )
    
    
    6,293Interest expense
    
    
    
    
    
    
    
    
    
    
    (8,338
    )
    
    
    (8,338
    )Other, net
    
    
    48
    
    
    
    89
    
    
    
    
    
    
    
    137Income tax expense
    
    
    
    
    
    
    
    
    
    
    (280
    )
    
    
    (280
    )Net income (loss)
    
    $
    4,862
    
    
    
    2,309
    
    
    
    (9,359
    )
    
    
    (2,188
    )Total assets
    
    $
    235,881
    
    
    
    15,114
    
    
    
    14,601
    
    
    
    265,596Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    940
    
    
    
    301
    
    
    
    
    
    
    
    1,241
 13




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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 June 30, 2003Sales
    
    $
    108,376
    
    
    
    13,311
    
    
    
    
    
    
    
    121,687EBITDA as calculated by management
    
    $
    15,408
    
    
    
    2,715
    
    
    
    (710
    )
    
    
    17,413Depreciation and amortization
    
    
    (5,138
    )
    
    
    (943
    )
    
    
    
    
    
    
    (6,081
    )Operating income (loss)
    
    
    10,270
    
    
    
    1,772
    
    
    
    (710
    )
    
    
    11,332Interest expense
    
    
    
    
    
    
    
    
    
    
    (7,191
    )
    
    
    (7,191
    )Interest income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Other, net
    
    
    6
    
    
    
    (7
    )
    
    
    (35
    )
    
    
    (36
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (549
    )
    
    
    (549
    )Depreciation from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )Discontinued operations excluding
depreciation
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    (430
    )Net income (loss)
    
    $
    10,276
    
    
    
    1,765
    
    
    
    (8,940
    )
    
    
    3,101Total assets
    
    $
    246,988
    
    
    
    17,092
    
    
    
    9,377
    
    
    
    273,457Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    6,154
    
    
    
    157
    
    
    
    
    
    
    
    6,311
 10. 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 6. 14




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ACG HOLDINGS, INC. 
   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. 15




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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 June 30, 2004 (the 2004 Three-Month Period) and the three months ended
June 30, 2003 (the 2003 Three-Month Period): Three Months EndedJune 30,2004
    
    2003(Dollars in thousands)Sales:Print
    
    $
    97,201
    
    
    
    108,376Premedia Services
    
    
    13,649
    
    
    
    13,311Total
    
    $
    110,850
    
    
    
    121,687Gross Profit:Print
    
    $
    9,116
    
    
    
    15,004Premedia Services
    
    
    3,748
    
    
    
    3,698Other
    
    
    (1
    )
    
    
    (1
    )Total
    
    $
    12,863
    
    
    
    18,701Gross Margin:Print
    
    
    9.4
    %
    
    
    13.8
    %Premedia Services
    
    
    27.5
    %
    
    
    27.8
    %Total
    
    
    11.6
    %
    
    
    15.4
    %Operating Income (Loss):Print
    
    $
    4,814
    
    
    
    10,270Premedia Services
    
    
    2,220
    
    
    
    1,772Other (a)
    
    
    (741
    )
    
    
    (710
    )Total
    
    $
    6,293
    
    
    
    11,332
 (a) Includes corporate general and administrative expenses. Print Sales.In the 2004 Three-Month Period, print sales decreased $11.2 million to
$97.2 million from $108.4 million in the 2003 Three-Month Period. The decrease
in the 2004 Three-Month Period includes a decrease in print production volume
of approximately 14%, an increase in customer supplied paper 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. Gross Profit. In the 2004 Three-Month Period, print gross profit decreased
$5.9 million to $9.1 million from $15.0 million in the 2003 Three-Month Period.
In the 2004 Three-Month Period, print gross margin decreased to 9.4% from
13.8% in the 2003 Three-Month Period. The decrease in gross profit includes
the impact of reduced print production volume and continued competitive pricing
pressures. These decreases were offset in part by 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 and increased levels of customer supplied paper
reflected in sales. Our gross margin may not be comparable from period to
period because of the impact of changes in paper prices and levels of customer
supplied paper included in sales. 16




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations Selling, General and Administrative Expenses.In the 2004 Three-Month Period,
print selling, general and administrative expenses decreased $0.4 million, or
9.1%, to $4.3 million, or 4.4% of print sales, from $4.7 million, or 4.4% 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. Operating Income.As a result of the factors discussed above, print operating
income decreased to $4.8 million in the 2004 Three-Month Period from $10.3
million in the 2003 Three-Month Period. Premedia Services Sales.In the 2004 Three-Month Period, premedia services sales increased $0.3
million to $13.6 million from $13.3 million in the 2003 Three-Month Period.
These results are attributable primarily to increases in our premedia packaging
business, offset in part by continued competitive pricing pressures. Gross Profit.In the 2004 Three-Month Period, premedia services gross profit
remained relatively unchanged at $3.7 million from the 2003 Three-Month Period.
In the 2004 Three-Month Period, premedia services gross margin decreased
slightly to 27.5% from 27.8% in the 2003 Three-Month Period. Selling, General and Administrative Expenses.In the 2004 Three-Month Period,
premedia services selling, general and administrative expenses decreased $0.4
million, or 20.7%, to $1.5 million, or 11.2% 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. Operating Income.As a result of the factors discussed above, premedia
services operating income increased to $2.2 million in the 2004 Three-Month
Period from $1.8 million in the 2003 Three-Month Period. Other Operations Other operations consist of corporate general and administrative expenses. In
the 2004 Three-Month Period, operating losses from other operations remained
relatively unchanged at $0.7 million versus the 2003 Three-Month Period. Interest Expense In the 2004 Three-Month Period, interest expense increased to $8.3 million from
$7.2 million in the 2003 Three-Month Period. This increase is attributable
primarily to the higher levels of indebtedness associated with our 2003
refinancing. Income Taxes In the 2004 Three-Month Period, income tax expense decreased to $0.3 million
from $0.5 million in the 2003 Three-Month Period. This decrease is due
primarily to lower amounts of U.S. and foreign taxable income. Management
continues to evaluate the need for a valuation allowance for deferred tax
assets. In the 2004 Three-Month Period, there have been no changes in
circumstances that would cause a change in judgment with respect to the
realization of deferred tax assets in future years. 17




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations 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 benefits. As a result of this sale, Digiscope
has been accounted for as a discontinued operation. Net Income (Loss) As a result of the factors discussed above, net income (loss) decreased to a
loss of $2.2 million in the 2004 Three-Month Period from income of $3.1 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 a $70 million senior secured revolving credit facility with a
syndicate of lenders (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. At June 30, 2004, we had borrowings outstanding under the Revolving Credit
Facility of $8.3 million and had letters of credit outstanding of approximately
$29.3 million. We had additional borrowing availability under the Revolving
Credit Facility of approximately $32.4 million. Payments due on existing
capital lease obligations during the remainder of our fiscal year ending March
31, 2005 (Fiscal Year 2005) are approximately $3.1 million. During the 2004 Three-Month Period, we used net revolver borrowings of $8.3
million and $0.1 million in proceeds from the sale of fixed assets primarily to
fund the following:  
    
    $5.9 million of operating activities (see condensed consolidated
statements of cash flows appearing elsewhere in this Report)
    
    $1.2 million in cash capital expenditures, and
    
    $1.2 million to service other indebtedness (including capital lease
obligations of $1.0 million and deferred financing fees related to the
Revolving Credit Facility and the 10% Notes, defined below, of $0.2
million). Our cash-on-hand of approximately $2.6 million is presented net of outstanding
checks within trade accounts payable at June 30, 2004. Accordingly, cash is
presented at a balance of $0 million in the June 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%
Senior Second Secured Notes Due 2010 (the 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. 18




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations At June 30, 2004, we had total indebtedness of $305.6 million, including
borrowings under the Revolving Credit Facility of $8.3 million, capital lease
obligations of $17.3 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 9 to our
condensed consolidated financial statements appearing elsewhere in this Report.
The definition in note 9 follows the guidelines required under the provisions
of Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 131, Disclosures about Segments of an Enterprise and Related
Information and is reflective of managements calculation of EBITDA. EBITDA
Margin is defined as EBITDA as a percentage of net sales. EBITDA is not a
measure of financial performance under U.S. generally accepted accounting
principles and should not be considered an alternative to net income (loss), or
any other measure of performance under U.S. generally accepted accounting
principles, as a measure of performance, or to cash flows from operating,
investing or financing activities as an indicator of cash flows, or as a
measure of liquidity. Certain covenants in the 10% Senior Second Secured Notes
Indenture and the Revolving Credit Facility, as amended, are based on, or
include EBITDA, subject to certain adjustments. Three Months EndedJune 30,2004
    
    2003(Dollars in thousands)EBITDA:Print
    
    $
    9,943
    
    
    
    15,414Premedia Services
    
    
    3,093
    
    
    
    2,708Other (a)
    
    
    (741
    )
    
    
    (1,175
    )Total
    
    $
    12,295
    
    
    
    16,947EBITDA Margin:Print
    
    
    10.2
    %
    
    
    14.2
    %Premedia Services
    
    
    22.7
    %
    
    
    20.3
    %Total
    
    
    11.1
    %
    
    
    13.9
    %
  (a)
    
    Other operations includes corporate general and administrative expenses
as well as discontinued operations. 19




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations The following table provides a reconciliation (in thousands) of EBITDA to net
income (loss): PremediaPrint
    
    Services
    
    Other
    
    TotalThree Months Ended June 30, 2004EBITDA
    
    $
    9,943
    
    
    
    3,093
    
    
    
    (741
    )
    
    
    12,295Depreciation and amortization
    
    
    (5,081
    )
    
    
    (784
    )
    
    
    
    
    
    
    (5,865
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (8,338
    )
    
    
    (8,338
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (280
    )
    
    
    (280
    )Net income (loss)
    
    $
    4,862
    
    
    
    2,309
    
    
    
    (9,359
    )
    
    
    (2,188
    )Three Months Ended June 30, 2003EBITDA
    
    $
    15,414
    
    
    
    2,708
    
    
    
    (1,175
    )
    
    
    16,947Depreciation and amortization
    
    
    (5,138
    )
    
    
    (943
    )
    
    
    (26
    )
    
    
    (6,107
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (7,190
    )
    
    
    (7,190
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (549
    )
    
    
    (549
    )Net income (loss)
    
    $
    10,276
    
    
    
    1,765
    
    
    
    (8,940
    )
    
    
    3,101
 Value Added Revenue and Print Impressions for the Print Segment We have included value-added revenue (VAR) information to provide a better
understanding of sales activity within our print segment. VAR is a non-GAAP
measure and is defined as sales less the cost of paper, ink and subcontract
services. We generally pass these expenses through to our customers. We also
have included print impressions because we use this as an internal measure of
production throughput. Although we believe print impressions to be indicative
of overall production volume, total impressions may not be fully comparable
period to period due to (1) differences in the type, performance and width of
press equipment utilized and (2) product mix produced. Three Months EndedJune 30,2004
    
    2003Print Segment VAR (in thousands)
    
    $
    48,621
    
    
    
    56,744Print Segment Impressions (in millions)
    
    
    2,861
    
    
    
    3,323
 20




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations The following table provides a reconciliation of print segment sales to print
segment VAR: Three Months EndedJune 30,2004
    
    2003(In thousands)Print Segment Sales
    
    $
    97,201
    
    
    
    108,376Paper, Ink and Subcontract
Services
    
    
    48,580
    
    
    
    51,632Print Segment VAR
    
    $
    48,621
    
    
    
    56,744
 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 6 to our
condensed consolidated financial statements appearing elsewhere in this Report. 21




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ACG HOLDINGS, INC.
Part I 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.  There have been no significant changes since March 31, 2004. Reference
is made to Item 7A (Quantitative and Qualitative Disclosures About Market
Risk) disclosure in our Form 10-K for the fiscal year ended March 31,
2004. 
 Item 4. Controls and Procedures.  As of June 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 June 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 June 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. 22




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##### Table of Contents



ACG HOLDINGS, INC. 
  
 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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.  Recent Sales of Unregistered SecuritiesDuring the quarter ended December 31, 2003, an officer exercised
options to purchase an aggregate of 1,125 shares of Holdings common
stock for $.01/share. The securities that were sold were exempt from
registration on the basis that such an officer is an accredited
investor as defined by the rules of the Securities Act of 1933, as
amended. 
 Item 6. Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits Exhibit No.
    
    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
  (b)
    
    Reports on Form 8-KForm 8-K filed with the Securities and Exchange Commission on May
13, 2004, under Item 7 announced American Color Graphics, Inc.
would host a teleconference to discuss its financial results for
the fourth fiscal quarter and the fiscal year ended March 31, 2004.Form 8-K filed with the Securities and Exchange Commission on May
19, 2004, under Item 12 announced American Color Graphics, Inc.s
financial results for the fourth fiscal quarter and the fiscal year
ended March 31, 2004.There were no other reports filed on Form 8-K in the quarter ended
June 30, 2004.Form 8-K filed with the Securities and Exchange Commission on July
28, 2004 under Item 7, announced American Color Graphics, Inc. will
hold a teleconference to discuss its financial results for the
first quarter of fiscal year ending March 31, 2005 and will host an
investor open house at its Sylacauga, Alabama facility. 23




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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: August 10, 2004
    
    By /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officer
and Assistant Secretary(Authorized Officer and
Principal Financial Officer)Date: August 10, 2004
    
    By /s/ Angela C. MarshallAngela C. MarshallCorporate Controller(Chief Accounting Officer)
 24




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description
    
    Page12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges
    
    
    2631.1
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Executive Officer
    
    
    2731.2
    
    Rule 13a  14(a)/15d-14(a) Certification of Chief Financial Officer
    
    
    2832.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
    
    
    29
 25