##### 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
 x  ̈
   ̈  ̈ x
  ̈ x




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##### Table of Contents



INDEX
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of
September 30, 2006 and March 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Operations for the
Six Months Ended September 30, 2006 and 2005
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2006 and 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    35EXHIBIT INDEX
    
    
    36Ex-10.1(a) First Amendment to Credit AgreementEx-10.20 September 26, 2006 Credit AgreementEx-10.21 Security AgreementEx-10.22 September 26, 2006 Servicing AgreementEx-10.23 Contribution and Sale 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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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  September 30, 2006
    
    
    March 31, 2006(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,184 and
$1,275 at September 30, 2006 and
March 31, 2006, respectively
    
    
    50,865
    
    
    
    41,080Other
    
    
    2,907
    
    
    
    3,463Total receivables
    
    
    53,772
    
    
    
    44,543Inventories
    
    
    7,385
    
    
    
    7,714Deferred income taxes
    
    
    1,409
    
    
    
    1,409Prepaid expenses and other current assets
    
    
    4,894
    
    
    
    4,733Total current assets
    
    
    67,460
    
    
    
    58,399Property, plant and equipment
    
    
    295,952
    
    
    
    287,270Less accumulated depreciation
    
    
    (209,722
    )
    
    
    (199,504
    )Net property, plant and equipment
    
    
    86,230
    
    
    
    87,766Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    19,991
    
    
    
    18,789Total assets
    
    $
    240,229
    
    
    
    231,502
  3




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Balance Sheets
  September 30, 2006
    
    
    March 31, 2006(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current installments of capitalized leases
    
    $
    3,950
    
    
    
    3,731Trade accounts payable
    
    
    37,422
    
    
    
    33,845Accrued expenses
    
    
    31,351
    
    
    
    36,367Income tax payable
    
    
    218
    
    
    
    160Total current liabilities
    
    
    72,941
    
    
    
    74,103Long-term debt and capitalized leases,
excluding current installments
    
    
    341,759
    
    
    
    320,553Deferred income taxes
    
    
    3,399
    
    
    
    3,866Other liabilities
    
    
    59,198
    
    
    
    62,712Total liabilities
    
    
    477,297
    
    
    
    461,234Commitments and contingencies (note 9)Stockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized, 158,205 shares issued and
outstanding at September 30, 2006 and March
31, 2006
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (217,476
    )
    
    
    (209,760
    )Other accumulated comprehensive loss, net of tax
    
    
    (21,632
    )
    
    
    (22,012
    )Total stockholders deficit
    
    
    (237,068
    )
    
    
    (229,732
    )Total liabilities and stockholders deficit
    
    $
    240,229
    
    
    
    231,502
  4




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedSeptember 30,2006
    
    
    2005Sales
    
    $
    111,654
    
    
    
    105,460Cost of sales
    
    
    99,307
    
    
    
    93,684Gross profit
    
    
    12,347
    
    
    
    11,776Selling, general and administrative expenses
    
    
    6,293
    
    
    
    6,308Operating income
    
    
    6,054
    
    
    
    5,468Other expense (income):Interest expense
    
    
    10,020
    
    
    
    9,486Interest income
    
    
    (39
    )
    
    
    (10
    )Other, net
    
    
    448
    
    
    
    291Total other expense
    
    
    10,429
    
    
    
    9,767Loss before income taxes
    
    
    (4,375
    )
    
    
    (4,299
    )Income tax expense (benefit):Current
    
    
    76
    
    
    
    (60
    )Deferred
    
    
    (77
    )
    
    
    (41
    )Total income tax benefit
    
    
    (1
    )
    
    
    (101
    )Net loss
    
    $
    (4,374
    )
    
    
    (4,198
    )
  5




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ACG HOLDINGS, INC.
Condensed Consolidated Statements of Operations
 Six Months EndedSeptember 30,2006
    
    
    2005Sales
    
    $
    221,664
    
    
    
    213,730Cost of sales
    
    
    197,171
    
    
    
    189,304Gross profit
    
    
    24,493
    
    
    
    24,426Selling, general and administrative expenses
    
    
    12,245
    
    
    
    11,994Operating income
    
    
    12,248
    
    
    
    12,432Other expense (income):Interest expense
    
    
    19,625
    
    
    
    18,563Interest income
    
    
    (50
    )
    
    
    (63
    )Other, net
    
    
    675
    
    
    
    482Total other expense
    
    
    20,250
    
    
    
    18,982Loss before income taxes
    
    
    (8,002
    )
    
    
    (6,550
    )Income tax expense (benefit):Current
    
    
    271
    
    
    
    87Deferred
    
    
    (557
    )
    
    
    (49
    )Total income
tax expense (benefit)
    
    
    (286
    )
    
    
    38Net loss
    
    $
    (7,716
    )
    
    
    (6,588
    )
  6




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ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Six Months EndedSeptember 30,2006
    
    
    2005Cash flows provided (used) by operating activities:Net loss
    
    $
    (7,716
    )
    
    
    (6,588
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    9,259
    
    
    
    9,717Amortization of other assets
    
    
    22
    
    
    
    144Amortization of deferred financing costs
    
    
    1,610
    
    
    
    1,483Deferred income tax benefit
    
    
    (557
    )
    
    
    (49
    )Decrease in working capital deficiency and other
    
    
    (14,041
    )
    
    
    (19,910
    )Net cash used by operating activities
    
    
    (11,423
    )
    
    
    (15,203
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (7,250
    )
    
    
    (4,312
    )Proceeds from sale of property, plant and equipment held for sale (note 3)
    
    
    
    
    
    
    6,877Proceeds from other sales of property, plant and equipment
    
    
    12
    
    
    
    167Other
    
    
    (131
    )
    
    
    (162
    )Net cash provided (used) by investing activities
    
    
    (7,369
    )
    
    
    2,570Cash flows provided (used) by financing activities:Proceeds from 2005 term loan facility (note 4)
    
    
    
    
    
    
    35,000Net increase (decrease) in revolver borrowings
    
    
    23,250
    
    
    
    (16,000
    )Repayment and buyout of capital lease obligations
    
    
    (1,825
    )
    
    
    (2,904
    )Payment of deferred financing costs
    
    
    (2,608
    )
    
    
    (3,457
    )Net cash provided by financing activities
    
    
    18,817
    
    
    
    12,639Effect of exchange rates on cash
    
    
    (25
    )
    
    
    (6
    )Net change in cash
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
  7




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ACG HOLDINGS, INC.
 
 Notes to Condensed Consolidated Financial Statements
  Description of the Company
  1. Basis of Presentation
   2. Inventories
  September 30,
    
    
    March 31,2006
    
    
    2006Paper
    
    $
    5,663
    
    
    
    5,959Ink
    
    
    132
    
    
    
    140Supplies and other
    
    
    1,590
    
    
    
    1,615Total inventories
    
    $
    7,385
    
    
    
    7,714
 3. Assets and Liabilities Held For Sale
  8




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




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
    5. September 26, 2006 Revolving Trade Receivables Facility
        10




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   6. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (4,374
    )
    
    
    (4,198
    )
    
    
    (7,716
    )
    
    
    (6,588
    )Foreign currency
translation
adjustment, net
of tax
    
    
    (28
    )
    
    
    358
    
    
    
    380
    
    
    
    117Total comprehensive loss
    
    $
    (4,402
    )
    
    
    (3,840
    )
    
    
    (7,336
    )
    
    
    (6,471
    )
 7. Income Taxes
   11




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 8. Employee Benefit Plans
 Components of Net Periodic Benefit Cost (in thousands)
 Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement PlanThree months ended
    
    
    Three months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    98
    
    
    
    97
    
    
    
    11
    
    
    
    12Interest cost
    
    
    889
    
    
    
    967
    
    
    
    68
    
    
    
    62Expected return on plan assets
    
    
    (1,070
    )
    
    
    (861
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (56
    )Amortization of unrecognized loss
    
    
    411
    
    
    
    409
    
    
    
    
    
    
    
    Recognized net actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (6
    )Net periodic benefit cost
    
    $
    328
    
    
    
    612
    
    
    
    12
    
    
    
    12
 Six months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    231
    
    
    
    232
    
    
    
    23
    
    
    
    25Interest cost
    
    
    2,119
    
    
    
    2,242
    
    
    
    136
    
    
    
    124Expected return on plan assets
    
    
    (2,443
    )
    
    
    (2,131
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    (111
    )Amortization of unrecognized loss
    
    
    1,016
    
    
    
    1,002
    
    
    
    
    
    
    
    Recognized net actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (13
    )Net periodic benefit cost
    
    $
    923
    
    
    
    1,345
    
    
    
    25
    
    
    
    25
 9. Commitments and Contingencies
   12




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
     10. Restructuring Costs
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
   13




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/06
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    
    576
    
    
    
    (87
    )
    
    
    489Other costs
    
    
    12
    
    
    
    
    
    
    
    12$
    588
    
    
    
    (87
    )
    
    
    501
  Pittsburg Facility Closure Plan
   14




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/06
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    $
    599
    
    
    
    (1
    )
    
    
    598Other costs
    
    
    26
    
    
    
    
    
    
    
    26$
    625
    
    
    
    (1
    )
    
    
    624
  Plant and SG&A Reduction Plan
    03/31/06
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    848
    
    
    
    (388
    )
    
    
    460Other costs
    
    
    103
    
    
    
    (1
    )
    
    
    102$
    951
    
    
    
    (389
    )
    
    
    562
 15




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Fiscal Year 2004 Restructuring Costs
 January 2004 Plan
     03/31/06
    
    
    
    
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee
costs
    
    $
    223
    
    
    
    
    
    
    
    
    
    
    
    223Other costs
    
    
    110
    
    
    
    (95
    )
    
    
    (11
    )
    
    
    4$
    333
    
    
    
    (95
    )
    
    
    (11
    )
    
    
    227
  16




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 July 2003 Plan
    03/31/06
    
    
    
    
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    102
    
    
    
    (113
    )
    
    
    11
    
    
    
    
  Fiscal Year 2002 Restructuring Costs
   17




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   03/31/06
    
    
    
    
    
    
    09/30/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    $
    1,528
    
    
    
    (181
    )
    
    
    1,347
  11. Industry Segment Information
     18




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalSix Months Ended September 30, 2006Sales
    
    $
    196,244
    
    
    
    25,420
    
    
    
    
    
    
    
    221,664EBITDA
    
    $
    17,678
    
    
    
    5,202
    
    
    
    (2,026
    )
    
    
    20,854Depreciation and amortization
    
    
    (8,245
    )
    
    
    (1,036
    )
    
    
    
    
    
    
    (9,281
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (19,625
    )
    
    
    (19,625
    )Interest income
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50Income tax benefit
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    286Net income (loss)
    
    $
    9,433
    
    
    
    4,166
    
    
    
    (21,315
    )
    
    
    (7,716
    )Total assets
    
    $
    214,540
    
    
    
    11,594
    
    
    
    14,095
    
    
    
    240,229Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    6,891
    
    
    
    359
    
    
    
    
    
    
    
    7,250Six Months Ended September 30, 2005Sales
    
    $
    186,213
    
    
    
    27,517
    
    
    
    
    
    
    
    213,730EBITDA
    
    $
    17,438
    
    
    
    6,019
    
    
    
    (1,646
    )
    
    
    21,811Depreciation and amortization
    
    
    (8,509
    )
    
    
    (1,352
    )
    
    
    
    
    
    
    (9,861
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (18,563
    )
    
    
    (18,563
    )Interest income
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Income tax expense
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Net income (loss)
    
    $
    8,929
    
    
    
    4,667
    
    
    
    (20,184
    )
    
    
    (6,588
    )Total assets
    
    $
    220,261
    
    
    
    15,242
    
    
    
    15,190
    
    
    
    250,693Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    3,799
    
    
    
    513
    
    
    
    
    
    
    
    4,312Three Months Ended September 30, 2006Sales
    
    $
    99,091
    
    
    
    12,563
    
    
    
    
    
    
    
    111,654EBITDA
    
    $
    8,996
    
    
    
    2,436
    
    
    
    (1,188
    )
    
    
    10,244Depreciation and amortization
    
    
    (4,129
    )
    
    
    (509
    )
    
    
    
    
    
    
    (4,638
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,020
    )
    
    
    (10,020
    )Interest income
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net income (loss)
    
    $
    4,867
    
    
    
    1,927
    
    
    
    (11,168
    )
    
    
    (4,374
    )Total assets
    
    $
    214,540
    
    
    
    11,594
    
    
    
    14,095
    
    
    
    240,229Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    4,086
    
    
    
    141
    
    
    
    
    
    
    
    4,227
 19




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalThree Months Ended September 30, 2005Sales
    
    $
    91,671
    
    
    
    13,789
    
    
    
    
    
    
    
    105,460EBITDA
    
    $
    7,997
    
    
    
    3,077
    
    
    
    (1,014
    )
    
    
    10,060Depreciation and amortization
    
    
    (4,227
    )
    
    
    (656
    )
    
    
    
    
    
    
    (4,883
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (9,486
    )
    
    
    (9,486
    )Interest income
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Income tax benefit
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Net income (loss)
    
    $
    3,770
    
    
    
    2,421
    
    
    
    (10,389
    )
    
    
    (4,198
    )Total assets
    
    $
    220,261
    
    
    
    15,242
    
    
    
    15,190
    
    
    
    250,693Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    2,153
    
    
    
    218
    
    
    
    
    
    
    
    2,371
 12. Impact of Recently Issued Accounting Standards
   20




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ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   21




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ACG HOLDINGS, INC.
 
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Special Note Regarding Forward Looking Statements
  
    
    a failure to achieve expected cost reductions or to execute other key strategies;
    
    fluctuations in the cost of paper, ink and other key raw materials;
    
    changes in the advertising and print markets;
    
    actions by our competitors, particularly with respect to pricing;
    
    the financial condition of our customers;
    
    downgrades of our credit ratings;
    
    our financial condition and liquidity and our leverage and debt service obligations;
    
    the general condition of the United States economy;
    
    interest rate and foreign currency exchange rate fluctuations;
    
    the level of capital resources required for our operations;
    
    changes in the legal and regulatory environment;
    
    the demand for our products and services; and
    
    other risks and uncertainties, including the matters set forth in this Report
generally and those described from time to time in our filings with the Securities and
Exchange Commission.
   22




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Sales:Print
    
    $
    99,091
    
    
    
    91,671
    
    
    
    196,244
    
    
    
    186,213Premedia Services
    
    
    12,563
    
    
    
    13,789
    
    
    
    25,420
    
    
    
    27,517Total
    
    $
    111,654
    
    
    
    105,460
    
    
    
    221,664
    
    
    
    213,730Gross Profit:Print
    
    $
    8,938
    
    
    
    7,751
    
    
    
    17,342
    
    
    
    16,718Premedia Services
    
    
    3,410
    
    
    
    4,026
    
    
    
    7,153
    
    
    
    7,710Other
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Total
    
    $
    12,347
    
    
    
    11,776
    
    
    
    24,493
    
    
    
    24,426Gross Margin:Print
    
    
    9.0
    %
    
    
    8.5
    %
    
    
    8.8
    %
    
    
    9.0
    %Premedia Services
    
    
    27.1
    %
    
    
    29.2
    %
    
    
    28.1
    %
    
    
    28.0
    %Total
    
    
    11.1
    %
    
    
    11.2
    %
    
    
    11.0
    %
    
    
    11.4
    %EBITDA:Print
    
    $
    8,996
    
    
    
    7,997
    
    
    
    17,678
    
    
    
    17,438Premedia Services
    
    
    2,436
    
    
    
    3,077
    
    
    
    5,202
    
    
    
    6,019Other(a)
    
    
    (1,188
    )
    
    
    (1,014
    )
    
    
    (2,026
    )
    
    
    (1,646
    )Total
    
    $
    10,244
    
    
    
    10,060
    
    
    
    20,854
    
    
    
    21,811EBITDA Margin:Print
    
    
    9.1
    %
    
    
    8.7
    %
    
    
    9.0
    %
    
    
    9.4
    %Premedia Services
    
    
    19.4
    %
    
    
    22.3
    %
    
    
    20.5
    %
    
    
    21.9
    %Total
    
    
    9.2
    %
    
    
    9.5
    %
    
    
    9.4
    %
    
    
    10.2
    %
   23




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalThree Months Ended September
30, 2006EBITDA
    
    $
    8,996
    
    
    
    2,436
    
    
    
    (1,188
    )
    
    
    10,244Depreciation and amortization
    
    
    (4,129
    )
    
    
    (509
    )
    
    
    
    
    
    
    (4,638
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,981
    )
    
    
    (9,981
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Net income (loss)
    
    $
    4,867
    
    
    
    1,927
    
    
    
    (11,168
    )
    
    
    (4,374
    )Three Months Ended September
30, 2005EBITDA
    
    $
    7,997
    
    
    
    3,077
    
    
    
    (1,014
    )
    
    
    10,060Depreciation and amortization
    
    
    (4,227
    )
    
    
    (656
    )
    
    
    
    
    
    
    (4,883
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,476
    )
    
    
    (9,476
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Net income (loss)
    
    $
    3,770
    
    
    
    2,421
    
    
    
    (10,389
    )
    
    
    (4,198
    )Six Months Ended September 30, 2006EBITDA
    
    $
    17,678
    
    
    
    5,202
    
    
    
    (2,026
    )
    
    
    20,854Depreciation and amortization
    
    
    (8,245
    )
    
    
    (1,036
    )
    
    
    
    
    
    
    (9,281
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (19,575
    )
    
    
    (19,575
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    286Net income (loss)
    
    $
    9,433
    
    
    
    4,166
    
    
    
    (21,315
    )
    
    
    (7,716
    )Six Months Ended September 30, 2005EBITDA
    
    $
    17,438
    
    
    
    6,019
    
    
    
    (1,646
    )
    
    
    21,811Depreciation and amortization
    
    
    (8,509
    )
    
    
    (1,352
    )
    
    
    
    
    
    
    (9,861
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (18,500
    )
    
    
    (18,500
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Net income (loss)
    
    $
    8,929
    
    
    
    4,667
    
    
    
    (20,184
    )
    
    
    (6,588
    )
 Print
 Sales.
  24




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##### Table of Contents



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




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
   Gross Profit.
  Selling, General and Administrative Expenses.
  Other Expense (Income).
  EBITDA.
 Other Operations
  26




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Interest Expense, Net
  Income Tax Expense (Benefit)
    Net Income (Loss)
  Liquidity and Capital Resources
 May 2005 Refinancing Transaction
  
    
    a $55 million revolving credit facility ($40 million of which may
be used for letters of credit), which is not subject to a
borrowing base limitation, maturing on December 15, 2009 (the
2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on
December 15, 2009 (the 2005 Term Loan Facility).
  27




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to us from our subsidiaries;
    
    create or permit to exist certain liens; and
    
    pledge assets or engage in sale-leaseback transactions.
  September 2006 Revolving Trade Receivables Facility
     28




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
    .
  Summary of Liquidity and Capital Resources
     
    
    $11.4 million of operating activities (see our condensed consolidated statements of cash
flows appearing elsewhere in this Report);
    
    $7.3 million in cash capital expenditures; and
    
    $4.4 million to service other indebtedness (including repayment of capital lease
obligations of $1.8 million and payment of deferred financing costs of $2.6 million).
 29




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
     Value Added Revenue and Print Impressions for the Print Segment
  Three Months Ended
    
    
    Six-Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Print segment VAR (in thousands)
    
    $
    47,992
    
    
    
    44,257
    
    
    
    95,065
    
    
    
    89,685Print segment impressions (in
millions)
    
    
    2,848
    
    
    
    2,760
    
    
    
    5,712
    
    
    
    5,448
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Print segment sales
    
    $
    99,091
    
    
    
    91,671
    
    
    
    196,244
    
    
    
    186,213Paper, ink and subcontract services
    
    
    (51,099
    )
    
    
    (47,414
    )
    
    
    (101,179
    )
    
    
    (96,528
    )Print segment VAR
    
    $
    47,992
    
    
    
    44,257
    
    
    
    95,065
    
    
    
    89,685
 30




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 New Accounting Pronouncements
     31




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##### Table of Contents



ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Contractual Obligations
  32




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##### Table of Contents



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.
  33




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ACG HOLDINGS, INC.
PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description10.1
    (a)
    
    First Amendment to May 5, 2005 Amended and Restated Credit
Agreement dated as of September 26, 2006, among Graphics and Holdings; with Bank
of America, N.A., as Administrative Agent and L/C Issuer; and Banc of America
Securities, LLC, as Sole Lead Arranger and Sole Book Manager, and certain lenders10.20
    
    
    Credit Agreement dated as of September 26, 2006, among American
Color Graphics Finance, LLC; with Bank of America, N.A., as Administrative Agent
and Collateral Agent; and Banc of America Securities, LLC, as Sole Lead Arranger
and Sole Book Manager10.21
    
    
    Security Agreement dated as of September 26, 2006, between American
Color Graphics Finance, LLC; among Bank of America, N.A., as Collateral Agent10.22
    
    
    Servicing Agreement dated as of September 26, 2006, by and among
American Color Graphics, Inc., as Servicer, American Color Graphics Finance, LLC,
as Purchaser, and Bank of America, N.A., as Administrative Agent and Collateral
Agent10.23
    
    
    Contribution and Sale Agreement dated as of September 26, 2006,
by and between American Color Graphics, Inc., as Seller and American
Color Graphics Finance, LLC, as Purchaser12.1
    
    
    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
 34




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##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.
American Color Graphics, Inc.Date: November 13, 2006
    By  /s/ Stephen M. DyottStephen M. DyottChairman, President and Chief Executive Officer
(Authorized Officer) Date: November 13, 2006
    By  /s/ Patrick W. KellickPatrick W. KellickSenior Vice President/Chief Financial Officer
and Secretary
(Authorized Officer and
Principal Financial Officer) 35




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    (a)
    
    First Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as
of September 26, 2006, among Graphics and Holdings; with Bank of America, N.A., as
Administrative Agent and L/C Issuer; and Banc of America Securities, LLC, as Sole Lead
Arranger and Sole Book Manager, and certain lenders10.20
    
    
    Credit Agreement dated as of September 26, 2006, among American Color Graphics
Finance, LLC; with Bank of America, N.A., as Administrative Agent and Collateral Agent;
and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager10.21
    
    
    Security Agreement dated as of September 26, 2006, between American
Color Graphics Finance, LLC; among Bank of America, N.A., as Collateral Agent10.22
    
    
    Servicing Agreement dated as of September 26, 2006, by and among American
Color Graphics, Inc., as Servicer, American Color Graphics Finance, LLC, as
Purchaser, and Bank of America, N.A., as Administrative Agent and Collateral
Agent10.23
    
    
    Contribution and Sale Agreement dated as of September 26, 2006, by and
between American Color Graphics, Inc., as Seller and American Color
Graphics Finance, LLC, as Purchaser12.1
    
    
    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
 36