##### 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
 For the quarterly period ended December 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 33-97090
 ACG HOLDINGS, INC.
  Delaware
    
    62-1395968(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)100 Winners Circle, Brentwood, Tennessee
    
    37027(Address of Principal Executive Offices)
    
    (Zip Code)
 (615) 377-0377
 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
 þ o
  o o þ
 o þ




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##### 










INDEX


PAGEPART
I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Condensed Consolidated Balance Sheets as of
December 31, 2006 and March 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended December 31, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Operations for the
Nine Months Ended December 31, 2006 and 2005
    
    
    6Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 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-12.1 STATEMENT RE: COMPUTATION OF RATIO TO 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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##### Table of Contents



ACG HOLDINGS, INC.
 
 PART I  FINANCIAL INFORMATION
 
 Condensed Consolidated Balance Sheets
  December 31, 2006
    
    
    March 31, 2006(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for
doubtful accounts of $1,031 and
$1,275 at December 31, 2006 and March
31, 2006, respectively
    
    
    48,325
    
    
    
    41,080Other
    
    
    2,530
    
    
    
    3,463Total receivables
    
    
    50,855
    
    
    
    44,543Inventories
    
    
    7,831
    
    
    
    7,714Deferred income taxes
    
    
    1,409
    
    
    
    1,409Prepaid expenses and other current assets
    
    
    4,875
    
    
    
    4,733Total current assets
    
    
    64,970
    
    
    
    58,399Property, plant and equipment
    
    
    296,283
    
    
    
    287,270Less accumulated depreciation
    
    
    (213,167
    )
    
    
    (199,504
    )Net property, plant and equipment
    
    
    83,116
    
    
    
    87,766Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    19,298
    
    
    
    18,789Total assets
    
    $
    233,932
    
    
    
    231,502
  3




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##### Table of Contents



ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
 December 31, 2006
    
    
    March 31, 2006(Unaudited)Liabilities and Stockholders DeficitCurrent liabilities:Current installments of capitalized leases
    
    $
    3,605
    
    
    
    3,731Trade accounts payable
    
    
    35,219
    
    
    
    33,845Accrued expenses
    
    
    28,104
    
    
    
    36,367Income tax payable
    
    
    438
    
    
    
    160Total current liabilities
    
    
    67,366
    
    
    
    74,103Long-term debt and capitalized leases,
excluding current installments
    
    
    348,337
    
    
    
    320,553Deferred income taxes
    
    
    3,224
    
    
    
    3,866Other liabilities
    
    
    56,998
    
    
    
    62,712Total liabilities
    
    
    475,925
    
    
    
    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 December 31, 2006 and March
31, 2006
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (221,930
    )
    
    
    (209,760
    )Other accumulated comprehensive loss, net of tax
    
    
    (22,103
    )
    
    
    (22,012
    )Total stockholders deficit
    
    
    (241,993
    )
    
    
    (229,732
    )Total liabilities and stockholders deficit
    
    $
    233,932
    
    
    
    231,502
  4




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Three Months EndedDecember 31,2006
    
    
    2005Sales
    
    $
    120,065
    
    
    
    118,724Cost of sales
    
    
    106,947
    
    
    
    103,813Gross profit
    
    
    13,118
    
    
    
    14,911Selling, general and administrative expenses
    
    
    6,595
    
    
    
    7,119Restructuring costs (benefit)
    
    
    
    
    
    
    (502
    )Operating income
    
    
    6,523
    
    
    
    8,294Other expense (income):Interest expense
    
    
    10,301
    
    
    
    9,473Interest income
    
    
    (43
    )
    
    
    (14
    )Other, net
    
    
    581
    
    
    
    7Total other expense
    
    
    10,839
    
    
    
    9,466Loss before income taxes
    
    
    (4,316
    )
    
    
    (1,172
    )Income tax expense (benefit):Current
    
    
    223
    
    
    
    121Deferred
    
    
    (85
    )
    
    
    (3,545
    )Total income tax expense (benefit)
    
    
    138
    
    
    
    (3,424
    )Net income (loss)
    
    $
    (4,454
    )
    
    
    2,252
  5




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Operations
   Nine Months EndedDecember 31,2006
    
    
    2005Sales
    
    $
    341,729
    
    
    
    332,454Cost of sales
    
    
    304,118
    
    
    
    293,117Gross profit
    
    
    37,611
    
    
    
    39,337Selling, general and administrative expenses
    
    
    18,840
    
    
    
    19,113Restructuring costs (benefit)
    
    
    
    
    
    
    (502
    )Operating income
    
    
    18,771
    
    
    
    20,726Other expense (income):Interest expense
    
    
    29,926
    
    
    
    28,036Interest income
    
    
    (93
    )
    
    
    (77
    )Other, net
    
    
    1,256
    
    
    
    489Total other expense
    
    
    31,089
    
    
    
    28,448Loss before income taxes
    
    
    (12,318
    )
    
    
    (7,722
    )Income tax expense (benefit):Current
    
    
    494
    
    
    
    208Deferred
    
    
    (642
    )
    
    
    (3,594
    )Total income tax benefit
    
    
    (148
    )
    
    
    (3,386
    )Net loss
    
    $
    (12,170
    )
    
    
    (4,336
    )
  6




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##### Table of Contents



ACG HOLDINGS, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Nine Months EndedDecember 31,2006
    
    
    2005Cash flows provided (used) by operating activities:Net loss
    
    $
    (12,170
    )
    
    
    (4,336
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation
    
    
    13,854
    
    
    
    14,397Amortization of other assets
    
    
    32
    
    
    
    215Amortization of deferred financing costs
    
    
    2,555
    
    
    
    2,242Deferred income tax benefit
    
    
    (642
    )
    
    
    (3,594
    )Decrease in working capital deficiency and other
    
    
    (19,159
    )
    
    
    (21,019
    )Net cash used by operating activities
    
    
    (15,530
    )
    
    
    (12,095
    )Cash flows provided (used) by investing activities:Purchases of property, plant and equipment
    
    
    (9,184
    )
    
    
    (6,475
    )Proceeds from sale of property, plant and equipment held
for sale (note 3)
    
    
    
    
    
    
    6,877Proceeds from other sales of property, plant and equipment
    
    
    62
    
    
    
    213Other
    
    
    (135
    )
    
    
    (184
    )Net cash provided (used) by investing activities
    
    
    (9,257
    )
    
    
    431Cash flows provided (used) by financing activities:Proceeds from 2005 term loan facility (note 4)
    
    
    
    
    
    
    35,000Net increase (decrease) in revolver borrowings
    
    
    30,471
    
    
    
    (16,000
    )Repayment and buyout of capital lease obligations
    
    
    (2,813
    )
    
    
    (3,784
    )Payment of deferred financing costs
    
    
    (2,871
    )
    
    
    (3,526
    )Net cash provided by financing activities
    
    
    24,787
    
    
    
    11,690Effect of exchange rates on cash
    
    
    
    
    
    
    (26
    )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
  December 31,
    
    
    March 31,2006
    
    
    2006Paper
    
    $
    5,854
    
    
    
    5,959Ink
    
    
    132
    
    
    
    140Supplies and other
    
    
    1,845
    
    
    
    1,615Total inventories
    
    $
    7,831
    
    
    
    7,714
 3. Assets and Liabilities Held For Sale
  8




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##### Table of Contents



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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##### Table of Contents



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




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
   6. Comprehensive Income (Loss)
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    (4,454
    )
    
    
    2,252
    
    
    
    (12,170
    )
    
    
    (4,336
    )Foreign currency translation adjustment, net of tax
    
    
    (471
    )
    
    
    96
    
    
    
    (91
    )
    
    
    213Total comprehensive income (loss)
    
    $
    (4,925
    )
    
    
    2,348
    
    
    
    (12,261
    )
    
    
    (4,123
    )
 7. Income Taxes
    11




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##### Table of Contents



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 endedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    111
    
    
    
    125
    
    
    
    (5
    )
    
    
    8Interest cost
    
    
    1,037
    
    
    
    1,104
    
    
    
    (31
    )
    
    
    46Expected return on plan assets
    
    
    (1,209
    )
    
    
    (1,065
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (71
    )
    
    
    (55
    )Amortization of unrecognized loss
    
    
    497
    
    
    
    509
    
    
    
    
    
    
    
    Recognized net actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    14Net periodic benefit cost
    
    $
    436
    
    
    
    673
    
    
    
    (109
    )
    
    
    13
 Nine months ended
    
    
    Nine months endedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    342
    
    
    
    357
    
    
    
    18
    
    
    
    33Interest cost
    
    
    3,156
    
    
    
    3,346
    
    
    
    105
    
    
    
    170Expected return on plan assets
    
    
    (3,652
    )
    
    
    (3,196
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    (166
    )Amortization of unrecognized loss
    
    
    1,513
    
    
    
    1,511
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1Net periodic benefit cost
    
    $
    1,359
    
    
    
    2,018
    
    
    
    (84
    )
    
    
    38
 9. Commitments and Contingencies
   12




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##### Table of Contents



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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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/06
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    $
    576
    
    
    
    (123
    )
    
    
    453Other costs
    
    
    12
    
    
    
    
    
    
    
    12$
    588
    
    
    
    (123
    )
    
    
    465
  Pittsburg Facility Closure Plan
   14




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  03/31/06
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    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
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceSeverance and other employee costs
    
    $
    848
    
    
    
    (557
    )
    
    
    291Other costs
    
    
    103
    
    
    
    (2
    )
    
    
    101$
    951
    
    
    
    (559
    )
    
    
    392
 15




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
  Fiscal Year 2004 Restructuring Costs
 January 2004 Plan
     03/31/06
    
    
    
    
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    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
    
    
    
    
    
    
    12/31/06Restructuring
    
    
    
    
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Reserve BalanceLease termination costs
    
    $
    1,528
    
    
    
    (256
    )
    
    
    1,272
  11. Industry Segment Information
     18




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalNine Months Ended December 31, 2006Sales
    
    $
    304,574
    
    
    
    37,155
    
    
    
    
    
    
    
    341,729EBITDA
    
    $
    27,926
    
    
    
    6,872
    
    
    
    (3,397
    )
    
    
    31,401Depreciation and amortization
    
    
    (12,334
    )
    
    
    (1,552
    )
    
    
    
    
    
    
    (13,886
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (29,926
    )
    
    
    (29,926
    )Interest income
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93Income tax benefit
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148Net income (loss)
    
    $
    15,592
    
    
    
    5,320
    
    
    
    (33,082
    )
    
    
    (12,170
    )Total assets
    
    $
    209,694
    
    
    
    10,824
    
    
    
    13,414
    
    
    
    233,932Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    8,626
    
    
    
    558
    
    
    
    
    
    
    
    9,184Nine Months Ended December 31, 2005Sales
    
    $
    291,219
    
    
    
    41,235
    
    
    
    
    
    
    
    332,454EBITDA
    
    $
    28,587
    
    
    
    8,730
    
    
    
    (2,468
    )
    
    
    34,849Depreciation and amortization
    
    
    (12,635
    )
    
    
    (1,977
    )
    
    
    
    
    
    
    (14,612
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (28,036
    )
    
    
    (28,036
    )Interest income
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    77Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,386
    
    
    
    3,386Net income (loss)
    
    $
    15,952
    
    
    
    6,753
    
    
    
    (27,041
    )
    
    
    (4,336
    )Total assets
    
    $
    214,966
    
    
    
    15,117
    
    
    
    14,435
    
    
    
    244,518Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    5,576
    
    
    
    899
    
    
    
    
    
    
    
    6,475Three Months Ended December 31, 2006Sales
    
    $
    108,330
    
    
    
    11,735
    
    
    
    
    
    
    
    120,065EBITDA
    
    $
    10,248
    
    
    
    1,670
    
    
    
    (1,371
    )
    
    
    10,547Depreciation and amortization
    
    
    (4,089
    )
    
    
    (516
    )
    
    
    
    
    
    
    (4,605
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (10,301
    )
    
    
    (10,301
    )Interest income
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Income tax expense
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Net income (loss)
    
    $
    6,159
    
    
    
    1,154
    
    
    
    (11,767
    )
    
    
    (4,454
    )Total assets
    
    $
    209,694
    
    
    
    10,824
    
    
    
    13,414
    
    
    
    233,932Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    1,735
    
    
    
    199
    
    
    
    
    
    
    
    1,934
 19




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##### Table of Contents



ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
 Premedia
    
    
    Corporate(In thousands)
    
    Print
    
    
    Services
    
    
    and Other
    
    
    TotalThree Months Ended December 31, 2005Sales
    
    $
    105,006
    
    
    
    13,718
    
    
    
    
    
    
    
    118,724EBITDA
    
    $
    11,149
    
    
    
    2,711
    
    
    
    (822
    )
    
    
    13,038Depreciation and amortization
    
    
    (4,126
    )
    
    
    (625
    )
    
    
    
    
    
    
    (4,751
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (9,473
    )
    
    
    (9,473
    )Interest income
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,424
    
    
    
    3,424Net income (loss)
    
    $
    7,023
    
    
    
    2,086
    
    
    
    (6,857
    )
    
    
    2,252Total assets
    
    $
    214,966
    
    
    
    15,117
    
    
    
    14,435
    
    
    
    244,518Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    1,777
    
    
    
    386
    
    
    
    
    
    
    
    2,163
 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Sales:Print
    
    $
    108,330
    
    
    
    105,006
    
    
    
    304,574
    
    
    
    291,219Premedia Services
    
    
    11,735
    
    
    
    13,718
    
    
    
    37,155
    
    
    
    41,235Total
    
    $
    120,065
    
    
    
    118,724
    
    
    
    341,729
    
    
    
    332,454Gross Profit:Print
    
    $
    10,464
    
    
    
    11,098
    
    
    
    27,806
    
    
    
    27,816Premedia Services
    
    
    2,646
    
    
    
    3,814
    
    
    
    9,799
    
    
    
    11,524Other
    
    
    8
    
    
    
    (1
    )
    
    
    6
    
    
    
    (3
    )Total
    
    $
    13,118
    
    
    
    14,911
    
    
    
    37,611
    
    
    
    39,337Gross Margin:Print
    
    
    9.7
    %
    
    
    10.6
    %
    
    
    9.1
    %
    
    
    9.6
    %Premedia Services
    
    
    22.5
    %
    
    
    27.8
    %
    
    
    26.4
    %
    
    
    27.9
    %Total
    
    
    10.9
    %
    
    
    12.6
    %
    
    
    11.0
    %
    
    
    11.8
    %EBITDA:Print
    
    $
    10,248
    
    
    
    11,149
    
    
    
    27,926
    
    
    
    28,587Premedia Services
    
    
    1,670
    
    
    
    2,711
    
    
    
    6,872
    
    
    
    8,730Other (a)
    
    
    (1,371
    )
    
    
    (822
    )
    
    
    (3,397
    )
    
    
    (2,468
    )Total
    
    $
    10,547
    
    
    
    13,038
    
    
    
    31,401
    
    
    
    34,849EBITDA Margin:Print
    
    
    9.5
    %
    
    
    10.6
    %
    
    
    9.2
    %
    
    
    9.8
    %Premedia Services
    
    
    14.2
    %
    
    
    19.8
    %
    
    
    18.5
    %
    
    
    21.2
    %Total
    
    
    8.8
    %
    
    
    11.0
    %
    
    
    9.2
    %
    
    
    10.5
    %
 
 (a)
    
    Other operations include corporate general and administrative expenses.  23




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Print
    
    
    Premedia Services
    
    
    Other
    
    
    TotalThree Months Ended December
31, 2006EBITDA
    
    $
    10,248
    
    
    
    1,670
    
    
    
    (1,371
    )
    
    
    10,547Depreciation and amortization
    
    
    (4,089
    )
    
    
    (516
    )
    
    
    
    
    
    
    (4,605
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (10,258
    )
    
    
    (10,258
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Net income (loss)
    
    $
    6,159
    
    
    
    1,154
    
    
    
    (11,767
    )
    
    
    (4,454
    )Three Months Ended December
31, 2005EBITDA
    
    $
    11,149
    
    
    
    2,711
    
    
    
    (822
    )
    
    
    13,038Depreciation and amortization
    
    
    (4,126
    )
    
    
    (625
    )
    
    
    
    
    
    
    (4,751
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (9,459
    )
    
    
    (9,459
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,424
    
    
    
    3,424Net income (loss)
    
    $
    7,023
    
    
    
    2,086
    
    
    
    (6,857
    )
    
    
    2,252Nine Months Ended December
31, 2006EBITDA
    
    $
    27,926
    
    
    
    6,872
    
    
    
    (3,397
    )
    
    
    31,401Depreciation and amortization
    
    
    (12,334
    )
    
    
    (1,552
    )
    
    
    
    
    
    
    (13,886
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (29,833
    )
    
    
    (29,833
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148Net income (loss)
    
    $
    15,592
    
    
    
    5,320
    
    
    
    (33,082
    )
    
    
    (12,170
    )Nine Months Ended December 31, 2005EBITDA
    
    $
    28,587
    
    
    
    8,730
    
    
    
    (2,468
    )
    
    
    34,849Depreciation and amortization
    
    
    (12,635
    )
    
    
    (1,977
    )
    
    
    
    
    
    
    (14,612
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (27,959
    )
    
    
    (27,959
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,386
    
    
    
    3,386Net income (loss)
    
    $
    15,952
    
    
    
    6,753
    
    
    
    (27,041
    )
    
    
    (4,336
    )
 Print
 Sales.
  24




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




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




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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
 Overview of Liquidity and Capital Resources
  
    
    $6.9 million under the 2005 Revolving Credit Facility; and
    
    $28.2 million under the Receivables Facility (including $1.0 million based on
receivables purchased from Graphics at December 31, 2006 and an additional $27.2 million
if Graphics Finance, defined below, had purchased from Graphics all other eligible
receivables at December 31, 2006).
  27




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
     
    
    $15.5 million of operating activities (see our condensed consolidated statements of cash
flows appearing elsewhere in this Report);
    
    $9.2 million in cash capital expenditures; and
    
    $5.7 million to service other indebtedness (including repayment of capital lease
obligations of $2.8 million and payment of deferred financing costs of $2.9 million).
     28




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 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).
     
    
    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.
  29




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 September 2006 Revolving Trade Receivables Facility
         Value Added Revenue and Print Impressions for the Print Segment
  30




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ACG HOLDINGS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Three Months Ended
    
    Nine Months EndedDecember 31,
    
    December 31,2006
    
    2005
    
    2006
    
    2005Print segment VAR (in thousands)
    
    $
    51,207
    
    
    
    49,444
    
    
    
    146,272
    
    
    
    139,129Print segment impressions (in millions)
    
    
    3,098
    
    
    
    3,121
    
    
    
    8,810
    
    
    
    8,569
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Print segment sales
    
    $
    108,330
    
    
    
    105,006
    
    
    
    304,574
    
    
    
    291,219Paper, ink and subcontract services
    
    
    (57,123
    )
    
    
    (55,562
    )
    
    
    (158,302
    )
    
    
    (152,090
    )Print segment VAR
    
    $
    51,207
    
    
    
    49,444
    
    
    
    146,272
    
    
    
    139,129
 New Accounting Pronouncements
    31




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




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ACG
HOLDINGS, INC.
 
 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.
    
    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
 34




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SIGNATURES
  ACG Holdings, Inc.American Color Graphics, Inc.Date:
    
    February 14, 2007
    
    
    
    By
    
    /s/ Stephen M. DyottStephen M. DyottChairman, President and Chief Executive Officer(Authorized Officer)Date:
    
    February 14, 2007
    
    
    
    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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EXHIBIT INDEX
 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
 36