##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2007
 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)Registrants telephone number including area 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)Registrants telephone number including area code
    
    (615) 377-0377
  o þ
  o þ
 o þ
 o
  o o þ
 o þ




---



##### 



INDEX
 PagePART IItem 1A.
    
    Risk Factors
    
    
    3PART IIItem 6.
    
    Selected Financial Data
    
    
    10Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 8.
    
    Financial Statements and Supplementary Data
    
    
    33Item 9A.
    
    Controls and Procedures
    
    
    76PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    91Ex-12.1 Statement Re: Computation of Ratio of Earnings to Fixed ChargesEx-21.1 List of SubsidiariesEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32.1 Section 906 Certification of the CEO and CFO
  2




---



##### Table of Contents



PART I
 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 used;
    
    changes in the advertising and print markets;
    
    actions by our competitors, particularly with respect to pricing;
    
    the financial condition of our customers;
    
    downgrades of our credit ratings;
    
    our financial condition and liquidity and our leverage and debt service obligations;
    
    the general condition of the United States economy;
    
    interest rate and foreign currency exchange rate fluctuations;
    
    the level of capital resources required for our operations;
    
    changes in the legal and regulatory environment;
    
    the demand for our products and services; and
    
    other risks and uncertainties, including the matters set forth in this Report
generally and those described from time to time in our filings with the Securities and
Exchange Commission.
   
 ITEM 1A. RISK FACTORS
  Our substantial indebtedness could have a material adverse effect on our financial health and our
ability to obtain financing, and to refinance our existing indebtedness, in the future and to react
to changes in our business.
  
    
    $61.9 million of borrowings outstanding under our $90.0 million Amended and Restated
Credit Agreement with Banc of America Securities, LLC, as Sole Lead Arranger and Sole
Book Manager, and Bank of America, N.A., as
 3




---



##### Table of Contents



Administrative Agent, and certain lenders (as amended, the 2005 Credit Agreement),
including a $35.0 million term loan payable in full on December 15, 2009 (the 2005 Term
Loan Facility) and $26.9 million of borrowings under a revolving credit facility that
expires on December 15, 2009 (the 2005 Revolving Credit Facility), when all borrowings
thereunder become payable in full;
    
    $4.7 million of borrowings outstanding under our $35 million revolving trade
receivables facility (as amended, the Receivables Facility) entered into on September
26, 2006 with Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book
Manager, and Bank of America, N.A., as Administrative Agent, Collateral Agent and Lender,
and certain other lenders (which facility expires on December 15, 2009, when all
borrowings thereunder become payable in full);
    
    $280.0 million of our outstanding 10% Senior Second Secured Notes Due 2010 (the
10% Notes), which mature on June 15, 2010; and
    
    $5.5 million of capital lease obligations.
   
    
    make it more difficult for us to satisfy our obligations under our 10% Notes, our 2005
Credit Agreement and our Receivables Facility;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, which would reduce the availability of our cash flow from
operations to fund working capital, capital expenditures or other general corporate
purposes;
    
    make it more difficult to refinance our obligations, including those under the 2005
Credit Agreement, the Receivables Facility and the 10% Notes, as they come due;
    
    limit our ability to purchase paper and other raw materials under satisfactory credit
terms thereby limiting our sources of supply or increasing the cash required to fund
operations, or both;
    
    limit our ability to borrow additional funds in the future, if we need them, due to
financial and restrictive covenants in our indebtedness;
    
    increase our vulnerability to general adverse economic and general industry
conditions, including interest rate fluctuations, because a portion of our borrowings are
and will continue to be at variable rates of interest;
    
    limit our flexibility in planning for, or reacting to, changes in our business and industry; and
    
    place us at a disadvantage compared with competitors that have proportionately less debt.
   4




---



##### Table of Contents



In Fiscal Years 2007, 2006, 2005, and 2004, our earnings were insufficient to cover fixed charges.
Our ability to make payments on our indebtedness, to refinance our existing indebtedness and to
operate our business depends on our ability to generate significant amounts of cash in the future.
Our ability to generate such significant amounts of cash depends on many factors beyond our
control.
       The agreements and instruments governing our indebtedness contain restrictions and limitations that
could significantly affect our ability to operate our business.
  
    
    a first lien leverage ratio test; and
    
    a minimum total liquidity test.
 
 5




---



##### Table of Contents




    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our subsidiaries.
        -
  
    
    incur additional debt;
    
    pay dividends, acquire shares of capital stock, make payments on subordinated debt or
make investments;
    
    make distributions from restricted subsidiaries;
    
    issue or sell capital stock of restricted subsidiaries;
    
    issue guarantees;
    
    sell or exchange assets;
    
    enter into transactions with shareholders and affiliates;
    
    enter into sale-leaseback transactions;
    
    create liens; and
    
    effect mergers.
   6




---



##### Table of Contents



Our proposed merger with Vertis, Inc. may not occur.
   If we are unable to retain key management personnel, our business could be adversely affected.
 -
 We are subject to competitive pressures.
  
    
    customer preferences for larger printers with a greater range of services;
    
    capital requirements; and
    
    competitive pricing pressures.
   7




---



##### Table of Contents



Because our business is sensitive to changes in paper prices, our business could be adversely
affected if paper prices increase significantly and we are unable to pass through price increases
to our customers.
    Demand for our services may decrease due to a decline in customers or an industry sectors
financial condition or due to an economic downturn.
  If we do not keep pace with technological changes, we will not be able to maintain our competitive
position.
  Our noncompliance with or liability for cleanup under environmental regulations or efforts to
comply with changes to current environmental regulations could adversely affect our business.
  
    
    govern activities or operations that may adversely affect the environment, such as
discharges to air and water, as well as handling and disposal practices for solid and
hazardous wastes; and
    
    impose liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous substances.
  8




---



##### Table of Contents



Metalmark controls us, and its interests and those of the Morgan Stanley Funds could be in conflict
with our interests.
  9




---



##### Table of Contents



PART II
 
 ITEM 6. SELECTED FINANCIAL DATA
    10




---



##### Table of Contents



ACG Holdings, Inc.
Selected Financial Data
(Restated)
 Fiscal Year Ended March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Statements of Operations Data:Sales
    
    $
    445,026
    
    
    
    434,489
    
    
    
    449,513
    
    
    
    471,102
    
    
    
    517,139Cost of sales
    
    
    396,654
    
    
    
    385,777
    
    
    
    404,355
    
    
    
    409,794
    
    
    
    445,316Gross profit
    
    
    48,372
    
    
    
    48,712
    
    
    
    45,158
    
    
    
    61,308
    
    
    
    71,823Selling, general and administrative expenses
    
    
    27,859
    
    
    
    27,431
    
    
    
    29,029
    
    
    
    33,010
    
    
    
    37,860Restructuring costs (benefit) and other charges (a)
    
    
    (412
    )
    
    
    (531
    )
    
    
    10,032
    
    
    
    7,698
    
    
    
    1,722Operating income
    
    
    20,925
    
    
    
    21,812
    
    
    
    6,097
    
    
    
    20,600
    
    
    
    32,241Interest expense, net
    
    
    39,940
    
    
    
    37,071
    
    
    
    33,748
    
    
    
    34,032
    
    
    
    28,245Loss on early extinguishment of debt (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,794
    
    
    
    Other expense (c)
    
    
    1,714
    
    
    
    3,827
    
    
    
    313
    
    
    
    489
    
    
    
    1,503Income tax expense (benefit) (d)
    
    
    (193
    )
    
    
    (3,369
    )
    
    
    (1,685
    )
    
    
    11,441
    
    
    
    1,559Income (loss) from continuing operations
    
    
    (20,536
    )
    
    
    (15,717
    )
    
    
    (26,279
    )
    
    
    (28,156
    )
    
    
    934Discontinued operations: (e)Loss from operations, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    979Loss on disposal, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    Net loss
    
    $
    (20,536
    )
    
    
    (15,717
    )
    
    
    (26,279
    )
    
    
    (28,612
    )
    
    
    (45
    )Balance Sheet Data (at end of period):Working capital deficit
    
    $
    (355,948
    )
    
    
    (14,580
    )
    
    
    (6,280
    )
    
    
    (13,425
    )
    
    
    (28,659
    )Total assets
    
    $
    226,224
    
    
    
    230,632
    
    
    
    258,212
    
    
    
    267,695
    
    
    
    278,216Long-term debt and capitalized leases, including current installments
    
    $
    352,110
    
    
    
    324,284
    
    
    
    309,951
    
    
    
    298,298
    
    
    
    231,757Stockholders deficit
    
    $
    (244,952
    )
    
    
    (231,519
    )
    
    
    (213,583
    )
    
    
    (188,937
    )
    
    
    (107,986
    )Other Data:Net cash provided (used) by operating activities
    
    $
    (12,574
    )
    
    
    (5,622
    )
    
    
    (3,967
    )
    
    
    20,763
    
    
    
    43,678Net cash used by investing activities
    
    $
    (12,703
    )
    
    
    (5,523
    )
    
    
    (7,172
    )
    
    
    (13,118
    )
    
    
    (27,446
    )Net cash provided (used) by financing activities
    
    $
    25,277
    
    
    
    11,169
    
    
    
    11,214
    
    
    
    (7,524
    )
    
    
    (20,711
    )Capital expenditures (including capital lease obligations entered into)
    
    $
    12,701
    
    
    
    12,486
    
    
    
    6,907
    
    
    
    15,966
    
    
    
    28,652Ratio of earnings to fixed charges (f)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.08xEBITDA (g)
    
    $
    37,841
    
    
    
    37,468
    
    
    
    28,835
    
    
    
    41,149
    
    
    
    54,210
 11




---



##### Table of Contents



NOTES TO SELECTED FINANCIAL DATA(a)
    
    In March 2005, we approved a restructuring plan for our premedia services segment, which was
designed to improve operating efficiencies and overall profitability. We recorded $1.5
million of costs under this plan in the fiscal year ended March 31, 2005 (Fiscal Year 2005).
We recorded $(0.1) million and $(0.2) million of costs for this plan in the fiscal year ended
March 31, 2007 (Fiscal Year 2007) and 2006 (Fiscal Year 2006), respectively.In March 2005, we approved a restructuring plan for our print segment, to reduce
manufacturing costs and improve profitability. We recorded $3.1 million of costs under this
plan in Fiscal Year 2005. We recorded $(0.5) million of costs for this plan in Fiscal Year
2006.In February 2005, we approved a restructuring plan for our print and premedia services
segments, to reduce overhead costs and improve operating efficiency and profitability. We
recorded $3.5 million of costs under this plan in Fiscal Year 2005. We recorded $(0.2)
million of costs for this plan in Fiscal Year 2006.In January 2004, we approved a restructuring plan for our print and premedia services
segments, which was designed to improve operating efficiency and profitability. We recorded
$5.3 million of costs under this plan in the fiscal year ended March 31, 2004 (Fiscal Year
2004). We recorded $(0.2) million and $(0.3) million of costs for this plan in Fiscal Year
2007 and Fiscal Year 2005, respectively.In July 2003, we implemented a restructuring plan for our print and premedia services
segments to further reduce our selling, general and administrative expenses. We recorded
$1.8 million of costs under this plan in Fiscal Year 2004.In the fourth quarter of the fiscal year ended March 31, 2003 (Fiscal Year 2003), we
approved a restructuring plan for our print and premedia services segments, which was
designed to improve operating efficiency and profitability. We recorded $1.2 million of
costs under this plan in Fiscal Year 2003. We recorded $(0.2) million of costs for this plan
in Fiscal Year 2004.In January 2002, we approved a restructuring plan for our print and premedia services
segments, which was designed to improve asset utilization, operating efficiency and
profitability. We recorded $8.6 million of costs under this plan in the fiscal year ended
March 31, 2002 (Fiscal Year 2002). We recorded an additional $(0.1) million, $0.5 million,
$0.6 million and $0.4 million of costs for this plan in Fiscal Year 2007, Fiscal Year 2006,
Fiscal Year 2005 and Fiscal Year 2004, respectively.In addition, we recorded $1.6 million, $0.4 million and $0.5 million of other charges in our
print and premedia services divisions in Fiscal Year 2005, Fiscal Year 2004 and Fiscal Year
2003, respectively. See note 15 to our consolidated financial statements appearing elsewhere
in this Report for further discussion of this restructuring activity.(b)
    
    As part of a refinancing transaction entered into on July 3, 2003, we recorded a loss related
to the early extinguishment of debt of $2.8 million, net of zero taxes. This loss related to
the write-off of deferred financing costs associated with our old bank credit agreement and
our 123/4% Senior Subordinated Notes Due 2005 (the 123/4% Notes), neither of which remain
outstanding or in effect as of the date of this Report.(c)
    
    In the fourth quarter of the fiscal year ended March 31, 2006, we concluded that certain
non-production information technology assets of the print segment were fully impaired as a
result of our periodic assessment. This impairment resulted in a charge of $2.8 million. The
impairment charge is classified within other, net in the consolidated statement of operations
for the fiscal year ended March 31, 2006.(d)
    
    In Fiscal Year 2007, income tax benefit relates primarily to an adjustment recorded in the
first quarter of $0.4 million to reflect the tax benefit associated with a change in estimate
with respect to our income tax liability, net of tax expense related to taxable income in
foreign jurisdictions. The valuation allowance increased by $5.8 million in Fiscal Year 2007
as a result of changes in the deferred tax items. This increase primarily includes an $8.6
million increase related to the tax effect of temporary differences generating deferred tax
assets and a decrease of $2.8 million related to the tax effect of the decrease in the
additional minimum pension liability, which is a component of other comprehensive income
(loss). 12




---



##### Table of Contents



In Fiscal Year 2006, income tax benefit relates primarily to an adjustment recorded in the
third quarter of $3.6 million to reflect the tax benefit associated with a change in estimate
with respect to our income tax liability, net of tax expense related to taxable income in
foreign jurisdictions. The valuation allowance increased by $7.6 million in Fiscal Year 2006
as a result of changes in the deferred tax items. This increase primarily includes a $6.6
million increase related to the tax effect of temporary differences generating deferred tax
assets and an increase of $1.0 million related to the tax effect of the increase in the
additional minimum pension liability, which is a component of other comprehensive income
(loss).In Fiscal Year 2005, income tax benefit relates primarily to tax benefit from losses in
foreign jurisdictions and to an adjustment recorded in the third quarter of $0.4 million to
reflect the tax benefit associated with a change in estimate with respect to our income tax
liability. The valuation allowance increased by $9.8 million in Fiscal Year 2005 as a result
of changes in the deferred tax items. This increase included a $9.8 million increase related
to the tax effect of temporary differences generating deferred tax assets, net of a decrease
of $0.4 million related to the tax effect of the decrease in the additional minimum pension
liability, which is a component of other comprehensive income (loss).In the second quarter of Fiscal Year 2004, the valuation allowance for deferred tax assets
was increased by $12.8 million, resulting in a corresponding debit to deferred income tax
expense. This adjustment reflected a change in circumstances which resulted in a judgment
that, based on the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) that restrict our ability to consider forecasts of
future income, a corresponding amount of deferred tax assets may not be realized. The change
in circumstances arose from our assessment of the economic climate, particularly the
continuance of competitive pricing pressures in our industry, and the expected increase in
annual interest costs arising from the issuance of our 10% Notes in July 2003 that provided
negative evidence about our ability to realize certain deferred tax assets. We will reverse
our valuation allowance into income when and to the extent sufficient evidence arises to
support the realization of the related deferred tax assets. The valuation allowance
increased by $18.3 million in the fiscal year ended March 31, 2004 (Fiscal Year 2004) as a
result of changes in the deferred tax items. This increase primarily included the $12.8
million increase discussed above and a $5.5 million increase related to the tax effect of
temporary differences generating deferred tax assets, which is net of a decrease of $1.3
million related to the tax effect of the decrease in the additional minimum pension
liability, a component of other comprehensive income (loss). In the third quarter of Fiscal
Year 2004, we recorded an adjustment of $2.2 million to reflect the tax benefit associated
with a change in estimate with respect to our income tax liability.The valuation allowance increased by $3.4 million in the fiscal year ended March 31, 2003
(Fiscal Year 2003) as a result of changes in the deferred tax items. This increase is
primarily due to a $5.0 million increase related to the tax effect of the additional minimum
pension liability, which is a component of other comprehensive income (loss), partially
offset by a decrease in other temporary differences generating deferred tax assets.(e)
    
    In June 2003, we made a strategic decision to sell the operations of our digital visual
effects business, Digiscope, for a de minimis amount. This resulted in a net loss of
approximately $0.4 million in the quarter ended June 30, 2003, which is net of zero income tax
benefit. As a result of this sale, Digiscope has been accounted for as a discontinued
operation, and accordingly, Digiscopes operations are segregated in our consolidated
financial statements. Sales, cost of sales and selling, general and administrative expenses
attributable to Digiscope for Fiscal Year 2003 have been reclassified and presented within
discontinued operations. Sales attributable to Digiscope for Fiscal Year 2004 and Fiscal Year
2003 were $0.8 million and $3.2 million, respectively.(f)
    
    The ratio of earnings to fixed charges is calculated by dividing earnings (representing
consolidated pretax income or loss from continuing operations) before fixed charges by fixed
charges. Fixed charges consist of interest expense, net amortization of debt issuance
expense, and that portion of operating lease rental expense which we deem to be representative
of interest. The deficiency in earnings to cover fixed charges is computed by subtracting
earnings before fixed charges, income taxes and discontinued operations from fixed charges.
The deficiency in earnings required to cover fixed charges for Fiscal Years 2007, 2006, 2005
and 2004 was $20.7 million, $19.1 million, $28.0 million and $16.7 million, respectively.(g)
    
    We have included EBITDA because we believe that investors regard EBITDA as a key measure of a
leveraged companys operating performance as it removes interest, taxes, depreciation and
amortization from the operational results of our business. EBITDA is defined as earnings
before net interest expense, income tax expense (benefit), 13




---



##### Table of Contents



depreciation and amortization. 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. Our
calculation of EBITDA may be different from the calculations used by other companies and
therefore comparability may be limited. Certain covenants in our debt agreements are based
on, or include EBITDA, subject to certain adjustments. The following table provides a
reconciliation of EBITDA to net loss: Fiscal Year Ended March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated(In thousands)EBITDA
    
    $
    37,841
    
    
    
    37,468
    
    
    
    28,835
    
    
    
    41,149
    
    
    
    54,210Depreciation and amortization
    
    
    (18,630
    )
    
    
    (19,483
    )
    
    
    (23,051
    )
    
    
    (24,288
    )
    
    
    (24,451
    )Interest expense, net
    
    
    (39,940
    )
    
    
    (37,071
    )
    
    
    (33,748
    )
    
    
    (34,032
    )
    
    
    (28,245
    )Income tax (expense) benefit
    
    
    193
    
    
    
    3,369
    
    
    
    1,685
    
    
    
    (11,441
    )
    
    
    (1,559
    )Net loss
    
    $
    (20,536
    )
    
    
    (15,717
    )
    
    
    (26,279
    )
    
    
    (28,612
    )
    
    
    (45
    )
  Fiscal Year Ended March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated(In thousands)Restructuring costs
(benefit)
    
    $
    (412
    )
    
    
    (531
    )
    
    
    8,364
    
    
    
    7,326
    
    
    
    1,191Other charges
    
    
    
    
    
    
    
    
    
    
    1,668
    
    
    
    372
    
    
    
    531Loss on early
extinguishment of
debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,794
    
    
    
    Loss from
discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    979Impairment of
assets
    
    
    
    
    
    
    2,830
    
    
    
    
    
    
    
    
    
    
    
    750Total
    
    $
    (412
    )
    
    
    2,299
    
    
    
    10,032
    
    
    
    10,948
    
    
    
    3,451
 14




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
  
    
    the relationships we have developed with key long-term customers and the capital we have
devoted to those relationships;
    
    the balance between capacity and demand in our industry sector; and
    
    our experienced management teams clear focus on servicing the retail advertising insert
and newspaper markets.
       15




---



##### Table of Contents



Restatement of Financial Statements
       Recent Performance
  
    
    the continuance of competitive pricing due to a modest amount of excess industry capacity;
    
    incremental costs associated with the start-up of a replacement press in one of our print facilities;
    
    incremental costs associated with the start-up of a newspaper service facility; and
    
    increased foreign exchange losses.
  
    
    reduced volume;
    
    the impact of competitive pricing in this segment; and
    
    reductions in certain service requirements related to one major customer.
 
 16




---



##### Table of Contents



Our Restructuring Results and Cost Reduction Initiatives
   
    
    reduced headcount in the manufacturing and the selling and administrative areas;
    
    the closure and sale of the Pittsburg, California print facility; and
    
    the consolidation of our two premedia services facilities in New York, New York.
   17




---



##### Table of Contents



Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Three Year2005
    
    
    2006
    
    
    2007
    
    
    Total(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Fiscal Year 2002 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    $
    (29
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )Lease termination costs  Print
    
    670
    
    
    482
    
    
    (107
    )
    
    1,045Total restructuring costs
    
    
    641
    
    
    
    482
    
    
    
    (107
    )
    
    
    1,016Fiscal Year 2003 Plan CostsRestructuring costs:Severance & other employee costs  Premedia
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Other costs  Premedia
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Total restructuring benefit
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )July 2003 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    12
    
    
    
    
    
    
    
    11
    
    
    
    23Severance & other employee costs  Premedia
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    11
    
    
    
    11January 2004 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    (234
    )
    
    
    (117
    )
    
    
    
    
    
    
    (351
    )Severance & other employee costs  Premedia
    
    
    (107
    )
    
    
    (66
    )
    
    
    (223
    )
    
    
    (396
    )Lease termination costs  Print
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Other costs  Print
    
    
    15
    
    
    
    194
    
    
    
    (15
    )
    
    
    194Other costs  Premedia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total restructuring benefit
    
    
    (329
    )
    
    
    11
    
    
    
    (238
    )
    
    
    (556
    )Fiscal Year 2005 Plant and SG&A Reduction Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    3,044
    
    
    
    (263
    )
    
    
    (39
    )
    
    
    2,742Severance & other employee costs  Premedia
    
    
    458
    
    
    
    
    
    
    
    (3
    )
    
    
    455Other costs  Print
    
    
    1
    
    
    
    19
    
    
    
    6
    
    
    
    26Other costs  Premedia
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Total restructuring costs (benefit)
    
    
    3,503
    
    
    
    (241
    )
    
    
    (36
    )
    
    
    3,226
 18




---



##### Table of Contents



Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Three Year2005
    
    
    2006
    
    
    2007
    
    
    Total(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Fiscal Year 2005 Pittsburg Facility Closure Plan CostsRestructuring costs:Severance
& other employee costs  Print
    
    
    2,293
    
    
    
    (812
    )
    
    
    
    
    
    
    1,481Lease termination costs  Print
    
    
    803
    
    
    
    (117
    )
    
    
    
    
    
    
    686Other costs  Print
    
    
    3
    
    
    
    393
    
    
    
    25
    
    
    
    421Total restructuring costs (benefit)
    
    
    3,099
    
    
    
    (536
    )
    
    
    25
    
    
    
    2,588Other charges:Asset impairment charge  Print
    
    
    1,266
    
    
    
    
    
    
    
    
    
    
    
    1,266Total other charges
    
    
    1,266
    
    
    
    
    
    
    
    
    
    
    
    1,266Fiscal Year 2005 New York Premedia
Consolidation Plan CostsRestructuring costs:Severance & other employee costs  Premedia
    
    
    195
    
    
    
    (40
    )
    
    
    
    
    
    
    155Lease termination costs  Premedia
    
    
    1,271
    
    
    
    (207
    )
    
    
    (79
    )
    
    
    985Other costs  Premedia
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Total restructuring costs (benefit)
    
    
    1,466
    
    
    
    (247
    )
    
    
    (67
    )
    
    
    1,152Other charges:Asset impairment charge  Premedia
    
    
    402
    
    
    
    
    
    
    
    
    
    
    
    402Total other charges
    
    
    402
    
    
    
    
    
    
    
    
    
    
    
    402Total restructuring costs (benefit)
    
    
    8,364
    
    
    
    (531
    )
    
    
    (412
    )
    
    
    7,421Total other charges
    
    
    1,668
    
    
    
    
    
    
    
    
    
    
    
    1,668Total restructuring costs (benefit) and
other charges
    
    $
    10,032
    
    
    
    (531
    )
    
    
    (412
    )
    
    
    9,089
 19




---



##### Table of Contents



Fiscal Year Ended March 31,2007
    
    
    2006
    
    
    2005(Restated)
    
    
    (Restated)
    
    
    (Restated)(Dollars in thousands)SalesPrint
    
    $
    396,535
    
    
    
    380,648
    
    
    
    393,922Premedia Services
    
    
    48,491
    
    
    
    53,841
    
    
    
    55,591Total
    
    $
    445,026
    
    
    
    434,489
    
    
    
    449,513Gross ProfitPrint
    
    $
    35,937
    
    
    
    33,788
    
    
    
    29,968Premedia Services
    
    
    12,425
    
    
    
    14,924
    
    
    
    15,186Other
    
    
    10
    
    
    
    
    
    
    
    4Total
    
    $
    48,372
    
    
    
    48,712
    
    
    
    45,158Gross MarginPrint
    
    
    9.1
    %
    
    
    8.9
    %
    
    
    7.6
    %Premedia Services
    
    
    25.6
    %
    
    
    27.7
    %
    
    
    27.3
    %Total
    
    
    10.9
    %
    
    
    11.2
    %
    
    
    10.1
    %EBITDAPrint (a)
    
    $
    34,116
    
    
    
    30,531
    
    
    
    22,579Premedia Services (a)
    
    
    8,853
    
    
    
    10,938
    
    
    
    9,942Other (b)
    
    (5,128
    )
    
    (4,001
    )
    
    (3,686
    )Total
    
    $
    37,841
    
    
    
    37,468
    
    
    
    28,835EBITDA MarginPrint
    
    
    8.6
    %
    
    
    8.0
    %
    
    
    5.7
    %Premedia Services
    
    
    18.3
    %
    
    
    20.3
    %
    
    
    17.9
    %Total
    
    
    8.5
    %
    
    
    8.6
    %
    
    
    6.4
    %
 
 (a)
    
    In Fiscal Year 2007, EBITDA for the print and premedia services segments includes the impact
of restructuring benefit of ($0.1) million and ($0.3) million, respectively. EBITDA for the
print and premedia services segments in Fiscal Year 2006 includes the impact of restructuring
benefit of ($0.2) million and ($0.3) million, respectively, and for the print segment also
includes a non-cash asset impairment charge of $2.8 million. EBITDA for the print and
premedia services segments in Fiscal Year 2005 includes the impact of restructuring costs and
other charges of $7.8 million and $2.2 million, respectively. For additional information
about our restructuring plan, see   Our Restructuring Results and Cost Reduction
Initiatives above.(b)
    
    Other operations include corporate general and administrative expenses. In addition, in
Fiscal Year 2007, EBITDA for other operations includes the impact of incremental legal
expenses associated with two lawsuits in which the Company is the plaintiff. 
 20




---



##### Table of Contents



PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalFiscal Year 2007 (Restated)EBITDA
    
    $
    34,116
    
    
    
    8,853
    
    
    
    (5,128
    )
    
    
    37,841Depreciation and amortization
    
    
    (16,563
    )
    
    
    (2,067
    )
    
    
    
    
    
    
    (18,630
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (39,940
    )
    
    
    (39,940
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    193Net income (loss)
    
    $
    17,553
    
    
    
    6,786
    
    
    
    (44,875
    )
    
    
    (20,536
    )
 Fiscal Year 2006 (Restated)EBITDA
    
    $
    30,531
    
    
    
    10,938
    
    
    
    (4,001
    )
    
    
    37,468Depreciation and amortization
    
    
    (16,767
    )
    
    
    (2,716
    )
    
    
    
    
    
    
    (19,483
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (37,071
    )
    
    
    (37,071
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,369
    
    
    
    3,369Net income (loss)
    
    $
    13,764
    
    
    
    8,222
    
    
    
    (37,703
    )
    
    
    (15,717
    )Fiscal Year 2005 (Restated)EBITDA
    
    $
    22,579
    
    
    
    9,942
    
    
    
    (3,686
    )
    
    
    28,835Depreciation and amortization
    
    
    (19,867
    )
    
    
    (3,184
    )
    
    
    
    
    
    
    (23,051
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (33,748
    )
    
    
    (33,748
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,685
    
    
    
    1,685Net income (loss)
    
    $
    2,712
    
    
    
    6,758
    
    
    
    (35,749
    )
    
    
    (26,279
    )
 21




---



##### Table of Contents



Historical Results of Operations
 Fiscal Year 2007 vs. Fiscal Year 2006
  Print
 Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
 Gross Profit.
 22




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income).
 EBITDA.
 Other Operations
  Interest Expense
  Income Taxes
   Net Loss
  Additional Minimum Pension Liability
  23




---



##### Table of Contents



Fiscal Year 2006 vs. Fiscal Year 2005
  Print
 Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
 Gross Profit.
 24




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income).
 EBITDA.
 Other Operations
  Interest Expense
  Income Taxes
  Net Loss
  Additional Minimum Pension Liability
  25




---



##### Table of Contents



Liquidity and Capital Resources
 *   *   *
   *   *   *
 Overview of Liquidity and Capital Resources
  
    
    $5.9 million under the 2005 Revolving Credit Facility; and
    
    $24.8 million under the Receivables Facility, including $1.1 million based on
receivables purchased from Graphics at March 31, 2007 and an additional $23.7 million if
Graphics Finance had purchased from Graphics all other eligible receivables at March 31,
2007.
      26




---



##### Table of Contents




    
    $12.6 million of operating activities (see our Consolidated Statements of Cash Flows
appearing elsewhere in this Report);
    
    $12.7 million in cash capital expenditures; and
    
    $6.3 million to service other indebtedness (including repayment of capital lease
obligations of $3.8 million and payment of deferred financing costs of $2.5 million).
          27




---



##### Table of Contents



May 2005 Refinancing
  
    
    a $55 million revolving credit facility ($40 million of which may be used for letters
of credit), maturing on December 15, 2009, which is not subject to a borrowing base
limitation (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility, maturing on December 15, 2009 (the
2005 Term Loan Facility).
     
    
    a first lien leverage ratio test; and
    
    a minimum total liquidity test.
  
    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our subsidiaries.
  28




---



##### Table of Contents



September 2006 Revolving Trade Receivables Facility
         Value Added Revenue and Print Impressions for the Print Segment
  Fiscal Year Ended March 31,2007
    
    2006
    
    2005(Restated)Print segment VAR (in thousands)
    
    $
    191,366
    
    
    
    181,364
    
    
    
    188,569Print impressions (in millions)
    
    
    11,354
    
    
    
    11,207
    
    
    
    11,279
 29




---



##### Table of Contents



Fiscal Year Ended March 31,2007
    
    
    2006
    
    
    2005(Restated)(Dollars in thousands)Print segment sales
    
    $
    396,535
    
    
    
    380,648
    
    
    
    393,922Paper, ink and subcontract services
    
    
    (205,169
    )
    
    
    (199,284
    )
    
    
    (205,353
    )Print segment VAR
    
    $
    191,366
    
    
    
    181,364
    
    
    
    188,569
 Impact of Inflation
  Seasonality
  Environmental
  New Accounting Pronouncements
  30




---



##### Table of Contents



Critical Accounting Estimates
  31




---



##### Table of Contents



Allowance for Doubtful Accounts
  Restructuring
  Contingencies
  Deferred Taxes
  Contractual Obligations and Commercial Commitments
  Payments Due By PeriodContractual Obligations
    
    Total
    
    
    < 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    > 5 years(Dollars in thousands)(Restated)Long-term debt (a)
    
    $
    346,580
    
    
    
    346,580
    
    
    
    
    
    
    
    
    
    
    
    Interest payments on fixed rate
debt (b)
    
    
    28,000
    
    
    
    28,000
    
    
    
    
    
    
    
    
    
    
    
    Capital
lease obligations (a)
    
    
    5,530
    
    
    
    5,530
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    9,792
    
    
    
    3,347
    
    
    
    5,094
    
    
    
    1,351
    
    
    
    Pension obligations (c)
    
    
    763
    
    
    
    763
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    390,665
    
    
    
    384,220
    
    
    
    5,094
    
    
    
    1,351
    
    
    
    
 32




---



##### Table of Contents



(a)
    
    Although there are contractually required payments in future
years related to our long-term debt and capital lease obligations, we
are presenting them as a contractual obligation due within the next year as a result of the
requirement to reclassify our long-term debt and capital lease
obligations to current liabilities (see Liquidity and
Capital Resources).(b)
    
    Future interest payments, beyond one year, have been excluded as a result of the
reclassification of the long-term debt to current liabilities (see -Liquidity and Capital
Resources). The table also excludes interest on $66.6 million of variable rate borrowings
outstanding at March 31, 2007, as such borrowing levels and related rates of interest
fluctuate.(c)
    
    Although we expect to make contributions to our pension plan in future years, those
amounts cannot be estimated at this time. See note 10 to our consolidated financial
statements appearing elsewhere in this Report.  Commitment Due By PeriodOther CommercialCommitments
    
    Total
    
    < 1 year
    
    1-3 years
    
    3-5 years
    
    > 5 years(Dollars in thousands)Standby letters of credit
    
    $
    22,257
    
    
    
    18,723
    
    
    
    106
    
    
    
    58
    
    
    
    3,370
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Page No.The following consolidated financial statements of ACG Holdings, Inc. are included in this Report:Report of Independent Registered Public Accounting Firm
    
    
    34Consolidated Balance Sheets  March 31, 2007 and 2006
    
    
    35For the Years Ended March 31, 2007, 2006 and 2005:Consolidated Statements of Operations
    
    
    37Consolidated Statements of Stockholders Deficit
    
    
    38Consolidated Statements of Cash Flows
    
    
    39Notes to Consolidated Financial Statements
    
    
    41
  I.
    
    Condensed Financial Information:
Condensed Consolidated Financial Statements (parent company only)
for the years ended March 31, 2007, 2006 and 2005, and as of March 31,
2007 and 2006II.
    
    Valuation and qualifying accounts
  33




---



##### Table of Contents



Nashville, Tennessee
    
    /s/ Ernst & Young LLPJune 21, 2007, except for Notes1, 2, 7, and 18 as to which thedate is August 31, 2007
 34




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 March 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for doubtful accounts of
$1,017 and $1,275 at March 31, 2007 and 2006,
respectively
    
    
    44,385
    
    
    
    41,080Other
    
    
    2,645
    
    
    
    3,463Total receivables
    
    
    47,030
    
    
    
    44,543Inventories
    
    
    7,146
    
    
    
    7,714Deferred income taxes
    
    
    962
    
    
    
    1,196Prepaid expenses and other current assets
    
    
    4,914
    
    
    
    4,608Total current assets
    
    
    60,052
    
    
    
    58,061Property, plant and equipment:Land and improvements
    
    
    3,185
    
    
    
    3,058Buildings and improvements
    
    
    29,959
    
    
    
    28,332Machinery and equipment
    
    
    223,737
    
    
    
    212,904Furniture and fixtures
    
    
    14,369
    
    
    
    13,007Leased assets under capital leases
    
    
    22,972
    
    
    
    23,119Equipment installations in process
    
    
    2,334
    
    
    
    6,850296,556
    
    
    
    287,270Less accumulated depreciation
    
    
    (214,772
    )
    
    
    (199,504
    )Net property, plant and equipment
    
    
    81,784
    
    
    
    87,766Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    17,840
    
    
    
    18,257Total assets
    
    $
    226,224
    
    
    
    230,632
  35




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 March 31,2007
    
    
    2006Liabilities and Stockholders DeficitCurrent liabilities:Current portion of long-term debt and capital leases
    
    $
    352,110
    
    
    
    3,731Trade accounts payable
    
    
    33,091
    
    
    
    34,655Accrued expenses
    
    
    30,312
    
    
    
    34,095Income tax payable
    
    
    487
    
    
    
    160Total current liabilities
    
    
    416,000
    
    
    
    72,641Long-term debt and capital leases, excluding current installments
    
    
    
    
    
    
    320,553Deferred income taxes
    
    
    2,677
    
    
    
    3,653Other liabilities
    
    
    52,499
    
    
    
    65,304Total liabilities
    
    
    471,176
    
    
    
    462,151Commitments and contingenciesStockholders deficit:Common stock, voting, $.01 par value, 5,852,223 shares
authorized, 158,205 shares issued and outstanding at March
31, 2007 and March 31, 2006
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (232,083
    )
    
    
    (211,547
    )Other accumulated comprehensive loss, net of tax
    
    
    (14,909
    )
    
    
    (22,012
    )Total stockholders deficit
    
    
    (244,952
    )
    
    
    (231,519
    )Total liabilities and stockholders deficit
    
    $
    226,224
    
    
    
    230,632
  36




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 Year ended March 31,2007
    
    
    2006
    
    
    2005Sales
    
    $
    445,026
    
    
    
    434,489
    
    
    
    449,513Cost of sales
    
    
    396,654
    
    
    
    385,777
    
    
    
    404,355Gross profit
    
    
    48,372
    
    
    
    48,712
    
    
    
    45,158Selling, general and administrative expenses
    
    
    27,859
    
    
    
    27,431
    
    
    
    29,029Restructuring costs (benefit) and other charges
    
    
    (412
    )
    
    
    (531
    )
    
    
    10,032Operating income
    
    
    20,925
    
    
    
    21,812
    
    
    
    6,097Other expense (income):Interest expense
    
    
    40,040
    
    
    
    37,154
    
    
    
    33,785Interest income
    
    
    (100
    )
    
    
    (83
    )
    
    
    (37
    )Other, net
    
    
    1,714
    
    
    
    3,827
    
    
    
    313Total other expense
    
    
    41,654
    
    
    
    40,898
    
    
    
    34,061Loss before income taxes
    
    
    (20,729
    )
    
    
    (19,086
    )
    
    
    (27,964
    )Income tax benefit
    
    
    (193
    )
    
    
    (3,369
    )
    
    
    (1,685
    )Net loss
    
    $
    (20,536
    )
    
    
    (15,717
    )
    
    
    (26,279
    )
  37




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 OtherVoting
    
    
    Additional
    
    
    
    
    
    
    accumulatedcommon
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensivestock
    
    
    capital
    
    
    deficit
    
    
    income (loss)
    
    
    TotalBalances, March 31, 2004, as
previously reported
    
    $
    2
    
    
    
    2,103
    
    
    
    (169,516
    )
    
    
    (21,364
    )
    
    $
    (188,775
    )Restatement adjustments
    
    
    
    
    
    
    (127
    )
    
    
    (35
    )
    
    
    
    
    
    
    (162
    )Balances, March 31, 2004,
as restated
    
    $
    2
    
    
    
    1,976
    
    
    
    (169,551
    )
    
    
    (21,364
    )
    
    $
    (188,937
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (26,279
    )
    
    
    
    
    
    
    (26,279
    )Other comprehensive income
(loss), net of tax:Change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    593
    
    
    
    593Change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,009
    
    
    
    1,009Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,677
    )Executive stock compensation
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Balances, March 31, 2005
    
    $
    2
    
    
    
    2,007
    
    
    
    (195,830
    )
    
    
    (19,762
    )
    
    $
    (213,583
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (15,717
    )
    
    
    
    
    
    
    (15,717
    )Other comprehensive income
(loss), net of tax:Change in cumulative
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,433
    )
    
    
    (2,433
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,967
    )Executive stock compensation
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Balances, March 31, 2006
    
    $
    2
    
    
    
    2,038
    
    
    
    (211,547
    )
    
    
    (22,012
    )
    
    $
    (231,519
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (20,536
    )
    
    
    
    
    
    
    (20,536
    )Other comprehensive income
(loss), net of tax:Change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    (116
    )Change in minimum pension
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,219
    
    
    
    7,219Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,433
    )Balances, March 31, 2007
    
    $
    2
    
    
    
    2,038
    
    
    
    (232,083
    )
    
    
    (14,909
    )
    
    
    (244,952
    )
  38




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 Year ended March 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (20,536
    )
    
    
    (15,717
    )
    
    
    (26,279
    )Adjustments to reconcile net loss to net cash used
by operating activities:Other charges  non-cash (note 15)
    
    
    
    
    
    
    
    
    
    
    1,668Depreciation
    
    
    18,567
    
    
    
    19,130
    
    
    
    22,594Amortization of other assets
    
    
    63
    
    
    
    353
    
    
    
    457Amortization of deferred financing costs
    
    
    3,172
    
    
    
    2,695
    
    
    
    2,236Loss (gain) on disposals of property, plant and equipment
    
    
    2
    
    
    
    312
    
    
    
    (75
    )Impairment of asset
    
    
    
    
    
    
    2,830
    
    
    
    Deferred income tax benefit
    
    
    (742
    )
    
    
    (3,632
    )
    
    
    (824
    )Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (2,487
    )
    
    
    6,061
    
    
    
    (5,395
    )Decrease (increase) in current income taxes receivable
    
    
    
    
    
    
    
    
    
    
    (78
    )Decrease (increase) in inventories
    
    
    568
    
    
    
    2,603
    
    
    
    (1,959
    )Increase (decrease) in trade accounts payable
    
    
    (1,564
    )
    
    
    (6,471
    )
    
    
    10,812Increase (decrease) in accrued expenses
    
    
    (5,220
    )
    
    
    (3,644
    )
    
    
    (2,094
    )Increase (decrease) in current income taxes payable
    
    
    327
    
    
    
    160
    
    
    
    (9
    )Decrease in other liabilities
    
    
    (4,149
    )
    
    
    (12,082
    )
    
    
    (3,992
    )Other
    
    
    (575
    )
    
    
    1,780
    
    
    
    (1,029
    )Total adjustments
    
    
    7,962
    
    
    
    10,095
    
    
    
    22,312Net cash used by operating activities
    
    
    (12,574
    )
    
    
    (5,622
    )
    
    
    (3,967
    )
 39




---



##### Table of Contents



ACG HOLDINGS, INC.    (Restated)
 Year ended March 31,2007
    
    
    2006
    
    
    2005Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (12,701
    )
    
    
    (12,486
    )
    
    
    (6,876
    )Proceeds from sale of property, plant and equipment
held for sale (note 4)
    
    
    
    
    
    
    6,877
    
    
    
    Proceeds from other sales of property, plant and equipment
    
    
    145
    
    
    
    283
    
    
    
    176Other
    
    
    (147
    )
    
    
    (197
    )
    
    
    (472
    )Net cash used by investing activities
    
    
    (12,703
    )
    
    
    (5,523
    )
    
    
    (7,172
    )Cash flows from financing activities:Net increase (decrease) in revolver borrowings
    
    
    31,580
    
    
    
    (16,000
    )
    
    
    16,000Net increase (decrease) in long-term debt, net
    
    
    
    
    
    
    35,000
    
    
    
    Deferred financing costs paid
    
    
    (2,549
    )
    
    
    (3,164
    )
    
    
    (408
    )Repayment of capital lease obligations
    
    
    (3,754
    )
    
    
    (4,667
    )
    
    
    (4,378
    )Net cash provided by financing activities
    
    
    25,277
    
    
    
    11,169
    
    
    
    11,214Effect of exchange rates on cash
    
    
    
    
    
    
    (24
    )
    
    
    (75
    )Change in cash
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents:Beginning of period
    
    
    
    
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
    
    
    
    Supplemental disclosure of cash flow information:Cash paid (received) for:Interest
    
    $
    36,099
    
    
    
    33,863
    
    
    
    31,480Income taxes, net of refunds
    
    $
    233
    
    
    
    15
    
    
    
    (887
    )Non-cash investing activities:Assets purchased under capital lease obligations
    
    $
    
    
    
    
    
    
    
    
    31
  40




---



##### Table of Contents



ACG HOLDINGS, INC.
  (1)
    
    Summary of Significant Accounting PoliciesACG Holdings, Inc. (Holdings) has no operations or significant assets other than its
investment in American Color Graphics, Inc. (Graphics), (collectively, the Company).
Holdings is dependent upon distributions from Graphics to fund its obligations. However,
Graphics ability to pay dividends or lend to Holdings was restricted under the terms of
its debt agreements at March 31, 2007. See note 7 below for further discussion of the
2005 Credit Agreement, the Receivables Facility and the 10% Notes (as defined herein).
The 2005 Revolving Credit Facility (as defined herein) is secured by substantially all of
the assets of Graphics. Receivables sold to Graphics Finance (as defined herein) under
the Receivables Facility (as defined herein) are released from this lien at the time they
are sold. Holdings has guaranteed Graphics indebtedness under the 2005 Credit Agreement,
which guarantee is secured by a pledge of all of Graphics and Graphics subsidiaries
stock. The Receivables Facility is secured by substantially all the assets of Graphics
Finance, which consist primarily of any receivables sold by Graphics to Graphics Finance
pursuant to a receivables contribution and sale agreement. Graphics services these
receivables pursuant to a servicing agreement with Graphics Finance. The 10% Notes are
fully and unconditionally guaranteed on a senior basis by Holdings, and by all future
domestic subsidiaries of Graphics.The two business segments of the commercial printing industry in which the Company
operates are (i) print and (ii) premedia services.The Company continues to operate in a challenging business environment due to, among other
factors, excess industry capacity and significant competition. Such challenges have
resulted in lower levels of profitability, including five consecutive years of net losses
and increased levels of indebtedness throughout this same period.On July 23, 2007, Holdings entered into a letter of intent with Vertis, Inc. (Vertis),
with respect to the proposed merger of Holdings with Vertis or an affiliate of Vertis (the
Vertis Merger). Upon the closing of the Vertis Merger, Graphics would become a
wholly-owned subsidiary of Vertis. The closing is subject to the execution of a mutually
acceptable definitive merger agreement, the satisfaction of customary closing conditions
and the receipt of necessary approvals. The Vertis Merger would be subject to the
amendment, refinancing, or repayment in full of the parties senior secured credit
facilities and the successful exchange of the parties outstanding notes (or another
mutually satisfactory arrangement). There can be no assurance that a definitive merger
agreement can or will be signed or that it will be signed by any particular date. If
signed, there can be no assurance that the transaction can or will be completed or that it
will be completed by any particular date.The letter of intent provides for a period of exclusivity with respect to the negotiations
of a merger agreement. Such exclusivity period has been extended to September 3, 2007.
The date on which the letter of intent may be terminated by either party thereto has also
been extended to September 3, 2007. The parties have also agreed that, for such purposes,
such date shall be automatically extended thereafter for additional one week periods,
unless either party notifies the other that it will not extend such date prior to the end
of any such additional one week period.At March 31, 2007, and August 31, 2007, the Company was in compliance with the covenant requirements set forth
in the 2005 Credit Agreement and the Receivables Facility, as amended and the 10% Note
indenture. It was not in compliance with certain reporting requirements under
its 2005 Credit Agreement and Receivables Facility subsequent to March 31, 2007. On August 31, 2007,
the lenders under both facilities waived such noncompliance. One such waiver related to the Companys failure to deliver the Companys restated consolidated
financial statements for the fiscal years ended March 31, 2007, 2006 and 2005 accompanied by a
report and opinion of its independent certified public accountants
that was not subject to any
going concern qualification. See the Report of Independent Registered Public Accounting Firm,
which contains a going concern qualification, accompanying the Companys restated consolidated
financial statements. The lenders under both facilities waived such noncompliance with respect to
the delivery of such Report of Independent Registered Public Accounting Firm until November 29,
2007.The Company anticipates that its primary needs for liquidity will be to conduct its
business, meet debt service requirements, including its required interest payment on the
10% Notes on December 15, 2007, and make capital expenditures. The Company is continually
working to improve its liquidity position.
 41




---



##### Table of Contents



ACG HOLDINGS, INC.
  The Company believes, based on managements current forecasts and its current capital
structure (and without giving effect to the proposed Vertis Merger), it will
have sufficient liquidity to meet its requirements through November 29, 2007. If the
Vertis Merger closes on or prior to such date, the Company will thereupon become a
wholly-owned subsidiary of Vertis.On August 31, 2007, the 2005 Credit Agreement and Receivables Facility were amended to,
among other things, provide that compliance with the first lien coverage ratio covenants
in each thereof as of September 30, 2007, will not be measured or determined for any
purpose until November 29, 2007 (including, without limitation, for the purpose of
determining the Companys entitlement to make additional borrowings under either such
facility on or prior to such date). We
do not believe that it is probable that the Company will be in compliance with
its first lien coverage ratio covenants under its 2005 Credit
Agreement and Receivables Facility at or after November 29, 2007. The lenders under both facilities also waived the Companys noncompliance with certain reporting
requirements under such facilities subsequent to March 31, 2007. One such waiver related to the
Companys failure to deliver its restated consolidated financial statements for the fiscal years
ended March 31, 2007, 2006 and 2005 accompanied by a report or opinion of our independent certified
public accountants that was not subject to any going concern qualification. See the Report of
Independent Registered Public Accounting Firm, which contains a going concern qualification,
accompanying our restated consolidated financial statements. The lenders under both facilities
waived such noncompliance with respect to the delivery of such Report of Independent Registered
Public Accounting Firm until November 29, 2007.In the event the merger agreement for the Vertis Merger is not entered into (or the Vertis
Merger is not consummated by November 29, 2007), based on managements current forecasts
and the Companys current capital structure, in order for the Company to have sufficient
liquidity to meet its requirements for liquidity after November 29, 2007, including its
next required interest payment on the 10% Notes, the Company would have to take one or
more actions to improve its liquidity or modify its requirements for liquidity, which
could include, without limitation, seeking waivers or amendments from the requisite
lenders under the 2005 Credit Agreement or the Receivables Facility or the requisite
holders of the 10% Notes, or all three thereof, under the documentation therefor,
refinancing one or both of the 2005 Credit Agreement or Receivables Facility, incurring
additional indebtedness above currently permitted levels (if the requisite lenders under
the Companys bank credit facilities and the requisite holders of the 10% Notes permit
it), seeking to exchange some or all of the 10% Notes for other securities of the Company,
selling the entire Company to another party or disposing of material assets or operations,
reducing or delaying capital expenditure or otherwise reducing the Companys expenses, or
taking other material actions that could have a material adverse effect on the Company.
If the Companys business does not generate profitability and cash from operations in line
with managements current forecast for the period through November 29, 2007 (and the
proposed Vertis Merger has not theretofore been consummated), the Company would be
required to take one or more of such actions sooner than November 29, 2007. The Company
cannot provide assurances that any such action could be successfully accomplished or as to
the timing or terms thereof.Based on managements current forecasts and the Companys current capital structure (and
without giving effect to the proposed Vertis Merger or any other actions described above
that the Company may take), the Company cannot provide any assurance that it will be able
to comply with the first lien coverage ratio covenants in the 2005 Credit Agreement and
the Receivables Facility after November 29, 2007. Accordingly, pursuant to Emerging
Issues Task Force Issue 86-30 Classification of Obligations When a Violation is Waived By
the Creditors (EITF 86-30) and Statement of Financial Accounting Standards No. 78,
Classification of Obligations That Are Callable by the Creditor-an amendment of ARB No.
43, Chapter 3A (SFAS 78), the Company has classified all amounts outstanding under the
2005 Credit Agreement, the Receivables Facility, the 10% Notes, and the Companys capital
lease obligations as current liabilities in the accompanying March 31, 2007 consolidated
balance sheet. No amounts under the 2005 Credit Agreement, Receivables Facility, 10%
Notes or capital lease obligations were due but unpaid at March 31, 2007 or August 31, 2007.Significant accounting policies are as follows:
 (a)
    
    Basis of PresentationThe consolidated financial statements include the accounts of Holdings and all
greater than 50%-owned subsidiaries, which are consolidated under United States
generally accepted accounting principles.All significant intercompany transactions and balances have been eliminated in
consolidation.Earnings-per-share data has not been provided since Holdings common stock is
closely held.
 42




---



##### Table of Contents



ACG HOLDINGS, INC.
  (b)
    
    Revenue RecognitionPrint revenues are recognized upon the completion of production. Shipment of
printed material generally occurs upon completion of this production process.
Materials are printed to unique customer specifications and are not returnable.Premedia services revenues are recognized as services are performed. Delivery of
electronic files, proofs and plates generally occurs upon completion of the
production process. Services are performed to unique customer specifications and
are not returnable.Credits relating to specification variances and other customer adjustments have
historically not been significant for either the print or premedia services
business segments.(c)
    
    Cash and Cash EquivalentsThe Company uses available cash balances on hand and borrowings under its 2005
Revolving Credit Facility and Receivables Facility (defined herein), to fund
operating disbursements and, to the extent applicable, invest in overnight cash
investments. Cash on hand of approximately $2.9 million and $6.7 million
(including $5.1 million of liquid overnight cash investments) at March 31, 2007 and
2006, respectively, is presented net of outstanding checks, which resulted in a
reclassification of $9.6 million and $10.4 million at March 31, 2007 and 2006
respectively, to trade accounts payable in the consolidated balance sheets. The
Company considers all highly liquid investments with maturities of three months or
less to be cash equivalents.(d)
    
    Trade Accounts ReceivableTrade accounts receivable represents payments due from customers net of allowances
for doubtful accounts. The Company continuously monitors collections and payments
from its customers. Allowances for doubtful accounts are maintained based on
historical payment patterns, aging of accounts receivable and actual write-off
history. The Company estimates losses resulting from the inability of its
customers to make required payments.(e)
    
    InventoriesInventories are valued at the lower of first-in, first-out (FIFO) cost or market
(net realizable value).(f)
    
    Property, Plant and EquipmentProperty, plant and equipment is stated at cost. Depreciation, which includes
amortization of assets under capital leases, is based on the straight-line method
over the shorter of the estimated useful lives of the assets or the remaining terms
of the leases. Estimated useful lives used in computing depreciation and
amortization expense are 3 to 15 years for furniture and fixtures and machinery and
equipment and 15 to 25 years for buildings and improvements. Expenditures related
to maintenance and repairs are expensed as incurred.(g)
    
    Excess of Cost Over Net Assets AcquiredThe excess of cost over net assets acquired (or goodwill) is accounted for in
accordance with the guidance set forth in Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142
requires goodwill to be evaluated at least annually for impairment. The Company
performed the required annual impairment tests of goodwill as of December 31, 2006
and 2005, and noted no impairment.The Company has goodwill associated with its two distinct segments, print and
premedia services, and has determined that there are no additional reporting units
within these segments, as there are no further components representing a
business. Therefore, the impairment test for goodwill is
 43




---



##### Table of Contents



ACG HOLDINGS, INC.
  calculated for each of the segments. The test is calculated by deducting the
estimated carrying value of each reporting unit from the estimated enterprise value
of each reporting unit. The estimated enterprise value is calculated by
multiplying 12 months trailing EBITDA (defined as earnings before net interest
expense, income tax expense, depreciation and amortization) by an assumed market
multiple, which the Company believes to be reasonable based upon recent sales
activity of businesses operating in comparable industries as the Companys
segments. The estimated carrying value is calculated by deducting the liabilities,
excluding interest-bearing debt, from total assets of the respective segment. A
calculation in which the estimated enterprise value exceeds the estimated carrying
value results in a conclusion of no impairment. If it is determined that the
estimated carrying value exceeds the estimated enterprise value, the Company would
calculate the implied fair value of goodwill by deducting the fair value of all
tangible and intangible net assets, including unrecognized intangible assets, of
the segment from the fair value of the segment. If the implied fair value of
goodwill is less than the carrying value, an impairment loss would be recognized.
 (h)
    
    Impairment of Long-Lived AssetsThe Company evaluates the recoverability of its long-lived assets in accordance
with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 requires
periodic assessment of certain long-lived assets for possible impairment when
events or circumstances indicate that the carrying amounts may not be
recoverable. Long-lived assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows that are independent of
the cash flows of other groups of assets. If it is determined that the carrying
amounts of such long-lived assets are not recoverable, the assets are written down
to their fair value.In the fourth quarter of the fiscal year ended March 31, 2006, the Company
concluded that certain non-production information technology assets of the print
segment were fully impaired as a result of its periodic assessment under SFAS 144.
This impairment resulted in a non-cash charge of $2.8 million. The impairment
charge was classified within other, net in the consolidated statement of operations
for the fiscal year ended March 31, 2006.(i)
    
    Other AssetsFinancing costs related to the 2005 Credit Agreement (as defined herein) are
deferred and amortized over the term of the agreement. Financing costs related to
the Old Revolving Credit Facility (as defined herein) are amortized over the term
of the 2005 Credit Agreement. Financing costs related to the Receivables Facility
(as defined herein) are deferred and amortized over the term of the agreement. See
note 7 for further discussion. Financing costs related to the 10% Notes (as defined
herein) are deferred and amortized over the term of the 10% Notes. Covenants not
to compete are amortized over the terms of the underlying agreements.(j)
    
    Income TaxesIncome taxes are provided using the liability method in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). Management evaluates the need for a valuation allowance for deferred tax
assets and determines whether the Companys deferred tax assets will more likely
than not be realized through sources of future taxable income as defined by SFAS
109, including the future reversal of existing taxable temporary differences.(k)
    
    Foreign Currency TranslationThe assets and liabilities of the Companys Canadian facility, which include
interdivisional balances, are translated at year-end rates of exchange while
revenue and expense items are translated at average rates for the year.
 44




---



##### Table of Contents



ACG HOLDINGS, INC.
  Translation adjustments are recorded as a separate component of stockholders
deficit. Since the transactions of the Canadian facility are denominated in its
functional currency and the interdivisional accounts are of a long-term investment
nature, no remeasurement gains and losses pertaining to such balances are included
in the Companys consolidated results of operations.
 (l)
    
    EnvironmentalEnvironmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future period
revenue generation, are expensed. Environmental liabilities are provided when
assessments and/or remedial efforts are probable and the related amounts can be
reasonably estimated.(m)
    
    Fair Value of Financial InstrumentsThe carrying amounts reflected in the consolidated balance sheets for receivables
and payables approximate their respective fair values. A discussion of the
carrying value and fair value of the Companys long-term debt is included in note 7
below. Fair values are based primarily on quoted prices for these or similar
instruments. The Company is not a party to any financial instruments with material
off-balance-sheet risk.(n)
    
    Concentration of Credit RiskFinancial instruments, which subject the Company to credit risk, consist primarily
of trade accounts receivable. Concentration of credit risk with respect to trade
accounts receivable is generally diversified due to the large number of entities
comprising the Companys customer base and their geographic dispersion. The
Company performs ongoing credit evaluations of its customers and maintains an
allowance for potential credit losses.(o)
    
    Use of EstimatesThe preparation of the financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.(p)
    
    Stock-Based CompensationDuring the fiscal year ended March 31, 2007, the Company accounted for stock based
awards under Statement of Financial Accounting Standards No. 123 (revised), Share
Based Payment (SFAS 123R), which requires all share-based payments to employees,
including grants of employee stock options and restricted stock, to be recognized
in the Companys financial statements based on their grant date fair values. The
Company adopted SFAS 123R on April 1, 2006, applying the modified prospective
transition method outlined in the Statement. During the fiscal years ended March
31, 2006 and 2005, the Company accounted for stock based awards under Statement of
Financial Accounting Standards, No. 123, Accounting for Stock-Based Compensation
(SFAS 123) based on their grant date fair values as the Company believed that
including the fair value of compensation plans in determining net income was
consistent with accounting for the cost of all other forms of compensation.(q)
    
    Shipping and Handling CostsThe Companys shipping and handling costs are reflected within Cost of Sales in the
Consolidated Statements of Operations.
 45




---



##### Table of Contents



ACG HOLDINGS, INC.
  (r)
    
    Impact of Recently Issued Accounting StandardsIn December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
123R, which superseded SFAS 123 and amended Statement of Financial Accounting
Standards No. 95, Statement of Cash Flows (SFAS 95). Generally, the fair value
approach in SFAS 123R is similar to the fair value approach described in SFAS 123. Upon adoption of SFAS 123R on April 1, 2006,
the Company elected to continue using the Black-Scholes-Merton formula to estimate
the fair value of stock options granted to employees. The adoption of SFAS 123R
had no impact on compensation expense for the fiscal year ended March 31, 2007 as
the Company granted no options during this period. Additionally, all outstanding
options on the date of adoption had a fair value of $0. SFAS 123R also requires
that the benefits of tax deductions in excess of recognized compensation cost be
reported as a financing cash flow rather than as an operating cash flow. The
Company reported no such financing cash flows in the fiscal year ended March 31,
2007. For the fiscal years ended March 31, 2006 and 2005, the Company recognized
no operating cash flows for such excess tax
deductions.
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154,
Accounting Changes and Error Corrections (SFAS 154), a replacement of
Accounting Principles Board Opinion No. 20, Accounting Changes (APB 20) and
Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in
Interim Financial Statements (SFAS 3). SFAS 154 requires retrospective
application to prior periods financial statements of a voluntary change in
accounting principle unless it is impracticable. APB 20 previously required that
most voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. The adoption of SFAS 154 as of April 1, 2006 has had no
impact on the consolidated financial statements as a whole.In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48), to clarify the accounting for uncertainty in income taxes
in financial statements prepared in accordance with the provisions of SFAS 109 and
to provide greater consistency in criteria used to determine benefits related to
income taxes. In accounting for uncertain tax positions, the Company currently
applies the provisions of Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies (SFAS 5). SFAS 5 provides that a contingency
should be recorded if it is probable that an uncertain position will become an
actual future liability. FIN 48 provides that the benefit of an uncertain position
should not be recorded unless it is more likely than not that the position will be
sustained upon review. FIN 48 is effective for fiscal years beginning after
December 15, 2006. In accordance, the Company will adopt FIN 48 as of April 1,
2007. The cumulative effect of applying FIN 48 will be reported as an adjustment
to the April 1, 2007 balance sheet. The adoption of FIN 48 did not have a material
impact on the consolidated financial statements as a whole.In September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes the framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 will be effective for the Company
as of April 1, 2008. The Company is in the process of evaluating the impact, if
any, SFAS 157 will have on the consolidated financial statements as a whole.In September 2006, the FASB issued Statement of Financial Accounting Standards No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158).
SFAS 158 requires an entity to (a) recognize in its statement of financial position
an asset for a defined benefit postretirement plans overfunded status or a
liability for a plans underfunded status; (b) measure a defined benefit
postretirement plans assets and obligations that determine its funded status as of
the end of the
 46




---



##### Table of Contents



ACG HOLDINGS, INC.
  employers fiscal year; and (c) recognize changes in the funded status of a defined
benefit postretirement plan in comprehensive income (loss) in the year in which the
changes occur. The requirement to recognize the funded status of a defined benefit
postretirement plan prospectively and the disclosure requirements are effective for
the Company for the fiscal year ending March 31, 2008. The requirement to measure
plan assets and benefit obligations as of the date of the Companys fiscal
year end will be effective for the fiscal year ending March 31, 2009. The Company
has begun its analysis of the impact of the adoption of SFAS 158 but does not
currently anticipate a significant impact on the consolidated financial statements
as a whole.In February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value at specified election dates. The provisions of SFAS 159
will be effective for the Company as of April 1, 2008. The Company is in the
process of evaluating the impact, if any, SFAS 159 will have on the consolidated
financial statements as a whole.
 (2)
    
    Restatement of Financial StatementsOn August 20, 2007, the Company, in consultation with its Board of Directors, announced
through a Form 8-K filing with the Securities and Exchange Commission (SEC), that as a
result of certain accounting matters, the financial statements for the fiscal years ended
March 31, 2007, 2006 and 2005 would be restated. The Company has completed its review and
has restated the audited financial statements for those periods.The revisions associated with this restatement, the
cumulative impact of which is an increase
to accumulated deficit previously reported at March 31, 2007 of $1,314,000, relate
principally to a correction in the accounting treatment of certain deferred financing
costs (a cumulative impact to increase previously reported accumulated deficit at March
31, 2007 by $478,000) and an adjustment to the accrued vacation liability calculation (a
cumulative impact to increase previously reported accumulated deficit at March 31, 2007 by
$661,000). These two revisions, as well as certain other corrections of individually
immaterial errors (a net cumulative impact to increase previously reported accumulated
deficit at March 31, 2007 by $175,000), decreased our net loss by $473,000 in the fiscal
year ended March 31, 2007, increased net loss by $1,140,000 and $612,000 in the fiscal
years ended March 31, 2006 and 2005, respectively, and increased the accumulated deficit
by $35,000 as of April 1, 2004.The Company has historically capitalized costs associated with its quarterly and annual
SEC filings including, without limitation, costs related to legal services, rating agency
fees, EDGAR fees and printing services, as deferred financing costs on its consolidated
balance sheet. These costs were amortized over future periods through interest expense
within the Companys consolidated statements of operations over the remaining term of the
underlying debt instrument. The Company is required to file periodic reports with the SEC
as a result of a covenant in the indenture governing the 10% Notes. Due to this covenant
requirement (and a covenant requirement to maintain the effectiveness of a registration
statement previously filed by the Company with the SEC), these costs were previously
deemed by the Company to relate specifically to the ongoing indenture requirement, and
therefore, provided future economic benefit.During August 2007, the Company was advised by Ernst & Young LLP that based on applicable
guidance, such costs should not be capitalized and expensed over future periods, but
should be treated as period costs and expensed within the selling, general and
administrative expense line item of the Companys consolidated statements of operations.
The Company has reviewed the applicable guidance and determined to conform to this approach.
The revisions for the revised treatment of deferred financing costs decreased net loss by
$7,000 in the fiscal year ended March 31, 2007, increased net loss by $115,000 and
$128,000 in the fiscal years ended March 31, 2006 and 2005, respectively, and increased
the accumulated deficit by $242,000 as of April 1, 2004.
 47




---



##### Table of Contents



ACG HOLDINGS, INC.
  The second primary adjustment related to a revision of the Companys accrued vacation
liability calculation, due to the correction of certain underlying supporting data. The
correction of this liability increased net loss by $257,000 and $404,000 in the fiscal
years ended March 31, 2007 and 2006, respectively.Accordingly, the Company has amended its Annual Report on Form 10-K for the fiscal year
ended March 31, 2007, as originally filed on June 27, 2007, and has restated the financial
statements included within for the fiscal years ended March 31, 2007, 2006 and 2005. The
following consolidated statements of operations and balance sheets reconcile previously
reported and restated financial information (dollars in thousands).
 48




---



##### Table of Contents



ACG HOLDINGS, INC.
  March 31,
    
    
    Restatement
    
    


    Debt
    
    
    March 31,2007
    
    
    Related
    
    
    Reclassification
    
    
    2007As Reported
    
    
    Adjustments
    
    

(See
note 7)
    
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables:Trade accounts, less allowance
    
    
    44,385
    
    
    
    
    
    
    
    
    
    
    
    44,385Other
    
    
    2,645
    
    
    
    
    
    
    
    
    
    
    
    2,645Total receivables
    
    
    47,030
    
    
    
    
    
    
    
    
    
    
    
    47,030Inventories
    
    
    7,146
    
    
    
    
    
    
    
    
    
    
    
    7,146Deferred income taxes
    
    
    962
    
    
    
    
    
    
    
    
    
    
    
    962Prepaid expenses and other current assets
(a)
    
    
    4,997
    
    
    
    (83
    )
    
    
    
    
    
    
    4,914Total current assets
    
    
    60,135
    
    
    
    (83
    )
    
    
    
    
    
    
    60,052Property, plant and equipment, net
    
    
    81,784
    
    
    
    
    
    
    
    
    
    
    
    81,784Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    
    
    
    
    
    
    
    
    66,548Other assets (a)
    
    
    18,266
    
    
    
    (426
    )
    
    
    
    
    
    
    17,840Total assets
    
    $
    226,733
    
    
    
    (509
    )
    
    
    
    
    
    
    226,224Liabilities and Stockholders
DeficitCurrent liabilities:Current portion of long-term
capital debt and capital
leases
    
    $
    3,435
    
    
    
    
    
    
    
    348,675
    
    
    
    352,110Trade accounts payable
    
    
    32,892
    
    
    
    199
    
    
    
    
    
    
    
    33,091Accrued expenses (b)
    
    
    29,651
    
    
    
    661
    
    
    
    
    
    
    
    30,312Income tax payable
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487Total current liabilities
    
    
    66,465
    
    
    
    860
    
    
    
    348,675
    
    
    
    416,000Long-term debt and capital
leases, excluding current
    
    
    348,675
    
    
    
    
    
    
    
    (348,675
    )
    
    
    Deferred income taxes
    
    
    2,677
    
    
    
    
    
    
    
    
    
    
    
    2,677Other liabilities
    
    
    52,554
    
    
    
    (55
    )
    
    
    
    
    
    
    52,499Total liabilities
    
    
    470,371
    
    
    
    805
    
    
    
    
    
    
    
    471,176Stockholders deficit:Common stock
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    
    
    
    
    
    
    
    
    2,038Accumulated deficit
    
    
    (230,769
    )
    
    
    (1,314
    )
    
    
    
    
    
    
    (232,083
    )Other accumulated comprehensive
loss, net of tax
    
    
    (14,909
    )
    
    
    
    
    
    
    
    
    
    
    (14,909
    )Total stockholders deficit
    
    
    (243,638
    )
    
    
    (1,314
    )
    
    
    
    
    
    
    (244,952
    )Total liabilities and
stockholders deficit
    
    $
    226,733
    
    
    
    (509
    )
    
    
    
    
    
    
    226,224
 
 a)
    
    The revised treatment of deferred financing costs resulted in an increase of $96,000 in
prepaid expenses and a decrease of $574,000 in other assets resulting in a net decrease in
total assets of $478,000.b)
    
    The adjustment related to the revision of the accrued vacation liability calculation resulted
in an increase in accrued expenses of $661,000. 49




---



##### Table of Contents



ACG HOLDINGS, INC.
  March 31,
    
    
    Restatement
    
    
    March 31,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    
    
    
    
    
    Receivables:Trade accounts, less allowance
    
    
    41,080
    
    
    
    
    
    
    
    41,080Other
    
    
    3,463
    
    
    
    
    
    
    
    3,463Total receivables
    
    
    44,543
    
    
    
    
    
    
    
    44,543Inventories
    
    
    7,714
    
    
    
    
    
    
    
    7,714Deferred income taxes
    
    
    1,409
    
    
    
    (213
    )
    
    
    1,196Prepaid expenses and other current assets
(a)
    
    
    4,733
    
    
    
    (125
    )
    
    
    4,608Total current assets
    
    
    58,399
    
    
    
    (338
    )
    
    
    58,061Property, plant and equipment, net
    
    
    87,766
    
    
    
    
    
    
    
    87,766Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    
    
    
    
    66,548Other assets (a)
    
    
    18,789
    
    
    
    (532
    )
    
    
    18,257Total assets
    
    $
    231,502
    
    
    
    (870
    )
    
    
    230,632Liabilities and Stockholders DeficitCurrent liabilities:Current installments of capital leases
    
    $
    3,731
    
    
    
    
    
    
    
    3,731Trade accounts payable
    
    
    33,845
    
    
    
    810
    
    
    
    34,655Accrued expenses (b)
    
    
    36,367
    
    
    
    (2,272
    )
    
    
    34,095Income tax payable
    
    
    160
    
    
    
    
    
    
    
    160Total current liabilities
    
    
    74,103
    
    
    
    (1,462
    )
    
    
    72,641Long-term debt and capital
leases, excluding current
    
    
    320,553
    
    
    
    
    
    
    
    320,553Deferred income taxes
    
    
    3,866
    
    
    
    (213
    )
    
    
    3,653Other liabilities
    
    
    62,712
    
    
    
    2,592
    
    
    
    65,304Total liabilities
    
    
    461,234
    
    
    
    917
    
    
    
    462,151Stockholders deficit:Common stock
    
    
    2
    
    
    
    
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    
    
    
    
    2,038Accumulated deficit
    
    
    (209,760
    )
    
    
    (1,787
    )
    
    
    (211,547
    )Other accumulated comprehensive loss,
net of tax
    
    
    (22,012
    )
    
    
    
    
    
    
    (22,012
    )Total stockholders deficit
    
    
    (229,732
    )
    
    
    (1,787
    )
    
    
    (231,519
    )Total liabilities and stockholders
deficit
    
    $
    231,502
    
    
    
    (870
    )
    
    
    230,632
 
 a)
    
    The revised treatment of deferred financing costs resulted in an increase of $47,000 in
prepaid expenses and a decrease of $532,000 in other assets resulting in a net decrease
in total assets of $485,000.b)
    
    The adjustment related to the revision of the accrued vacation liability calculation
resulted in an increase in accrued expenses of $404,000. 50




---



##### Table of Contents



ACG HOLDINGS, INC.
  March 31,
    
    
    Restatement
    
    
    March 31,2007
    
    
    Related
    
    
    2007As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    445,026
    
    
    
    
    
    
    
    445,026Cost of sales (b)
    
    
    397,115
    
    
    
    (461
    )
    
    
    396,654Gross profit
    
    
    47,911
    
    
    
    461
    
    
    
    48,372Selling, general and administrative expenses (a) (b)
    
    
    27,539
    
    
    
    320
    
    
    
    27,859Restructuring costs (benefit) and other charges
    
    
    (445
    )
    
    
    33
    
    
    
    (412
    )Operating income
    
    
    20,817
    
    
    
    108
    
    
    
    20,925Other expense (income):Interest expense (a)
    
    
    40,405
    
    
    
    (365
    )
    
    
    40,040Interest income
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Other, net
    
    
    1,714
    
    
    
    
    
    
    
    1,714Total other expense
    
    
    42,019
    
    
    
    (365
    )
    
    
    41,654Loss before income taxes
    
    
    (21,202
    )
    
    
    473
    
    
    
    (20,729
    )Income tax benefit
    
    
    (193
    )
    
    
    
    
    
    
    (193
    )Net loss
    
    $
    (21,009
    )
    
    
    473
    
    
    
    (20,536
    )
 
 a)
    
    The revised treatment of deferred financing costs resulted in an increase of
$358,000 in selling, general and administrative expenses and a decrease of $365,000
in interest expense resulting in a net decrease of $7,000 in net loss.b)
    
    The adjustment related to the revision of the accrued vacation liability
calculation resulted in an increase in cost of sales of $288,000 and a decrease in
selling, general and administrative expenses of $31,000 resulting in
a net increase in
net loss of $257,000. 51




---



##### Table of Contents



ACG HOLDINGS, INC.
  March 31,
    
    
    Restatement
    
    
    March 31,2006
    
    
    Related
    
    
    2006As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    434,489
    
    
    
    
    
    
    
    434,489Cost of sales (b)
    
    
    385,150
    
    
    
    627
    
    
    
    385,777Gross profit
    
    
    49,339
    
    
    
    (627
    )
    
    
    48,712Selling, general and administrative expenses (a) (b)
    
    
    26,792
    
    
    
    639
    
    
    
    27,431Restructuring costs (benefit) and other charges
    
    
    (1,167
    )
    
    
    636
    
    
    
    (531
    )Operating income
    
    
    23,714
    
    
    
    (1,902
    )
    
    
    21,812Other expense (income):Interest expense (a)
    
    
    37,624
    
    
    
    (470
    )
    
    
    37,154Interest income
    
    
    (83
    )
    
    
    
    
    
    
    (83
    )Other, net
    
    
    4,119
    
    
    
    (292
    )
    
    
    3,827Total other expense
    
    
    41,660
    
    
    
    (762
    )
    
    
    40,898Loss before income taxes
    
    
    (17,946
    )
    
    
    (1,140
    )
    
    
    (19,086
    )Income tax benefit
    
    
    (3,369
    )
    
    
    
    
    
    
    (3,369
    )Net loss
    
    $
    (14,577
    )
    
    
    (1,140
    )
    
    
    (15,717
    )
 
 a)
    
    The revised treatment of deferred financing costs resulted in an increase of
$421,000 in selling, general and administrative expenses and a decrease of $306,000
in interest expense resulting in a net increase of $115,000 in net loss.b)
    
    The adjustment related to the revision of the accrued vacation liability
calculation resulted in an increase in cost of sales of $311,000 and an increase in
selling, general and administrative expenses of $93,000 resulting in
a net increase in
net loss of $404,000. 52




---



##### Table of Contents



ACG HOLDINGS, INC.
  March 31,
    
    
    Restatement
    
    
    March 31,2005
    
    
    Related
    
    
    2005As Reported
    
    
    Adjustments
    
    
    RestatedSales
    
    $
    449,513
    
    
    
    
    
    
    
    449,513Cost of sales
    
    
    403,641
    
    
    
    714
    
    
    
    404,355Gross profit
    
    
    45,872
    
    
    
    (714
    )
    
    
    45,158Selling, general and administrative expenses (a)
    
    
    28,824
    
    
    
    205
    
    
    
    29,029Restructuring costs (benefit) and other charges
    
    
    10,037
    
    
    
    (5
    )
    
    
    10,032Operating income
    
    
    7,011
    
    
    
    (914
    )
    
    
    6,097Other expense (income):Interest expense (a)
    
    
    34,087
    
    
    
    (302
    )
    
    
    33,785Interest income
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )Other, net
    
    
    313
    
    
    
    
    
    
    
    313Total other expense
    
    
    34,363
    
    
    
    (302
    )
    
    
    34,061Loss before income taxes
    
    
    (27,352
    )
    
    
    (612
    )
    
    
    (27,964
    )Income tax benefit
    
    
    (1,685
    )
    
    
    
    
    
    
    (1,685
    )Net loss
    
    $
    (25,667
    )
    
    
    (612
    )
    
    
    (26,279
    )
 
 a)
    
    The revised treatment of deferred financing costs resulted in an increase of
$379,000 in selling, general and administrative expenses and a decrease of $251,000
in interest expense resulting in a net increase of $128,000 in net loss. (3)
    
    Inventories
  March 31,2007
    
    
    2006Paper
    
    $
    5,036
    
    
    
    5,959Ink
    
    
    152
    
    
    
    140Supplies and other
    
    
    1,958
    
    
    
    1,615Total
    
    $
    7,146
    
    
    
    7,714
 (4)
    
    Assets and Liabilities Held for SaleAt March 31, 2005, the Company held certain assets and obligations under capital leases
for sale at a fair value of $8.1 million and $1.0 million, respectively. On March 16,
2005, the Company ceased operations at the Pittsburg, California facility, resulting in
the write-off of certain assets totaling approximately $0.5 million
(see note 15). In March 2005, the Company also executed a letter of intent with a
prospective buyer to sell certain of the print facilitys other assets, some of which were
subject to capital lease obligations. On April 20, 2005, the Company completed the sale
of these assets for an aggregate selling price of approximately $8.1 million (including
$0.1 million of miscellaneous closing and settlement costs and $6.9 million of property,
plant and equipment) and terminated $1.0 million of related capital lease obligations. In
accordance with the guidance set forth in SFAS 144, the Company wrote down the assets held
for sale to fair value, resulting in a $0.7 million impairment charge, which was
classified within restructuring costs and other charges in the consolidated statement of
operations for the fiscal year ended March 31, 2005.
 53




---



##### Table of Contents



ACG HOLDINGS, INC.
  (5)
    
    Other AssetsThe components of other assets are as follows (in thousands):
 March 31,2007
    
    
    2006(Restated)
    
    (Restated)Deferred financing costs, less accumulated
amortization of $9,686 in 2007 and $6,514
in 2006
    
    $
    10,311
    
    
    
    10,934Spare parts inventory, net of valuation allowance
of $100 in 2007 and 2006
    
    
    7,463
    
    
    
    6,965Other
    
    
    66
    
    
    
    358Total
    
    $
    17,840
    
    
    
    18,257
 (6)
    
    Accrued ExpensesThe components of accrued expenses are as follows (in thousands):
 March 31,2007
    
    
    2006(Restated)
    
    (Restated)Compensation and related taxes
    
    $
    5,876
    
    
    
    4,849Employee benefits
    
    
    10,837
    
    
    
    15,563Interest
    
    
    10,012
    
    
    
    9,268Restructuring
    
    
    1,140
    
    
    
    1,451Other
    
    
    2,447
    
    
    
    2,964Total
    
    $
    30,312
    
    
    
    34,095
 54




---



##### Table of Contents



ACG HOLDINGS, INC.
  (7)
    
    Notes Payable, Long-Term Debt and Capital LeasesLong-term debt, including capital leases, is summarized as follows (in thousands):
 March 31,2007
    
    
    20062005 Revolving Credit Facility
    
    $
    26,900
    
    
    
    2005 Term Loan Facility
    
    
    35,000
    
    
    
    35,000Receivables Facility
    
    
    4,680
    
    
    
    10% Senior Second Secured Notes Due 2010
    
    
    280,000
    
    
    
    280,000Capital leases
    
    
    5,530
    
    
    
    9,284Total long-term debt and capital leases
    
    
    352,110
    
    
    
    324,284Less: current installments
    
    
    352,110
    
    
    
    3,731Long-term debt and capital leases,
excluding current installments
    
    $
    
    
    
    
    320,553
  May 5, 2005 Refinancing Transaction
  
    
    a $55 million revolving credit facility ($40 million of which may
be used for letters of credit), maturing on December 15, 2009
which is not subject to a borrowing base limitation, (the 2005
Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on
December 15, 2009 (the 2005 Term Loan Facility).
   55




---



##### Table of Contents



ACG HOLDINGS, INC.
    
    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of its business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to the Company from its subsidiaries.
   September 26, 2006 Revolving Trade Receivables Facility
     56




---



##### Table of Contents



ACG HOLDINGS, INC.
        10% Senior Second Secured Notes
  Amendments to Credit Facilities
  Covenant Compliance and Liquidity
  57




---



##### Table of Contents



ACG HOLDINGS, INC.
        58




---



##### Table of Contents



ACG HOLDINGS, INC.
  (8)
    
    Income TaxesDeferred 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. Significant components of the Companys deferred
tax liabilities and assets as of March 31, 2007 and 2006 are as follows (in thousands):
 March 31,2007
    
    
    2006(Restated)
    
    
    (Restated)Deferred tax liabilities:Book over tax basis in property, plant and equipment
    
    $
    8,508
    
    
    
    11,558Foreign taxes
    
    
    1,715
    
    
    
    1,924Accumulated amortization
    
    
    3,207
    
    
    
    2,806Total deferred tax liabilities
    
    
    13,430
    
    
    
    16,288Deferred tax assets:Allowance for doubtful accounts
    
    
    399
    
    
    
    500Accrued expenses and other liabilities
    
    
    5,361
    
    
    
    8,629Net operating loss carryforwards
    
    
    65,814
    
    
    
    56,467AMT credit carryforwards
    
    
    1,203
    
    
    
    1,203Additonal minimum pension liability
    
    
    5,645
    
    
    
    8,477Cumulative translation adjustment
    
    
    203
    
    
    
    157Other, net
    
    
    1,469
    
    
    
    996Total deferred tax assets
    
    
    80,094
    
    
    
    76,429Valuation allowance for deferred tax assets
    
    
    68,379
    
    
    
    62,598Net deferred tax assets
    
    
    11,715
    
    
    
    13,831Net deferred tax liabilities
    
    $
    1,715
    
    
    
    2,457
 Management has evaluated the need for a valuation allowance for deferred tax assets and
believes that certain deferred tax assets will more likely than not be realized through the
future reversal of existing taxable temporary differences of the Company. The valuation
allowance increased by $5.8 million during the fiscal year ended March 31, 2007 as a result
of an increase in the deferred tax items, which is net of a $2.8 million decrease related to
the tax effect of the decrease in the additional minimum pension liability, which is a
component of other comprehensive income (loss).The valuation allowance increased by $7.6 million during the fiscal year ended March 31, 2006
as a result of an increase in the deferred tax items, which includes an increase of $1.0
million related to the tax effect of the increase in the additional minimum pension
liability, which is a component of other comprehensive income (loss).
 59




---



##### Table of Contents



ACG HOLDINGS, INC.
  During fiscal years ended March 31, 2007 and 2006, the Company recorded adjustments of $0.4
million and $3.6 million, respectively, to reflect the tax benefit associated with changes in
estimate with respect to its income tax liability.Income tax expense (benefit) attributable to loss from continuing operations consists of (in
thousands):
 Year ended March 31,2007
    
    
    2006
    
    
    2005CurrentFederal
    
    $
    
    
    
    
    
    
    
    
    State
    
    
    119
    
    
    
    89
    
    
    
    129Foreign
    
    
    430
    
    
    
    174
    
    
    
    (990
    )Total current
    
    
    549
    
    
    
    263
    
    
    
    (861
    )DeferredFederal
    
    
    
    
    
    
    (482
    )
    
    
    (310
    )State
    
    
    (525
    )
    
    
    47
    
    
    
    (417
    )Foreign
    
    
    (217
    )
    
    
    (3,197
    )
    
    
    (97
    )Total deferred
    
    
    (742
    )
    
    
    (3,632
    )
    
    
    (824
    )Income tax benefit
    
    $
    (193
    )
    
    
    (3,369
    )
    
    
    (1,685
    )
 The effective tax rates for the fiscal years ended March 31, 2007, 2006 and 2005 were 0.9%,
17.7% and 6.0%, respectively. The difference between these effective tax rates relating to
continuing operations and the statutory federal income tax rate is composed of the following
items:
 Year Ended March 31,2007
    
    2006
    
    2005(Restated)
    
    (Restated)
    
    (Restated)Statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, less
federal tax impact
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    (0.1
    )Foreign taxes, less federal
tax impact
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    2.3Other nondeductible expenses
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Change in valuation allowance
    
    
    (35.4
    )
    
    
    (33.5
    )
    
    
    (31.5
    )Change in cumulative translation adjustment
    
    
    0.1
    
    
    
    (1.0
    )
    
    
    (2.0
    )Previously accrued taxes
    
    
    2.1
    
    
    
    19.1
    
    
    
    1.5Other, net
    
    
    (0.7
    )
    
    
    (1.0
    )
    
    
    1.3Effective income tax rate
    
    
    0.9
    %
    
    
    17.7
    %
    
    
    6.0
    %
 60




---



##### Table of Contents



ACG HOLDINGS, INC.
  As of March 31, 2007, the Company had available net operating loss carryforwards (NOLs) for
state purposes of $125.8 million, which can be used to offset future state taxable income. If
these NOLs are not utilized, they will begin to expire in 2008 and will be totally expired in
2027.As of March 31, 2007, the Company had available NOLs for federal purposes of $172.8 million,
which can be used to offset future federal taxable income. If these NOLs are not utilized,
they will begin to expire in 2011 and will be totally expired in 2027.The Company also had available an alternative minimum tax credit carryforward of $1.2 million,
which can be used to offset future taxes in years in which the alternative minimum tax does
not apply. This credit can be carried forward indefinitely.The Company has alternative minimum tax NOLs in the amount of $186.7 million, which will begin
to expire in 2011 and will be totally expired in 2027.
 (9)
    
    Other LiabilitiesThe components of other liabilities are as follows (in thousands):
 March 31,2007
    
    
    2006(Restated)
    
    
    (Restated)Deferred revenue agreements (see note 13)
    
    $
    41,540
    
    
    
    45,641Postretirement liabilities (see note 10)
    
    
    3,037
    
    
    
    3,457Pension liabilities and other benefit obligations
    
    
    5,361
    
    
    
    11,601Restructuring
    
    
    966
    
    
    
    2,484Other
    
    
    1,595
    
    
    
    2,121Total
    
    $
    52,499
    
    
    
    65,304
 (10)
    
    Employee Benefit PlansDefined Benefit Pension PlansPension PlansThe Company sponsors defined benefit pension plans covering full-time employees of the Company
who had at least one year of service at December 31, 1994. Benefits under these plans
generally are based upon the employees years of service and, in the case of salaried
employees, compensation during the years immediately preceding retirement. The Companys
general funding policy is to contribute amounts within the annually calculated actuarial range
allowable as a deduction for federal income tax purposes. The plans assets are maintained by
trustees in separately managed portfolios consisting primarily of equity and fixed income
securities. In October 1994, the Board of Directors approved an amendment to the Companys
defined benefit pension plans, which resulted in the freezing of additional defined benefits
for future services under the plans effective January 1, 1995.Supplemental Executive Retirement PlanIn October 1994, the Board of Directors approved a new Supplemental Executive Retirement Plan
(SERP), which is a defined benefit plan, for certain key executives. In July 2005, the
Board of Directors approved an amendment to this plan (the Amended and Restated Supplemental
Executive Retirement Plan). The aggregate accumulated benefit obligation under this plan, as
amended, was approximately $0.5 million and $0.6 million at March 31, 2007 and 2006,
respectively.
 61




---



##### Table of Contents



ACG HOLDINGS, INC
  Defined Benefit Postretirement PlansPostretirement BenefitsThe Company provides certain other postretirement benefits, primarily life and health
insurance. Full-time employees who are eligible for benefits under the defined benefit
pension plans, have attained age 55 and have at least five years of service are entitled to
postretirement health care and life insurance coverage. Postretirement life insurance
coverage is provided at no cost to eligible retirees. Special cost-sharing arrangements for
health care coverage are available to employees whose age plus years of service at the date of
retirement equals or exceeds 85 (Rule of 85). Any eligible retiree not meeting the Rule of
85 must pay 100% of the required health care insurance premium.Effective January 1, 1995, the Company amended the health care plan changing the health care
benefit for all employees retiring on or after January 1, 2000. This amendment had the effect
of reducing the accumulated postretirement benefit obligation by approximately $3 million.
This reduction is reflected as unrecognized prior service cost and is being amortized on a
straight line basis over 15.6 years, the average remaining years of service to full
eligibility of active plan participants at the date of the amendment.Effective February 1, 2006, the Company amended the health care plan changing the post 65
healthcare benefits for all current and future retirees. This amendment had an immaterial
impact on the accumulated postretirement benefit obligation at March 31, 2006.401(k)Defined Contribution PlanEffective January 1, 1995, the Company amended its 401(k) defined contribution plan. Eligible
participants may contribute up to 15% of their annual compensation subject to maximum amounts
established by the Internal Revenue Service and receive an employer-matching contribution on
amounts contributed. Through March 16, 2003, the employer-matching contribution was made
bi-weekly and equaled 2% of annual compensation for all plan participants plus 50% of the
first 6% of annual compensation contributed to the plan by each employee, subject to maximum
amounts established by the Internal Revenue Service. Beginning March 17, 2003 through
December 31, 2004, the employer matching contribution was made bi-weekly and equaled 25% of
the first 6% of annual compensation contributed to the plan by each employee, subject to
maximum amounts established by the Internal Revenue Service. Subsequent to December 31, 2004,
the employer matching contributions were made bi-weekly and equaled 50% of the first 6% of
annual compensation contributed to the plan by each employee, subject to maximum amounts
established by the Internal Revenue Service. The Companys contribution under this Plan
amounted to $1.7 million during the fiscal year ended March 31, 2007, $1.6 million during the
fiscal year ended March 31, 2006 and $1.1 million during the fiscal year ended March 31, 2005.
 62




---



##### Table of Contents



ACG HOLDINGS, INC.
   Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement Plan2007
    
    
    2006
    
    
    2007
    
    
    2006Change in Benefit ObligationBenefit obligation at beginning of year
    
    $
    72,621
    
    
    
    69,624
    
    
    
    2,412
    
    
    
    2,823Service cost
    
    
    455
    
    
    
    462
    
    
    
    22
    
    
    
    34Interest cost
    
    
    4,208
    
    
    
    4,321
    
    
    
    128
    
    
    
    179Plan amendments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    441Actuarial loss (gain)
    
    
    (2,432
    )
    
    
    3,537
    
    
    
    (131
    )
    
    
    251Expected benefit payments
    
    
    (3,774
    )
    
    
    (5,323
    )
    
    
    (470
    )
    
    
    (716
    )Benefit obligation at end of year
    
    $
    71,078
    
    
    
    72,621
    
    
    
    2,136
    
    
    
    2,412Change in Plan AssetsFair value of plan assets at beginning of year
    
    $
    57,283
    
    
    
    49,675
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    7,637
    
    
    
    3,196
    
    
    
    
    
    
    
    Employer contributions:Pension Plans
    
    
    5,718
    
    
    
    8,017
    
    
    
    
    
    
    
    SERP
    
    
    50
    
    
    
    1,718
    
    
    
    
    
    
    
    Postretirement Plan
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    275Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    175
    
    
    
    441Benefits paid
    
    
    (3,774
    )
    
    
    (5,323
    )
    
    
    (470
    )
    
    
    (716
    )Fair value of plan assets at end of year
    
    $
    66,914
    
    
    
    57,283
    
    
    
    
    
    
    
    Funded Status
    
    $
    (4,164
    )
    
    
    (15,338
    )
    
    
    (2,136
    )
    
    
    (2,412
    )Unrecognized net actuarial (gain) loss
    
    
    14,392
    
    
    
    21,611
    
    
    
    (12
    )
    
    
    109Unrecognized prior service gain
    
    
    
    
    
    
    
    
    
    
    (1,282
    )
    
    
    (1,566
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    112Additional minimum pension liability
    
    
    (14,392
    )
    
    
    (21,611
    )
    
    
    
    
    
    
    Accrued benefit liability
    
    $
    (4,164
    )
    
    
    (15,338
    )
    
    
    (3,337
    )
    
    
    (3,757
    )
 63




---



##### Table of Contents



ACG HOLDINGS, INC.
  Defined Benefit Pension Plans
    
    Defined Benefit Postretirement Plan2007
    
    2006
    
    2007
    
    2006Weighted  Average AssumptionsDiscount rate  benefit obligation
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 The Company uses a December 31 measurement date for its defined benefit pension and
postretirement plans. For measurement purposes under the defined benefit postretirement
plan, a 10 percent annual rate of increase in the per capita cost of covered health care
benefits (including prescription drugs) was assumed for March 31, 2007. This rate was
assumed to decrease gradually to 5 percent through the fiscal year ending 2013 and remain at
that level thereafter.
 Defined Benefit Pension Plans
    
    
    Defined Benefit Postretirement Plan2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Components of Net Periodic Benefit Cost
(in thousands)Service cost
    
    $
    455
    
    
    
    462
    
    
    
    468
    
    
    
    22
    
    
    
    34
    
    
    
    31Interest cost
    
    
    4,208
    
    
    
    4,321
    
    
    
    4,217
    
    
    
    128
    
    
    
    179
    
    
    
    170Expected return on plan assets
    
    
    (4,868
    )
    
    
    (4,262
    )
    
    
    (3,510
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )
    
    
    (222
    )
    
    
    (222
    )Amortization of unrecognized loss
    
    
    2,017
    
    
    
    2,001
    
    
    
    2,022
    
    
    
    
    
    
    
    
    
    
    
    Settlement loss
    
    
    
    
    
    
    169
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    Recognized net actuarial (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    2
    
    
    
    (43
    )Net periodic benefit cost (income)
    
    $
    1,812
    
    
    
    2,691
    
    
    
    3,243
    
    
    
    (144
    )
    
    
    (7
    )
    
    
    (64
    )
 Expected Future Benefit PaymentsThe following benefit payments are expected to be paid (in thousands) to eligible plan
participants under the Companys defined benefit pension plans and defined benefit
postretirement plan.
 Defined Benefit
    
    
    Defined BenefitFiscal Year
    
    Pension Plans
    
    
    Postretirement Plan (a)2008
    
    $
    4,473
    
    
    
    2052009
    
    
    4,546
    
    
    
    2062010
    
    
    4,625
    
    
    
    2062011
    
    
    4,710
    
    
    
    2042012
    
    
    4,815
    
    
    
    2022013  2017
    
    
    25,239
    
    
    
    934Total
    
    $
    48,408
    
    
    
    1,957
 
 (a)
    
    Represents expected benefit payments net of plan participants contributions. 64




---



##### Table of Contents



ACG HOLDINGS, INC.
  Assumed health care cost trend rates have a significant effect on the amounts reported for
the medical component of the defined benefit postretirement plan. A one-percentage point
change in the assumed health care cost trend rates would have the following effects (in
thousands):
 1% Point
    
    1% PointIncrease
    
    DecreaseEffect on total of service and interest
cost components of expense
    
    $
    4
    
    
    
    (3
    )Effect on postretirement benefit obligation
    
    $
    63
    
    
    
    (58
    )
 Plan AssetsThe Companys defined benefit pension plans reflect weighted-average target allocations as of
March 31, 2007 and the percentages of the fair value of plan assets by asset category are
allocated at March 31, 2007 and 2006 as follows:
 TargetAllocation
    
    Percentage of Plan Assets2007
    
    2007
    
    2006Global equity securities
    
    
    73.6
    %
    
    
    74.0
    %
    
    
    73.3
    %Fixed income securities
    
    
    21.9
    %
    
    
    21.0
    %
    
    
    20.9
    %Real Estate
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.6
    %Cash
    
    
    0.0
    %
    
    
    0.5
    %
    
    
    1.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 The Companys pension plans long-term target asset allocation is shown above. The long-term
allocation targets reflect the Companys asset class return expectations and tolerance for
investment risk within the context of the pension plans long-term obligations. The
long-term asset allocation is supported by an analysis that incorporates historical and
expected returns by asset class as well as volatilities and correlations across asset classes
and the Companys liability profile. Due to market conditions and other factors, actual
asset allocations may vary from the target allocation outlined above.To develop the expected long-term rate of return on assets assumption, the Company considered
the historical returns and future expectations for returns for each asset class, as well as
the target asset allocation of the present portfolio. This resulted in the selection of the
8.5% long-term rate of return on asset assumption for 2007.It is the Companys practice to fund amounts for the defined benefit pension plans at least
sufficient to meet the minimum requirements set forth in applicable employee benefit laws and
local tax laws. Liabilities in excess of these funding levels are included in the Companys
consolidated balance sheets. Employer contributions for the defined benefit pension plans
for the fiscal year ending March 31, 2008 are estimated to be approximately $0.8 million.
 (11)
    
    Capital StockAt March 31, 2007, capital stock consists of Holdings common stock (Common Stock). Each
share of Common Stock is entitled to one vote on each matter common shareholders are entitled
to vote. Dividends on the Common Stock are discretionary by the Board of Directors and are
restricted by the 2005 Credit Agreement (see note 7).
 65




---



##### Table of Contents



ACG HOLDINGS, INC.
  (12)
    
    Stock Option PlansCommon Stock Option PlansIn 1993, the Company established the ACG Holdings, Inc. Common Stock Option Plan. This plan,
as amended, (the 1993 Common Stock Option Plan) is administered by a committee of the Board
of Directors (the Committee) and currently provides for granting up to 17,322 shares of
Common Stock. On January 16, 1998, the Company established another common stock option plan
(the 1998 Common Stock Option Plan). This plan is administered by the Committee and
provides for granting up to 36,939 shares of Common Stock. The 1993 Common Stock Option Plan
and the 1998 Common Stock Option Plan are collectively referred to as the Common Stock
Option Plans. Stock options may be granted under the Common Stock Option Plans to
officers and other key employees of the Company at the exercise price per share of Common
Stock, as determined at the time of grant by the Committee in its sole discretion. All
options are 25% exercisable on the first anniversary date of a grant and vest in additional
25% increments on each of the next three anniversary dates of each grant. All options expire
10 years from the date of grant.A summary of activity under the Common Stock Option Plans is as follows:
 Weighted-AverageExercise
    
    ExercisableOptions
    
    Price ($)
    
    Options (a)Outstanding at March 31, 2004
    
    
    9,197
    
    
    
    .01
    
    
    
    6,946Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (1,301
    )
    
    
    .01Outstanding at March 31, 2005
    
    
    7,896
    
    
    
    .01
    
    
    
    7,131Granted
    
    
    2,504
    
    
    
    .01Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (1,047
    )
    
    
    .01Outstanding at March 31, 2006
    
    
    9,353
    
    
    
    .01
    
    
    
    6,466Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    9,353
    
    
    
    .01
    
    
    
    7,475
 
 (a)
    
    At March 31, 2007, 2006 and 2005 all exercisable options had a $.01/option exercise
price. Black-Scholes Option Pricing Model Wtd. Avg. AssumptionsFiscal Year
    
    #
    
    Wtd. Avg.
    
    Exercise
    
    Risk Free
    
    Annual
    
    
    
    
    
    ExpectedEnded
    
    Options
    
    Grant Date
    
    Price per
    
    Interest
    
    Dividend
    
    Expected
    
    LifeMarch 31,
    
    Granted
    
    Fair Value ($)
    
    Option ($)
    
    Rate (%)
    
    Yield (%)
    
    Volatility
    


    (Years)2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2,504
    
    
    
    
    
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    As the grant date Fair Value was $0, the Black-Scholes pricing was not
calculated. The weighted-average remaining contractual life of the options outstanding at March 31, 2007
was 4.1 years. A total of 7,974 options for shares (including 2,224 previously exercised
options that were subsequently canceled) of Holdings Common Stock were reserved for issuance,
but not granted under the Common Stock Option Plans at March 31, 2007.
 66




---



##### Table of Contents



ACG HOLDINGS, INC.
  There was no stock compensation expense recorded in the fiscal year ended March 31, 2007.
The Company recognized net stock compensation expense of less than $0.1 million in both the
fiscal year ended March 31, 2006 and March 31, 2005.
 (13)
    
    Commitments and ContingenciesThe Company incurred rent expense of $3.6 million, $3.2 million and $4.3 million for the
fiscal years ended March 31, 2007, 2006 and 2005, respectively, under various operating
leases. Future minimum rental commitments under existing operating lease arrangements at
March 31, 2007 are as follows (in thousands):
 Fiscal Year2008
    
    $
    3,3472009
    
    
    2,9412010
    
    
    2,1532011
    
    
    1,1432012
    
    
    208Thereafter
    
    
    Total
    
    $
    9,792
 The Company has employment agreements with three of its principal officers. These
agreements provide for minimum salary levels as well as incentive bonuses, which are payable
if specified management goals are attained. The aggregate commitment for future compensation
under these agreements, excluding bonuses, is approximately $3.1 million.In the fiscal year ended March 31, 1998, 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
March 31, 2007 is $41.5 million and is included within Other liabilities in the Companys
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
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
 67




---



##### Table of Contents



ACG HOLDINGS, INC.
  60
companies comprising the Gibson Group Trust. Graphics is investigating this matter but it
believes its potential liability in connection with this Site will not be material
to its business or the Companys 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 consolidated balance sheets at March 31, 2007 and 2006. 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
Companys consolidated financial statements as a whole.
 (14)
    
    Interim Financial Information (Unaudited)Quarterly financial information follows (in thousands):
 Gross
    
    
    Net IncomeSales
    
    
    Profit (a)
    
    
    (Loss) (b)(Restated)
    
    
    (Restated)Fiscal Year 2007
    
    Quarter Ended:June 30
    
    $
    110,010
    
    
    
    12,463
    
    
    
    (2,738
    )September 30
    
    
    111,654
    
    
    
    12,330
    
    
    
    (4,488
    )December 31
    
    
    120,065
    
    
    
    13,131
    
    
    
    (4,523
    )March 31
    
    
    103,297
    
    
    
    10,448
    
    
    
    (8,787
    )Total
    
    $
    445,026
    
    
    
    48,372
    
    
    
    (20,536
    )Fiscal Year 2006
    
    Quarter Ended:June 30
    
    $
    108,270
    
    
    
    12,952
    
    
    
    (2,441
    )September 30
    
    
    105,460
    
    
    
    11,605
    
    
    
    (4,378
    )December 31
    
    
    118,724
    
    
    
    14,860
    
    
    
    2,236March 31
    
    
    102,035
    
    
    
    9,295
    
    
    
    (11,134
    )(c)Total
    
    $
    434,489
    
    
    
    48,712
    
    
    
    (15,717
    )
 
 (a)
    
    The restatement of the Companys consolidated financial statements increased
gross profit in the amount of $0.3 million and $0.2 million
in the quarters ended June
30, 2006 and March 31, 2007, respectively. The impact of the restatement on gross
profit for the quarter ended June 30, 2005 was an increase of
$0.3 million and was a decrease of $0.2 million and
$0.7 million for the
quarters ended September 30, 2006 and March 31, 2006,
respectively.(b)
    
    The restatement of the Companys consolidated financial
statements decreased net
loss by $0.6 million and $0.1 million in the quarter ended June 30, 2006 and
March 31, 2007, respectively and increased net loss by
$0.1 million in each of the quarters ended September 30, 2006 and December 31, 2006. The Companys net loss was
increased in the amount of $0.2 million and $0.9 million in the quarter ended
September 30, 2005 and March 31, 2006, respectively, as a result of the restatement.(c)
    
    The net loss for the quarter ended March 31, 2006
includes a non-cash impairment charge of $2.8 million. (15)
    
    Restructuring Costs and Other ChargesFiscal Year 2005 Restructuring CostsNew York Premedia Consolidation PlanIn March 2005, the Companys Board of Directors approved a restructuring plan for the
premedia services segment designed to improve operating efficiencies and overall
profitability. This plan included the consolidation of the Companys two premedia facilities
located in New York, New York. This action resulted in
the elimination of 10 positions within the Company.
 68




---



##### Table of Contents



ACG HOLDINGS, INC.
  As a result, the Company recorded a pre-tax restructuring charge of approximately $1.5
million in the quarter ended March 31, 2005 associated with this plan. This charge was
classified within restructuring and other charges in the consolidated statement of operations
for the fiscal year ended March 31, 2005. The costs of this restructuring plan were
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 of severance and related termination benefits,
lease termination costs primarily related to future lease commitments and other costs. In
the quarter ended March 31, 2007, the Company reduced the restructuring reserve related to
this plan by approximately $0.1 million due to certain changes in assumptions related to
lease termination costs. The Company also reduced the restructuring reserve related to this
plan by approximately $0.2 million in the quarter ended March 31, 2006. This was primarily
the result of lower than anticipated severance and other employee costs due to certain
terminated employees obtaining other employment during their severance periods and certain
changes in assumptions related to lease termination costs. These reductions of the
restructuring reserve are and were classified within restructuring costs (benefit) and other
charges in the consolidated statement of operations for the fiscal years ended March 31, 2007
and 2006, respectively.The following table summarizes the activity related to this restructuring plan for the fiscal
year ended March 31, 2007 (in thousands):
 03/31/06
    
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve Balance(Restated)
    
    
    
    
    
    
    (Restated)Lease termination
costs
    
    $
    576
    
    
    
    (162
    )
    
    
    (79
    )
    
    
    335Other costs
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12$
    576
    
    
    
    (162
    )
    
    
    (67
    )
    
    
    347
 The process of consolidating the two premedia services facilities and the elimination of
certain personnel within the Company was substantially completed by April 30, 2005. During
the fiscal year ended March 31, 2006, $0.6 million of these costs were paid. As of March 31,
2007 the Company believes the restructuring reserve of approximately $0.3 million is
adequate. The Company anticipates that approximately $0.1 million of these costs will be paid
during each fiscal year through March 31, 2010. These payments will be funded through cash
generated from operations and borrowings under the Companys 2005 Revolving Credit Facility
and Receivables Facility.Pittsburg Facility Closure PlanIn March 2005, the Companys Board of Directors approved a restructuring plan for the print
segment to reduce manufacturing costs and improve profitability. This plan included the
closure of the Pittsburg, California print facility. This action resulted in the elimination
of 136 positions within the Company.As a result, the Company recorded a pre-tax restructuring charge of approximately $3.1
million in the quarter ended March 31, 2005 associated with this plan. This charge was
classified within restructuring and other charges in the consolidated statements of
operations for the fiscal year ended March 31, 2005. The costs of this restructuring plan
were accounted for in accordance with the guidance set forth in SFAS 146. This restructuring
charge was composed of severance and related termination benefits, lease termination costs
and other costs. The Company reduced the restructuring reserve related to this plan by
approximately $0.8 million in the quarter ended December 31, 2005 as a result of lower than
anticipated severance and other employee costs due to certain terminated employees obtaining
other employment during their severance periods. The Company increased the restructuring
reserve related to this plan by approximately $0.3 million in the quarter ended March 31,
2006 as a result of certain changes in assumptions related to lease termination costs and
certain costs that could not be accrued for in earlier periods. These changes in the reserve were classified within
restructuring costs (benefit) and other charges in the consolidated statements of operations
for the fiscal year ended March 31, 2006.
 69




---



##### Table of Contents



ACG HOLDINGS, INC.
   03/31/06
    
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve Balance(Restated)
    
    
    
    
    
    
    (Restated)Lease termination
costs
    
    $
    599
    
    
    
    (1
    )
    
    
    
    
    
    
    598Other costs
    
    
    1
    
    
    
    (10
    )
    
    
    25
    
    
    
    16$
    600
    
    
    
    (11
    )
    
    
    25
    
    
    
    614
  Plant and SG&A Reduction Plan
    03/31/06
    
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve Balance(Restated)
    
    
    
    
    
    
    (Restated)Severance and
Other employee costs
    
    $
    848
    
    
    
    (735
    )
    
    
    (42
    )
    
    
    71Other costs
    
    
    1
    
    
    
    (3
    )
    
    
    5
    
    
    
    3$
    849
    
    
    
    (738
    )
    
    
    (37
    )
    
    
    74
  70




---



##### Table of Contents



ACG HOLDINGS, INC.
   Fiscal Year 2004 Restructuring Costs
 January 2004 Plan
    03/31/06
    
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee costs
    
    $
    223
    
    
    
    
    
    
    
    (223
    )
    
    
    Other costs
    
    
    110
    
    
    
    (95
    )
    
    
    (15
    )
    
    
    $
    333
    
    
    
    (95
    )
    
    
    (238
    )
    
    
    
  July 2003 Plan
   71




---



##### Table of Contents



ACG HOLDINGS, INC.
   03/31/06
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    Reserve
    
    RestructuringReserve Balance
    
    Activity
    
    Adjustment
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    102
    
    
    
    (113
    )
    
    
    11
    
    
    
    
  Fiscal Year 2002 Restructuring Costs
    03/31/06
    
    
    
    
    
    
    
    
    
    03/31/07Restructuring
    
    
    
    
    
    
    
    
    
    RestructuringReserve
    
    
    
    
    
    Reserve
    
    ReserveBalance
    
    Activity
    
    Adjustment
    
    Balance(Restated)
    
    
    
    
    
    (Restated)
    
    (Restated)Lease termination
costs
    
    
    1,476
    
    
    
    (333
    )
    
    
    (72
    )
    
    
    1,071
  72




---



##### Table of Contents



ACG HOLDINGS, INC.
   Other Charges
  (16) Parent Guarantee of Subsidiary Debt
  (17) Industry Segment Information
     73




---



##### Table of Contents



ACG HOLDINGS, INC.
  Premedia
    
    
    CorporatePrint
    
    
    Services
    
    
    and Other(In thousands)
    
    (a)
    
    
    (a)
    
    
    (b)
    
    
    TotalFiscal Year Ended March 31, 2007 (Restated)Sales
    
    $
    396,535
    
    
    
    48,491
    
    
    
    
    
    
    
    445,026EBITDA(c)
    
    $
    34,116
    
    
    
    8,853
    
    
    
    (5,128
    )
    
    
    37,841Depreciation and amortization
    
    
    (16,563
    )
    
    
    (2,067
    )
    
    
    
    
    
    
    (18,630
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (40,040
    )
    
    
    (40,040
    )Interest income
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100Income tax benefit
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    193Net income (loss)
    
    $
    17,553
    
    
    
    6,786
    
    
    
    (44,875
    )
    
    
    (20,536
    )Total assets
    
    $
    203,104
    
    
    
    11,527
    
    
    
    11,593
    
    
    
    226,224Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    11,139
    
    
    
    1,562
    
    
    
    
    
    
    
    12,701Fiscal Year Ended March 31, 2006 (Restated)Sales
    
    $
    380,648
    
    
    
    53,841
    
    
    
    
    
    
    
    434,489EBITDA(c)
    
    $
    30,531
    
    
    
    10,938
    
    
    
    (4,001
    )
    
    
    37,468Depreciation and amortization
    
    
    (16,767
    )
    
    
    (2,716
    )
    
    
    
    
    
    
    (19,483
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (37,154
    )
    
    
    (37,154
    )Interest income
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,369
    
    
    
    3,369Net income (loss)
    
    $
    13,764
    
    
    
    8,222
    
    
    
    (37,703
    )
    
    
    (15,717
    )Total assets
    
    $
    205,581
    
    
    
    12,852
    
    
    
    12,199
    
    
    
    230,632Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    10,651
    
    
    
    1,835
    
    
    
    
    
    
    
    12,486Fiscal Year Ended March 31, 2005 (Restated)Sales
    
    $
    393,922
    
    
    
    55,591
    
    
    
    
    
    
    
    449,513EBITDA(c)
    
    $
    22,579
    
    
    
    9,942
    
    
    
    (3,686
    )
    
    
    28,835Depreciation and amortization
    
    
    (19,867
    )
    
    
    (3,184
    )
    
    
    
    
    
    
    (23,051
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (33,785
    )
    
    
    (33,785
    )Interest income
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,685
    
    
    
    1,685Net income (loss)
    
    $
    2,712
    
    
    
    6,758
    
    
    
    (35,749
    )
    
    
    (26,279
    )Total assets
    
    $
    230,174
    
    
    
    15,179
    
    
    
    12,859
    
    
    
    258,212Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    5,418
    
    
    
    1,489
    
    
    
    
    
    
    
    6,907
 74




---



##### Table of Contents



ACG HOLDINGS, INC.
  (a)
    
    EBITDA for the print and premedia services segments in the fiscal year ended March 31, 2007
includes the impact of restructuring benefit of ($0.1) million and ($0.3) million,
respectively. EBITDA for the print and premedia services segments in the fiscal year ended
March 31, 2006 includes the impact of restructuring benefit of ($0.2) million and ($0.3)
million, respectively, and the print segment also includes a non-cash asset impairment charge
of $2.8 million. EBITDA for the print and premedia services segments in the fiscal year ended
March 31, 2005 includes the impact of restructuring costs and other charges of $7.8 million
and $2.2 million, respectively.(b)
    
    EBITDA for corporate and other includes corporate general and administrative expenses. In
addition, corporate and other in the fiscal year ended March 31, 2007, includes incremental
legal expenses associated with two lawsuits in which the Company is the plaintiff.(c)
    
    The revisions associated with the Companys restatement
of its consolidated financial statements for the fiscal years ended
March 31, 2007, 2006 and 2005 resulted in a $0.1 million,
($1.6) million and ($0.9) million, respectively, impact to
EBITDA versus previously reported amounts.
 (18) Subsequent Event
   75




---



##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES
         76




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   1 and 2. Financial Statements: The following Consolidated Financial Statements of
Holdings are included in Part II, Item 8:Consolidated balance sheets  March 31, 2007 and 2006For the Years Ended March 31, 2007, 2006 and 2005:
     Financial Statement Schedules: The following financial statement schedules of Holdings
are filed as a part of this Report.
 Schedules
    
    Page No.I.
    
    Condensed Financial Information of Registrant:Condensed Financial Statements (parent company only) for the years ended
March 31, 2007, 2006 and 2005 and as of March 31, 2007 and 2006
    
    
    80II.
    
    Valuation and qualifying accounts
    
    
    90
  Exhibits
 Exhibit No.
    
    Description3.1
    
    Certificate of Incorporation of Graphics, as amended to date*3.2
    
    By-laws of Graphics, as amended to date*3.3
    
    Restated Certificate of
Incorporation of Holdings, as amended to date*3.4
    
    By-laws of Holdings, as amended to date*10.1
    
    Amended and Restated Credit Agreement dated as of May 5, 2005, among Graphics and
Holdings; with Banc of America Securities, as Sole Lead Arranger, and Bank of America, N.A., as
Administrative Agent, and certain lenders####10.1 (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 lenders****10.1 (b)
    
    Second Amendment to May 5, 2005 Amended and Restated Credit Agreement dated
as of March 30, 2007, among Graphics and Holdings; with Banc of America, N.A. as Agent;
and Banc of America Securities, LLC as Sole Lead Arranger and Sole Book Manager, and
certain lenders *****10.1 (c)
    
    Third Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as
of June 13, 2007, among Graphics and Holdings; with Bank of America, N.A., as Agent, and
certain lendersvv
 77




---



##### Table of Contents



Exhibit No.
    
    Description10.1 (d)
    
    Fourth Amendment to May 5, 2005 Amended and Restated Credit Agreement, dated as
of August 28, 2007, among Graphics and Holdings; with Bank of America, N.A., as
Agent, and certain lenders, effective August 31, 2007.
vvv10.2
    
    Employment Agreement dated as of April 19, 2007, among Graphics, Holdings and
Stephen M.Dyott#####10.3
    
    Severance Letter, dated August 1, 1999, between Graphics and Stuart Reeve***10.4
    
    Employment Agreement dated as of
April 19, 2007, among Graphics, Holdings and Patrick W.
Kellick#####10.5
    
    Severance Letter, dated January 14, 2000, between Graphics and Denis S.
Longprév10.6
    
    Employment Agreement dated as of April
19, 2007, among Graphics, Holdings and Kathleen A.
DeKam.#####10.7
    
    Amended and Restated Stockholders Agreement, dated as of August 14,
1995, among Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital
Partners III, L.P. and the additional parties named therein**10.7 (a)
    
    Amendment No. 1, dated January 16, 1998, to Amended and Restated Stockholders
Agreement dated as of August 14, 1995, among Holdings, the Morgan Stanley Leveraged
Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P., and the
additional parties named herein10.8
    
    Stock Option Plan of Holdings10.9
    
    Common Stock Option Agreement Form10.10
    
    Holdings Common Stock Option Plan10.11
    
    Amended and Restated American Color Graphics, Inc. Supplemental Executive Retirement
Plan10.12
    
    Credit Agreement dated as of July 3, 2003, among Graphics; Bank of America,
N.A., as Administrative Agent, Collateral Agent and as a Lender; Morgan Stanley Senior
Funding, Inc., as Documentation Agent; GECC Capital Markets Group Inc., as Syndication
Agent; and the financial institutions named therein as Lenders#10.12 (a)
    
    First Amendment to Credit Agreement dated as of February 9, 2004 to Credit
Agreement dated as of July 3, 2003, among Graphics; Bank of America, N.A., as
Administrative Agent, Collateral Agent and as a Lender; Morgan Stanley Senior Funding,
Inc., as Documentation Agent; GECC Capital Markets Group Inc., as Syndication Agent; and
the financial institutions named therein as Lenders###10.12 (b)
    
    Second Amendment to Credit Agreement dated as of February 11, 2005 to Credit
Agreement dated as of July 3, 2003, among Graphics; Bank of America, N.A., as
Administrative Agent, Collateral Agent and as a Lender; GECC Capital Markets Group,
Inc., as Syndication Agent; and the financial institutions named therein as
Lenders10.12 (c)
    
    Third Amendment to Credit Agreement dated as of April 7, 2005 to Credit
Agreement dated as of July 3, 2003, among Graphics; Bank of America, N.A., as
Administrative Agent, Collateral Agent and as a Lender; GECC Capital Markets Group,
Inc., as Syndication Agent; and the financial institutions named therein as Lenders10.13
    
    Indenture (including the form of the 10% Notes) dated as of July 3, 2003, among
Graphics, Holdings and The Bank of New York#10.14
    
    Purchase Agreement dated June 19, 2003, among Graphics, Holdings and Morgan
Stanley & Co. Incorporated, Banc of America Securities LLC and Credit Suisse First
Boston LLC, as Initial Purchasers##10.15
    
    Registration Rights Agreement dated June 19, 2003, among Graphics, Holdings and
Morgan Stanley & Co. Incorporated, Banc of America Securities LLC and Credit Suisse
First Boston LLC##10.16
    
    Intercreditor Agreement dated July 3, 2003, by and among Bank of America, N.A.,
The Bank of New York and Graphics##10.17
    
    Security Agreement dated July 3, 2003, among Graphics, Holdings and the Bank of
New York##10.18
    
    Pledge Agreement dated July 3, 2003, by Graphics and Holdings in favor of The
Bank of New York, as Trustee##
 78




---



##### Table of Contents



Exhibit No.
    
    Description10.19
    
    Executive Incentive Compensation Program 10.20
    
    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
Manager****10.21
    
    Security Agreement dated as of September 26, 2006, between American
Color Graphics Finance, LLC; among Bank of America, N.A., as Collateral Agent****10.22
    
    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 Agent****10.22 (a)
    
    First Amendment to September 26, 2006 Servicing Agreement dated as of March
30, 2007, among Graphics, as Servicer, Graphics Finance, as Purchaser, and Bank of
America, N.A. as Administrative Agent, and certain lenders*****10.23
    
    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
Purchaser****10.24
    
    Retention Bonus Agreement (form) dated as of April 19, 2007, between Graphics
and employee.#####10.25
    
    Stock Option Agreement (form) dated as of April 19, 2007, between Holdings and
grantee#####10.26
    
    Omnibus Amendment Of Loan Documents dated as of June 13, 2007, among Graphics,
Graphics Finance, and Bank of America, N.A., as Agent, and certain
lendersvv10.27
    
    Limited Waiver and Consent Agreement, dated as of August 28, 2007, among Graphics,
Graphics Finance and Bank of America, N.A., as Agent, and certain lenders, effective
August 31, 2007.vvv12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges21.1
    
    List of Subsidiaries31.1
    
    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
 
 *
    
    Incorporated by reference from Amendment No. 2 to Form S-1 filed on October 4, 1993  Registration number 33-65702.
    
    Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2005 
Commission file number 33-97090.#
    
    Incorporated by reference from Post Effective Amendment No. 9 to Form S-1 filed on July 16, 2003  Commission file
number 33-97090.v
    
    Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2006 
Commission file number 33-97090.##
    
    Incorporated by reference from Form S-4 filed on November 6, 2003  Registration number 33-97090.**
    
    Incorporated by reference from Form S-4 filed on September 19, 1995  Registration number 33-97090.
    
    Incorporated by reference from Amendment No. 2 to Form S-4 filed on November 22, 1995  Registration number
33-97090.vv
    
    Incorporated by reference from the Form 8-K filed June 19, 2007  Commission file number 33-97090.***
    
    Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 
Commission file number 33-97090.
    
    Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2004 
Commission file number 33-97090.###
    
    Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2003 
Commission file number 33-97090.****
    
    Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 
Commission file number 33-97090.
    
    Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 1998 
Commission file number 33-97090.####
    
    Incorporated by reference from the Form 8-K filed May 6, 2005  Commission file number 33-97090.*****
    
    Incorporated by reference from the Form 8-K filed April 13, 2007 Commission file number 33-97090.
    
    Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2005 
Commission file number 33-97090.#####
    
    Incorporated by reference from the Form 8-K filed April 20, 2007  Commission file number 33-97090.vvv
    
    Incorporated by reference from the Form 8-K filed August 31, 2007  Commission file number 33-97090. 79




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.     (Restated)
 March 31,2007
    
    
    2006AssetsCurrent assets:Receivable from subsidiary
    
    $
    1,098
    
    
    
    1,134Total assets
    
    $
    1,098
    
    
    
    1,134Liabilities and Stockholders DeficitLiabilities of subsidiary in excess of assets
    
    $
    246,050
    
    
    
    232,617Income taxes payable
    
    
    
    
    
    
    36Total liabilities
    
    
    246,050
    
    
    
    232,653Commitments and contingenciesStockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized,158,205 shares issued and
outstanding at March 31, 2007 and March 31, 2006
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,038Accumulated deficit
    
    
    (232,083
    )
    
    
    (211,547
    )Other accumulated comprehensive loss, net of tax
    
    
    (14,909
    )
    
    
    (22,012
    )Total stockholders deficit
    
    
    (244,952
    )
    
    
    (231,519
    )Total liabilities and stockholders deficit
    
    $
    1,098
    
    
    
    1,134
  80




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.     (Restated)
 Year ended March 31,2007
    
    
    2006
    
    
    2005Equity in loss of subsidiary
    
    $
    20,536
    
    
    
    15,717
    
    
    
    26,279Net loss
    
    $
    20,536
    
    
    
    15,717
    
    
    
    26,279
  81




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Year ended March 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities
    
    $
    
    
    
    
    
    
    
    
    Cash flows from investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities
    
    
    
    
    
    
    
    
    
    
    Net change in cash
    
    $
    
    
    
    
    
    
    
    
    
  82




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Description of ACG Holdings, Inc.
    1. Basis of Presentation
  2. Restatement of Financial Statements
    83




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
     3. Guarantees
    4. Dividends from Subsidiaries and Investees
  84




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 5. Tax Sharing Agreement
  85




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 6. Notes Payable and Long-Term Debt
 May 5, 2005 Refinancing
  
    
    a $55 million revolving credit facility ($40 million of which may be used for
letters of credit), maturing on December 15, 2009, which is not subject to a
borrowing base limitation, (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009
(the 2005 Term Loan Facility).
     
    
    incur or guarantee additional debt;
    
    create or permit to exist certain liens;
    
    pledge assets or engage in sale-leaseback transactions;
    
    make capital expenditures, other investments or acquisitions;
    
    prepay, redeem, acquire for value, refund, refinance, or exchange certain debt
(including the 10% Notes), subject to certain exceptions;
    
    repurchase or redeem equity interests;
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations; and
    
    place restrictions on dividends, distributions or transfers to the Company from its subsidiaries.
 
  86




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 September 26, 2006 Revolving Trade Receivables Facility
       10% Senior Second Secured Notes
  Amendments to Credit Facilities
  87




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Covenant Compliance and Liquidity
       88




---



##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 7. Subsequent Event
   89




---



##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
ACG HOLDINGS, INC.
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    Expense /
    
    
    
    
    
    
    Other
    
    
    End ofof Period
    
    
    (Income)
    
    
    Write-offs
    
    
    Adjustments
    
    
    Period(in thousands)Fiscal Year ended March 31, 2007Allowance for doubtful accounts
    
    $
    1,275
    
    
    
    (237
    )
    
    
    (21
    )
    
    
    
    
    
    
    1,017Reserve for inventory obsolescence
    
    $
    328
    
    
    
    (109
    )
    
    
    (68
    )
    
    
    
    
    
    
    151Income tax valuation allowance(Restated)
    
    $
    62,598
    
    
    
    
    
    
    
    
    
    
    
    5,781
    (a)
    
    
    68,379Fiscal Year ended March 31, 2006Allowance for doubtful accounts
    
    $
    1,783
    
    
    
    (110
    )
    
    
    (250
    )
    
    
    (148
    )
    
    
    1,275Reserve for inventory obsolescence
    
    $
    267
    
    
    
    102
    
    
    
    (41
    )
    
    
    
    
    
    
    328Income tax valuation allowance(Restated)
    
    $
    55,026
    
    
    
    
    
    
    
    
    
    
    
    7,572
    (b)
    
    
    62,598Fiscal Year ended March 31, 2005Allowance for doubtful accounts
    
    $
    2,853
    
    
    
    257
    
    
    
    (1,327
    )
    
    
    
    
    
    
    1,783Reserve for inventory obsolescence
    
    $
    285
    
    
    
    114
    
    
    
    (132
    )
    
    
    
    
    
    
    267Income tax valuation allowance(Restated)
    
    $
    45,199
    
    
    
    
    
    
    
    
    
    
    
    9,827
    (a)
    
    
    55,026
 
 (a)
    
    The increase in the valuation allowance relates to current year losses for which no tax
benefit has been recorded, partially offset by a decrease in deferred tax assets related to
the additional minimum pension liability.(b)
    
    The increase in the valuation allowance relates to current year losses for which no tax
benefit has been recorded and an increase in deferred tax assets related to the additional
minimum pension liability. 90




---



##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.
 American Color Graphics, Inc.
 /s/ Stephen M. Dyott
    
    DateStephen M. Dyott
    
    August 31, 2007Chairman, President and Chief Executive OfficerACG Holdings, Inc.Chairman and Chief Executive OfficerAmerican Color Graphics, Inc.Director of ACG Holdings, Inc. and American Color Graphics, Inc.
  Signature

    Title
    
    Date/s/ Patrick W. Kellick
    
    Senior Vice President
    
    August 31, 2007Patrick W. Kellick
    
    Chief Financial Officerand Secretary(Principal Financial Officer)/s/ Linda G. Plisco
    
    Assistant Corporate Controller
    
    August 31, 2007Linda G. Plisco
    
    (Principal Accounting Officer)/s/ Michael C. Hoffman
    
    Director
    
    August 31, 2007Michael C. Hoffman/s/ Hwan-Yoon Chung
    
    Director
    
    August 31, 2007Hwan-Yoon Chung
 91




---



##### Table of Contents



ACG HOLDINGS, INC.
Annual Report on Form 10-K
Fiscal Year Ended March 31, 2007
 
 Index to Exhibits
 Exhibit No.
    
    Description12.1
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges21.1
    
    List of Subsidiaries31.1
    
    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
 92