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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 33-97090
 ACG HOLDINGS, INC.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    62-1395968
(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
(State or other jurisdiction of incorporation or organization)
    
    16-1003976
(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
  þ o
  þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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##### 



INDEX
 PagePART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    8Item 1B.
    
    Unresolved Staff Comments
    
    
    11Item 2.
    
    Properties
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    13Item 6.
    
    Selected Financial Data
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    34Item 9.
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    69Item 9A.
    
    Controls and Procedures
    
    
    69Item 9B.
    
    Other Information
    
    
    69PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    70Item 11.
    
    Executive Compensation
    
    
    72Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    76Item 13.
    
    Certain Relationships and Related Transactions
    
    
    77Item 14.
    
    Principal Accountant Fees and Services
    
    
    78PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    79Signatures
    
    
    89Ex-10.5  Severance Letter, dated January 14, 2000Ex-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 & CFO
  1




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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 1. BUSINESS
 Overview
   2




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Advertising Inserts
  Premedia Services
  Competitive Strengths
  Leading Provider of Print Solutions to Our Customers
 Strong, Diverse Customer Base
 High Quality Assets and Investments in Technology
 3




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National Scope with Regional Focus
 Competitive Cost Structure.
 Strong Management Team.
 Our Strategy
  Growing Print Volumes Profitably through the Strength of our Customer Relationships
 Improving Customer and Service Mix.
 Continuing to Reduce Costs.
 4




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Expanding our Printing Solutions through Disciplined Capital Expenditures.
 Print Segment
  Advertising Inserts.
 Comics.
 Other Publications.
 Print Production.
   5




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Premedia Services Segment
   Customers and Distribution
 Customers.
   6




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Distribution.
 Sales and Marketing
   Competition
   Raw Materials
  Seasonality
  Backlog
  7




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Our Employees
  Governmental and Environmental Regulations
  
 ITEM 1A. RISK FACTORS
  Our substantial indebtedness could have a material adverse effect on our financial health and our
ability to obtain financing in the future and to react to changes in our business.
  
    
    make it more difficult for us to satisfy our obligations under our 10% Senior Second
Secured Notes Due 2010 (the 10% Notes) and to the lenders under our Amended and
Restated Credit Agreement with Banc of America Securities, as Sole Lead Arranger, and Bank
of America, N.A., as Administrative Agent, and certain lenders (the 2005 Credit
Agreement);
    
    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;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, which would reduce the availability of our cash flow from
operations to fund working capital, capital expenditures or other general corporate
purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and industry;
    
    place us at a disadvantage compared with competitors that have proportionately less debt; and
    
    limit our ability to borrow additional funds in the future, if we need them, due to
financial and restrictive covenants in our debt.
  In Fiscal Years 2006, 2005, 2004 and 2002, our earnings were insufficient to cover fixed charges.
Our ability to make payments on our debt depends on our ability to generate cash in the future.
   8




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Our ability to generate the significant amount of cash needed to make payments on our debt and to
operate our business depends on many factors beyond our control.
  The agreements and instruments governing our debt contain restrictions and limitations that could
significantly affect our ability to operate our business.
  
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place limitations on dividends, distributions or transfers to us or Holdings from our subsidiaries;
    
    create or permit to exist certain liens; and
    
    pledge assets or engage in sale-leaseback transactions.
  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.
 9




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If we do not keep pace with technological changes, we will not be able to maintain our competitive
position.
  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.
    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.
  10




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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.
  Metalmark controls us, and its interests and those of the Morgan Stanley Funds could be in conflict
with our interests.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  Environmental Matters
   11




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  12




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PART II
 
 ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information
  Holders
  Dividends
  Recent Sales of Unregistered Securities
  
 ITEM 6. SELECTED FINANCIAL DATA
   13




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ACG Holdings, Inc.
Selected Financial Data
 Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)Statements of Operations Data:Sales
    
    $
    434,489
    
    
    
    449,513
    
    
    
    471,102
    
    
    
    517,139
    
    
    
    539,208Cost of sales
    
    
    385,150
    
    
    
    403,641
    
    
    
    409,321
    
    
    
    445,493
    
    
    
    460,283Gross profit
    
    
    49,339
    
    
    
    45,872
    
    
    
    61,781
    
    
    
    71,646
    
    
    
    78,925Selling, general and administrative expenses
    
    
    26,792
    
    
    
    28,824
    
    
    
    32,734
    
    
    
    37,614
    
    
    
    38,523Restructuring costs (benefit) and other charges (a)
    
    
    (1,167
    )
    
    
    10,037
    
    
    
    8,140
    
    
    
    1,722
    
    
    
    12,920Operating income
    
    
    23,714
    
    
    
    7,011
    
    
    
    20,907
    
    
    
    32,310
    
    
    
    27,482Interest expense, net
    
    
    37,541
    
    
    
    34,050
    
    
    
    34,166
    
    
    
    28,584
    
    
    
    29,806Loss on early extinguishment of debt (b)
    
    
    
    
    
    
    
    
    
    
    3,196
    
    
    
    
    
    
    
    Other expense (c)
    
    
    4,119
    
    
    
    313
    
    
    
    489
    
    
    
    1,503
    
    
    
    624Income tax expense (benefit) (d)
    
    
    (3,369
    )
    
    
    (1,685
    )
    
    
    11,441
    
    
    
    1,559
    
    
    
    (5,073
    )Income (loss) from continuing operations
    
    
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,385
    )
    
    
    664
    
    
    
    2,125Discontinued operations: (e)Loss from operations, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    979
    
    
    
    1,403Loss on disposal, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,841
    )
    
    
    (315
    )
    
    
    722Balance Sheet Data (at end of period):Working capital deficit
    
    $
    (15,704
    )
    
    
    (10,660
    )
    
    
    (15,772
    )
    
    
    (29,820
    )
    
    
    (865
    )Total assets
    
    $
    231,502
    
    
    
    258,898
    
    
    
    267,913
    
    
    
    278,441
    
    
    
    280,513Long-term debt and capitalized leases, including current installments
    
    $
    324,284
    
    
    
    309,951
    
    
    
    298,298
    
    
    
    231,757
    
    
    
    252,792Stockholders deficit
    
    $
    (229,732
    )
    
    
    (212,740
    )
    
    
    (188,775
    )
    
    
    (107,699
    )
    
    
    (96,020
    )Other Data:Net cash provided (used) by operating activities
    
    $
    (5,213
    )
    
    
    (3,575
    )
    
    
    21,163
    
    
    
    45,647
    
    
    
    38,216Net cash used by investing activities
    
    $
    (5,523
    )
    
    
    (7,172
    )
    
    
    (13,118
    )
    
    
    (27,446
    )
    
    
    (16,493
    )Net cash provided (used) by financing activities
    
    $
    10,760
    
    
    
    10,822
    
    
    
    (7,924
    )
    
    
    (22,680
    )
    
    
    (17,189
    )Capital expenditures (including capital lease obligations entered into)
    
    $
    12,486
    
    
    
    6,907
    
    
    
    15,966
    
    
    
    28,652
    
    
    
    24,550Ratio of earnings to fixed charges (f)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.07x
    
    
    
    EBITDA (g)
    
    $
    39,078
    
    
    
    29,749
    
    
    
    41,054
    
    
    
    54,279
    
    
    
    56,654
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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 Fiscal Year 2005. We recorded $(0.3) million of costs for
this plan in Fiscal Year 2006.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 $(0.9) 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 $3.8 million of costs under this plan in Fiscal Year 2005. We recorded $(0.4)
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
$5.7 million of costs under this plan in Fiscal Year 2004. We recorded $(0.1) million and
$(0.7) million of costs for this plan in Fiscal Year 2006 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 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 Fiscal Year 2002. We
recorded an additional $0.5 million, $0.7 million and $0.4 million of costs for this plan in
Fiscal Year 2006, Fiscal Year 2005 and Fiscal Year 2004, respectively.In addition, we recorded $1.6 million, $0.4 million, $0.5 million and $4.3 million of other
charges in our print and premedia services divisions in Fiscal Year 2005, Fiscal Year 2004,
Fiscal Year 2003 and Fiscal Year 2002, 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 $3.2 million, net of zero taxes. This loss related to
the write-off of deferred financing costs associated with the old bank credit agreement and
the 123/4% Senior Subordinated Notes Due 2005 (the 123/4% Notes).(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 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 $7.1 million in Fiscal Year 2006
as a result of changes in the deferred tax items. This increase primarily includes a $6.1
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
minimum pension liability, which is a component of other comprehensive 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 $9.6 million
in Fiscal year
 15




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2005 as a result of changes in the deferred tax items. This increase included
a $9.6 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 minimum pension liability, which is a component of other comprehensive 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% Senior Second Secured Notes Due
2010 (the 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 $18.4 million in 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 $5.6 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 minimum pension liability, a
component of other comprehensive 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 $3.5 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 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.In the fourth quarter of the fiscal year ended March 31, 2002 (Fiscal Year 2002), the
valuation allowance for deferred tax assets was reduced by $5.5 million, resulting in a
corresponding credit to deferred income tax expense. This adjustment reflected a change in
circumstances which resulted in a judgment that a corresponding amount of our deferred tax
assets would be realized in future years. The valuation allowance decreased by $0.1 million
during Fiscal Year 2002 as a result of changes in the deferred tax items. This decrease
primarily included the $5.5 million decrease discussed above and a $4.2 million increase
related to the tax effect of the minimum pension liability, which is a component of other
comprehensive income (loss).(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 Years 2003 and 2002 have been reclassified and presented
within discontinued operations. Sales attributable to Digiscope for Fiscal Year 2004 were
$0.8 million and for Fiscal Years 2003 and 2002 were $3.2 million in each year.(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 2006, 2005, 2004
and 2002 was $17.9 million, $27.4 million, $16.9 million and $2.9 million, respectively.
 16




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(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), 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 EBITDA, subject to certain
adjustments. The following table provides a reconciliation of EBITDA to net income (loss):
 Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands)EBITDA
    
    $
    39,078
    
    
    
    29,749
    
    
    
    41,054
    
    
    
    54,279
    
    
    
    56,654Depreciation and amortization
    
    
    (19,483
    )
    
    
    (23,051
    )
    
    
    (24,288
    )
    
    
    (24,451
    )
    
    
    (31,199
    )Interest expense, net
    
    
    (37,541
    )
    
    
    (34,050
    )
    
    
    (34,166
    )
    
    
    (28,584
    )
    
    
    (29,806
    )Income tax (expense) benefit
    
    
    3,369
    
    
    
    1,685
    
    
    
    (11,441
    )
    
    
    (1,559
    )
    
    
    5,073Net income (loss)
    
    $
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,841
    )
    
    
    (315
    )
    
    
    722
  Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands)Restructuring costs
(benefit)
    
    $
    (1,167
    )
    
    
    8,369
    
    
    
    7,768
    
    
    
    1,191
    
    
    
    8,638Other charges
    
    
    
    
    
    
    1,668
    
    
    
    372
    
    
    
    531
    
    
    
    4,282Loss on early
extinguishment of
debt
    
    
    
    
    
    
    
    
    
    
    3,196
    
    
    
    
    
    
    
    Loss from
discontinued
operations
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    979
    
    
    
    1,403Impairment of
assets
    
    
    2,830
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    Total
    
    $
    1,663
    
    
    
    10,037
    
    
    
    11,792
    
    
    
    3,451
    
    
    
    14,323
 17




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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.
      18




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Recent Performance
     Our Restructuring Results and Cost Reduction Initiatives
  
    
    closing our Hanover, Pennsylvania print facility and our West Palm Beach, Florida premedia services facility;
    
    downsizing our Buffalo, New York premedia services facility; and
    
    eliminating certain administrative positions.
    19




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Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Three Year2004
    
    
    2005
    
    
    2006
    
    
    TotalFiscal Year 2002 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    $
    120
    
    
    
    (29
    )
    
    
    
    
    
    
    91Severance & other employee costs  Premedia
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Lease termination costs  Print
    
    
    584
    
    
    
    739
    
    
    
    465
    
    
    
    1,788Lease termination costs  Premedia
    
    
    (235
    )
    
    
    
    
    
    
    
    
    
    
    (235
    )Other costs  Print
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Other costs  Premedia
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Total restructuring costs
    
    
    406
    
    
    
    710
    
    
    
    465
    
    
    
    1,581
 20




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##### Table of Contents



Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Three Year2004
    
    
    2005
    
    
    2006
    
    
    TotalFiscal Year 2003 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    (242
    )
    
    
    
    
    
    
    
    
    
    
    (242
    )Severance & other employee costs  Premedia
    
    
    (87
    )
    
    
    (5
    )
    
    
    
    
    
    
    (92
    )Lease termination costs  Premedia
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    (7
    )Other costs  Premedia
    
    
    164
    
    
    
    (11
    )
    
    
    
    
    
    
    153Total restructuring benefit
    
    
    (172
    )
    
    
    (16
    )
    
    
    
    
    
    
    (188
    )July 2003 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    1,479
    
    
    
    12
    
    
    
    
    
    
    
    1,491Severance & other employee costs  Premedia
    
    
    287
    
    
    
    (12
    )
    
    
    
    
    
    
    275Total restructuring costs
    
    
    1,766
    
    
    
    
    
    
    
    
    
    
    
    1,766January 2004 Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    4,692
    
    
    
    (234
    )
    
    
    (117
    )
    
    
    4,341Severance & other employee costs  Premedia
    
    
    498
    
    
    
    (107
    )
    
    
    (66
    )
    
    
    325Lease termination costs  Print
    
    
    117
    
    
    
    (3
    )
    
    
    
    
    
    
    114Other costs  Print
    
    
    386
    
    
    
    (275
    )
    
    
    117
    
    
    
    228Other costs  Premedia
    
    
    75
    
    
    
    (75
    )
    
    
    
    
    
    
    Total restructuring costs (benefit)
    
    
    5,768
    
    
    
    (694
    )
    
    
    (66
    )
    
    
    5,008Other charges:Asset impairment charge  Print
    
    
    372
    
    
    
    
    
    
    
    
    
    
    
    372Total other charges
    
    
    372
    
    
    
    
    
    
    
    
    
    
    
    372Fiscal Year 2005 Plant and SG&A Reduction Plan CostsRestructuring costs:Severance & other employee costs  Print
    
    
    
    
    
    
    3,044
    
    
    
    (263
    )
    
    
    2,781Severance & other employee costs  Premedia
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    458Other costs  Print
    
    
    
    
    
    
    200
    
    
    
    (124
    )
    
    
    76Other costs  Premedia
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Total restructuring costs (benefit)
    
    
    
    
    
    
    3,752
    
    
    
    (387
    )
    
    
    3,365Fiscal 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
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Total restructuring costs (benefit)
    
    
    
    
    
    
    3,136
    
    
    
    (929
    )
    
    
    2,207Other charges:Asset impairment charge  Print
    
    
    
    
    
    
    1,266
    
    
    
    
    
    
    
    1,266Total other charges
    
    
    
    
    
    
    1,266
    
    
    
    
    
    
    
    1,266
 21




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##### Table of Contents



Fiscal Year
    
    
    Fiscal Year
    
    
    Fiscal Year
    
    
    Three Year2004
    
    
    2005
    
    
    2006
    
    
    TotalFiscal Year 2005 New York Premedia Consolidation
Plan CostsRestructuring costs:Severance & other employee costs  Premedia
    
    
    
    
    
    
    195
    
    
    
    (40
    )
    
    
    155Lease termination costs  Premedia
    
    
    
    
    
    
    1,271
    
    
    
    (207
    )
    
    
    1,064Other costs  Premedia
    
    
    
    
    
    
    15
    
    
    
    (3
    )
    
    
    12Total restructuring costs (benefit)
    
    
    
    
    
    
    1,481
    
    
    
    (250
    )
    
    
    1,231Other charges:Asset impairment charge  Premedia
    
    
    
    
    
    
    402
    
    
    
    
    
    
    
    402Total other charges
    
    
    
    
    
    
    402
    
    
    
    
    
    
    
    402Total restructuring costs (benefit)
    
    
    7,768
    
    
    
    8,369
    
    
    
    (1,167
    )
    
    
    14,970Total other charges
    
    
    372
    
    
    
    1,668
    
    
    
    
    
    
    
    2,040Total restructuring costs (benefit) and
other charges
    
    $
    8,140
    
    
    
    10,037
    
    
    
    (1,167
    )
    
    
    17,010
  Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)SalesPrint
    
    $
    380,648
    
    
    
    393,922
    
    
    
    418,004Premedia Services
    
    
    53,841
    
    
    
    55,591
    
    
    
    53,098Total
    
    $
    434,489
    
    
    
    449,513
    
    
    
    471,102Gross ProfitPrint
    
    $
    34,205
    
    
    
    30,575
    
    
    
    47,537Premedia Services
    
    
    15,134
    
    
    
    15,293
    
    
    
    14,239Other
    
    
    
    
    
    
    4
    
    
    
    5Total
    
    $
    49,339
    
    
    
    45,872
    
    
    
    61,781Gross MarginPrint
    
    
    9.0
    %
    
    
    7.8
    %
    
    
    11.4
    %Premedia Services
    
    
    28.1
    %
    
    
    27.5
    %
    
    
    26.8
    %Total
    
    
    11.4
    %
    
    
    10.2
    %
    
    
    13.1
    %
 22




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##### Table of Contents



Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)EBITDAPrint (a)
    
    $
    31,571
    
    
    
    22,997
    
    
    
    38,789Premedia Services (a)
    
    
    11,070
    
    
    
    10,059
    
    
    
    9,564Other (b)
    
    
    (3,563
    )
    
    
    (3,307
    )
    
    
    (7,299
    )Total
    
    $
    39,078
    
    
    
    29,749
    
    
    
    41,054EBITDA MarginPrint
    
    
    8.3
    %
    
    
    5.8
    %
    
    
    9.3
    %Premedia Services
    
    
    20.6
    %
    
    
    18.1
    %
    
    
    18.0
    %Total
    
    
    9.0
    %
    
    
    6.6
    %
    
    
    8.7
    %
 
 (a)
    
    EBITDA for the print and premedia services segments in Fiscal Year 2006 includes the impact
of restructuring benefit of ($0.9) 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. In
Fiscal Year 2004, EBITDA for the print and premedia services segments includes the impact of
restructuring costs and other charges of $7.5 million and $0.6 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, as well as revenues
and expenses in Fiscal Year 2004 associated with our former digital visual effects business,
Digiscope. Digiscope was sold on June 5, 2003. The EBITDA loss of Digiscope included in the
EBITDA table above for Fiscal Year 2004 was ($0.4) million. In addition, other operations
includes the write-off of deferred financing costs related to a refinancing transaction
entered into on July 3, 2003 of $3.2 million in Fiscal Year 2004. 23




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##### Table of Contents



PremediaPrint
    
    
    Services
    
    
    Other
    
    
    TotalFiscal Year 2006EBITDA
    
    $
    31,571
    
    
    
    11,070
    
    
    
    (3,563
    )
    
    
    39,078Depreciation and amortization
    
    
    (16,767
    )
    
    
    (2,716
    )
    
    
    
    
    
    
    (19,483
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (37,541
    )
    
    
    (37,541
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,369
    
    
    
    3,369Net income (loss)
    
    $
    14,804
    
    
    
    8,354
    
    
    
    (37,735
    )
    
    
    (14,577
    )Fiscal Year 2005EBITDA
    
    $
    22,997
    
    
    
    10,059
    
    
    
    (3,307
    )
    
    
    29,749Depreciation and amortization
    
    
    (19,867
    )
    
    
    (3,184
    )
    
    
    
    
    
    
    (23,051
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (34,050
    )
    
    
    (34,050
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,685
    
    
    
    1,685Net income (loss)
    
    $
    3,130
    
    
    
    6,875
    
    
    
    (35,672
    )
    
    
    (25,667
    )Fiscal Year 2004EBITDA
    
    $
    38,789
    
    
    
    9,564
    
    
    
    (7,299
    )
    
    
    41,054Depreciation and amortization
    
    
    (20,733
    )
    
    
    (3,529
    )
    
    
    (26
    )
    
    
    (24,288
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    (34,166
    )
    
    
    (34,166
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (11,441
    )
    
    
    (11,441
    )Net income (loss)
    
    $
    18,056
    
    
    
    6,035
    
    
    
    (52,932
    )
    
    
    (28,841
    )
 24




---



##### Table of Contents



Historical Results of Operations
 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.
 25




---



##### 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
  Minimum Pension Liability
  26




---



##### Table of Contents



Fiscal Year 2005 vs. Fiscal Year 2004
  Print
 Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income).
 EBITDA.
 Premedia Services
 Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 27




---



##### Table of Contents



Restructuring Costs (Benefit) and Other Charges.
 Other Expense (Income) .
 EBITDA.
 Other Operations
 3 4
 Interest Expense
 3 4
 Income Taxes
  Discontinued Operations
  Net Loss
 3 4
 28




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##### Table of Contents



Minimum Pension Liability
  Liquidity and Capital Resources
  
    
    a $55 million revolving credit facility ($40 million of which may be used for letters
of credit), which is not subject to a borrowing base limitation, maturing on December
15, 2009 (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009 (the
2005 Term Loan Facility).
     
    
    change the nature of our business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to us or Holdings from our subsidiaries;
    
    create or permit to exist certain liens; and
    
    pledge assets or engage in sale-leaseback transactions.
   29




---



##### Table of Contents




    
    $5.2 million of cash used by operating activities (see our Consolidated Statements of
Cash Flows appearing elsewhere in this Report);
    
    $12.5 million in cash capital expenditures; and
    
    $8.3 million to service other indebtedness (including capital lease obligations of
$4.7 million and deferred financing fees of $3.6 million).
     Value Added Revenue and Print Impressions for the Print Segment
  Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004Print segment VAR (in thousands)
    
    $
    181,364
    
    
    
    188,422
    
    
    
    214,675Print impressions (in millions)
    
    
    11,207
    
    
    
    11,279
    
    
    
    12,920
 30




---



##### Table of Contents



Fiscal Year Ended March 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)Print segment sales
    
    $
    380,648
    
    
    
    393,922
    
    
    
    418,004Paper, ink and subcontract services
    
    
    (199,284
    )
    
    
    (205,500
    )
    
    
    (203,329
    )Print segment VAR
    
    $
    181,364
    
    
    
    188,422
    
    
    
    214,675
 Impact of Inflation
  Seasonality
  Environmental
  New Accounting Pronouncements
  31




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##### Table of Contents



Critical Accounting Policies
   Allowance for Doubtful Accounts
  Restructuring
  Contingencies
  Deferred Taxes
  32




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due By PeriodContractual Obligations
    
    Total
    
    
    < 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    > 5 years(Dollars in thousands)Long-term debt
    
    $
    315,000
    
    
    
    
    
    
    
    
    
    
    
    315,000
    
    
    
    Interest payments on fixed
rate debt
    
    
    126,000
    
    
    
    28,000
    
    
    
    56,000
    
    
    
    42,000
    
    
    
    Capitalized lease obligations
    
    
    9,284
    
    
    
    3,731
    
    
    
    5,349
    
    
    
    204
    
    
    
    Operating lease obligations
    
    
    10,560
    
    
    
    3,308
    
    
    
    4,575
    
    
    
    2,531
    
    
    
    146Pension obligations (a)
    
    
    5,759
    
    
    
    5,759
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    466,603
    
    
    
    40,798
    
    
    
    65,924
    
    
    
    359,735
    
    
    
    146
 
 (a)
    
    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
    
    $
    25,357
    
    
    
    20,381
    
    
    
    500
    
    
    
    106
    
    
    
    4,370
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative Information.
 33




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##### Table of Contents



Qualitative Information .
    
 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
    
    35Consolidated Balance Sheets  March 31, 2006 and 2005
    
    36For the Years Ended March 31, 2006, 2005 and 2004:Consolidated Statements of Operations
    
    38Consolidated Statements of Stockholders Deficit
    
    39Consolidated Statements of Cash Flows
    
    40Notes to Consolidated Financial Statements
    
    42The following consolidated financial statement schedules of ACG Holdings, Inc. are included in Part IV, Item 15:I.   Condensed Financial Information:Condensed Consolidated Financial Statements (parent company only)for the years ended March 31, 2006, 2005 and 2004, and as of March 31, 2006 and 2005II. Valuation and qualifying accounts
  34




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##### Table of Contents



35




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##### Table of Contents



ACG HOLDINGS, INC.
 
   March 31,2006
    
    
    2005AssetsCurrent assets:Cash
    
    $
    
    
    
    
    Receivables:Trade accounts, less allowance for doubtful
accounts of $1,275 and $1,783 at March 31, 2006
and 2005, respectively
    
    
    41,080
    
    
    
    46,992Income tax receivable
    
    
    
    
    
    
    78Other
    
    
    3,463
    
    
    
    3,420Total receivables
    
    
    44,543
    
    
    
    50,490Inventories
    
    
    7,714
    
    
    
    10,447Deferred income taxes
    
    
    1,409
    
    
    
    2,235Prepaid expenses and other current assets
    
    
    4,733
    
    
    
    5,192Assets held for sale
    
    
    
    
    
    
    8,112Total current assets
    
    
    58,399
    
    
    
    76,476Property, plant and equipment:Land and improvements
    
    
    3,058
    
    
    
    2,990Buildings and improvements
    
    
    28,332
    
    
    
    27,280Machinery and equipment
    
    
    212,904
    
    
    
    215,463Furniture and fixtures
    
    
    13,007
    
    
    
    12,722Leased assets under capital leases
    
    
    23,119
    
    
    
    23,309Equipment installations in process
    
    
    6,850
    
    
    
    5,331287,270
    
    
    
    287,095Less accumulated depreciation
    
    
    (199,504
    )
    
    
    (189,626
    )Net property, plant and equipment
    
    
    87,766
    
    
    
    97,469Excess of cost over net assets acquired
    
    
    66,548
    
    
    
    66,548Other assets
    
    
    18,789
    
    
    
    18,405Total assets
    
    $
    231,502
    
    
    
    258,898
  36




---



##### Table of Contents



ACG HOLDINGS, INC.
 March 31,2006
    
    
    2005Liabilities and Stockholders DeficitCurrent liabilities:Current installments of capitalized leases
    
    $
    3,731
    
    
    
    3,631Obligations under capital leases held for sale
    
    
    
    
    
    
    1,036Trade accounts payable
    
    
    33,845
    
    
    
    40,365Accrued expenses
    
    
    36,367
    
    
    
    42,104Income tax payable
    
    
    160
    
    
    
    Total current liabilities
    
    
    74,103
    
    
    
    87,136Long-term debt and capitalized leases, excluding current installments
    
    
    320,553
    
    
    
    305,284Deferred income taxes
    
    
    3,866
    
    
    
    8,148Other liabilities
    
    
    62,712
    
    
    
    71,070Total liabilities
    
    
    461,234
    
    
    
    471,638Commitments and contingenciesStockholders deficit:Common stock, voting, $.01 par value, 5,852,223 shares authorized,
158,205 and 160,067 shares issued and outstanding at March 31, 2006
and 2005, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,203Accumulated deficit
    
    
    (209,760
    )
    
    
    (195,183
    )Other accumulated comprehensive loss, net of tax
    
    
    (22,012
    )
    
    
    (19,762
    )Total stockholders deficit
    
    
    (229,732
    )
    
    
    (212,740
    )Total liabilities and stockholders deficit
    
    $
    231,502
    
    
    
    258,898
  37




---



##### Table of Contents



ACG HOLDINGS, INC.
 
   Year ended March 31,2006
    
    
    2005
    
    
    2004Sales
    
    $
    434,489
    
    
    
    449,513
    
    
    
    471,102Cost of sales
    
    
    385,150
    
    
    
    403,641
    
    
    
    409,321Gross profit
    
    
    49,339
    
    
    
    45,872
    
    
    
    61,781Selling, general and administrative expenses
    
    
    26,792
    
    
    
    28,824
    
    
    
    32,734Restructuring costs (benefit) and other charges
    
    
    (1,167
    )
    
    
    10,037
    
    
    
    8,140Operating income
    
    
    23,714
    
    
    
    7,011
    
    
    
    20,907Other expense (income):Interest expense
    
    
    37,624
    
    
    
    34,087
    
    
    
    34,175Interest income
    
    
    (83
    )
    
    
    (37
    )
    
    
    (9
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3,196Other, net
    
    
    4,119
    
    
    
    313
    
    
    
    489Total other expense
    
    
    41,660
    
    
    
    34,363
    
    
    
    37,851Loss from continuing operations before
income taxes
    
    
    (17,946
    )
    
    
    (27,352
    )
    
    
    (16,944
    )Income tax expense (benefit)
    
    
    (3,369
    )
    
    
    (1,685
    )
    
    
    11,441Loss from continuing operations
    
    
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,385
    )Discontinued operations:Loss from operations, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    12Loss on disposal, net of $0 tax
    
    
    
    
    
    
    
    
    
    
    444Net loss
    
    $
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,841
    )
  38




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##### Table of Contents



ACG HOLDINGS, INC.
 
   OtherVoting
    
    
    Additional
    
    
    
    
    
    
    accumulatedcommon
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensivestock
    
    
    capital
    
    
    deficit
    
    
    income (loss)
    
    
    TotalBalances, March 31, 2003
    
    $
    2
    
    
    
    58,816
    
    
    
    (140,655
    )
    
    
    (25,862
    )
    
    $
    (107,699
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (28,841
    )
    
    
    
    
    
    
    (28,841
    )Other comprehensive income (loss), net of tax:Change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,295
    
    
    
    1,295Change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,203
    
    
    
    3,203Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,343
    )Repurchase of preferred stock
    
    
    
    
    
    
    (56,942
    )
    
    
    
    
    
    
    
    
    
    
    (56,942
    )Executive stock compensation
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    229Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )Balances, March 31, 2004
    
    $
    2
    
    
    
    2,103
    
    
    
    (169,516
    )
    
    
    (21,364
    )
    
    $
    (188,775
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (25,667
    )
    
    
    
    
    
    
    (25,667
    )Other comprehensive income (loss), net of tax:Change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    593
    
    
    
    593Change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,009
    
    
    
    1,009Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,065
    )Executive stock compensation
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Balances, March 31, 2005
    
    $
    2
    
    
    
    2,203
    
    
    
    (195,183
    )
    
    
    (19,762
    )
    
    $
    (212,740
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (14,577
    )
    
    
    
    
    
    
    (14,577
    )Other comprehensive income (loss), net of tax:Change in cumulative
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Change in minimum
pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,433
    )
    
    
    (2,433
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,827
    )Executive stock compensation
    
    
    
    
    
    
    (165
    )
    
    
    
    
    
    
    
    
    
    
    (165
    )Balances, March 31, 2006
    
    $
    2
    
    
    
    2,038
    
    
    
    (209,760
    )
    
    
    (22,012
    )
    
    $
    (229,732
    )
  39




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##### Table of Contents



ACG HOLDINGS, INC.
 
   Year ended March 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (14,577
    )
    
    
    (25,667
    )
    
    
    (28,841
    )Adjustments to reconcile net loss to net cash provided (used) by operating
activities:Other charges  non-cash (note 15)
    
    
    
    
    
    
    1,668
    
    
    
    328Loss on early extinguishment of debt  non-cash
    
    
    
    
    
    
    
    
    
    
    3,196Depreciation
    
    
    19,130
    
    
    
    22,594
    
    
    
    23,587Depreciation related to discontinued operations
    
    
    
    
    
    
    
    
    
    
    26Amortization of other assets
    
    
    353
    
    
    
    457
    
    
    
    675Amortization of deferred financing costs
    
    
    3,001
    
    
    
    2,487
    
    
    
    2,191Loss (gain) on disposals of property, plant and equipment
    
    
    312
    
    
    
    (75
    )
    
    
    93Impairment of asset
    
    
    2,830
    
    
    
    
    
    
    
    Deferred income tax expense (benefit)
    
    
    (3,632
    )
    
    
    (824
    )
    
    
    10,534Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    873Changes in assets and liabilities, net of effects of discontinued operations:Decrease (increase) in receivables
    
    
    6,061
    
    
    
    (5,395
    )
    
    
    6,777Decrease (increase) in current income taxes receivable
    
    
    78
    
    
    
    (78
    )
    
    
    233Decrease (increase) in inventories
    
    
    2,759
    
    
    
    (1,968
    )
    
    
    1,765Increase (decrease) in trade accounts payable
    
    
    (6,611
    )
    
    
    10,440
    
    
    
    (9,626
    )Increase (decrease) in accrued expenses
    
    
    (6,679
    )
    
    
    385
    
    
    
    10,146Increase (decrease) in current income taxes payable
    
    
    160
    
    
    
    (9
    )
    
    
    9Decrease in other liabilities
    
    
    (9,880
    )
    
    
    (6,312
    )
    
    
    (82
    )Other
    
    
    1,482
    
    
    
    (1,278
    )
    
    
    (721
    )Total adjustments
    
    
    9,364
    
    
    
    22,092
    
    
    
    50,004Net cash provided (used) by operating activities
    
    
    (5,213
    )
    
    
    (3,575
    )
    
    
    21,163
 40




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##### Table of Contents



ACG HOLDINGS, INC.
 Year ended March 31,2006
    
    
    2005
    
    
    2004Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (12,486
    )
    
    
    (6,876
    )
    
    
    (13,096
    )Proceeds from sale of property, plant and equipment held for sale (note 4)
    
    
    6,877
    
    
    
    
    
    
    
    Proceeds from other sales of property, plant and equipment
    
    
    283
    
    
    
    176
    
    
    
    24Other
    
    
    (197
    )
    
    
    (472
    )
    
    
    (46
    )Net cash used by investing activities
    
    
    (5,523
    )
    
    
    (7,172
    )
    
    
    (13,118
    )Cash flows from financing activities:Net increase (decrease) in revolver borrowings
    
    
    (16,000
    )
    
    
    16,000
    
    
    
    Net increase (decrease) in long-term debt, net
    
    
    35,000
    
    
    
    
    
    
    
    (39,185
    )Repayment of 123/4% senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    (170,055
    )Proceeds from issuance of 10% senior second secured notes
    
    
    
    
    
    
    
    
    
    
    280,000Deferred financing costs paid
    
    
    (3,573
    )
    
    
    (800
    )
    
    
    (14,633
    )Repayment of capital lease obligations
    
    
    (4,667
    )
    
    
    (4,378
    )
    
    
    (7,089
    )Repurchase and retirement of preferred stock and cancellation of
preferred stock options
    
    
    
    
    
    
    
    
    
    
    (56,942
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (20
    )Net cash provided (used) by financing activities
    
    
    10,760
    
    
    
    10,822
    
    
    
    (7,924
    )Effect of exchange rates on cash
    
    
    (24
    )
    
    
    (75
    )
    
    
    (121
    )Change in cash
    
    
    
    
    
    
    
    
    
    
    Cash:Beginning of period
    
    
    
    
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    
    
    
    
    
    Supplemental disclosure of cash flow information:Cash paid (received) for:Interest
    
    $
    33,863
    
    
    
    31,480
    
    
    
    27,668Income taxes, net of refunds
    
    $
    15
    
    
    
    (887
    )
    
    
    509Non-cash investing activities:Assets purchased under capital lease obligations
    
    $
    
    
    
    
    31
    
    
    
    2,870
  41




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##### 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, 2006. See note 7 below for further discussion of the 2005 Credit Agreement 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. 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 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, significant competition, and rising
raw material and production costs. Such challenges have contributed to three
straight years of net losses and cash used in operating activities for the past two
fiscal years. While management has prepared analyses indicating that the Companys
forecasted results of operations for the fiscal year ending March 31, 2007 will
allow it to remain in compliance with debt covenants and maintain sufficient
liquidity to meet its operating requirements for the twelve month period subsequent
to March 31, 2006, such analyses contain certain estimates and assumptions deemed
reasonable by management that could differ from actual results. Management
believes that the Company will continue to be challenged by difficult industry
conditions.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.(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, films, 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 (defined herein), to fund
operating disbursements and, to the extent applicable, invest in overnight cash
investments. Cash on hand of approximately $6.7 million (including $5.1 million of
 42




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##### Table of Contents



ACG HOLDINGS, INC.
  liquid overnight
cash investments) and $2.5 million at March 31, 2006 and 2005 respectively, is
presented net of outstanding checks, which resulted in a reclassification of $10.4
million and $15.5 million at March 31, 2006 and 2005 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 our 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. Expenses 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, 2005
and 2004, and noted no impairment. Due to changes in circumstances resulting from
certain changes in business operations, the Company also performed an impairment
test of goodwill as of March 31, 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 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, respectively. 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.
 43




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##### Table of Contents



ACG HOLDINGS, INC.
  (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 is 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 Revolving Credit Facility (as defined
herein) are amortized over the term of the 2005 Credit 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 have been provided using the liability method
in accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). 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.(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.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.
 44




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##### Table of Contents



ACG HOLDINGS, INC.
  (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 CompensationThe Company has elected to follow Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), in accounting for its stock-based compensation plan. The Company believes
that including the fair value of compensation plans in determining net income is
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.(r)
    
    Impact of Recently Issued Accounting StandardsIn January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46),
which was later revised in December 2003, to expand upon and strengthen existing
accounting guidance that
addresses when a company should include in its financial statements the assets,
liabilities and activities of another entity. Historically, a company generally
has included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. FIN 46, as revised and
interpreted, changes that guidance by requiring a variable interest entity, as
defined, to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or is entitled
to receive a majority of the entitys residual returns or both. FIN 46 also
requires disclosure about variable interest entities that a company is not required
to consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 applied immediately to variable interest
entities created after December 31, 2003 and to existing entities created before
December 31, 2003 in the first fiscal year beginning after December 15, 2004. The
Company has no variable interest entities created after December 31, 2003. The
adoption of FIN 46 as of April 1, 2005 for variable interest entities created
before December 31, 2003 has had no effect on the Companys consolidated financial
statements as a whole.
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##### Table of Contents



ACG HOLDINGS, INC.
  In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (revised), Accounting for Stock-Based Compensation
(SFAS 123R). The Company accounts for share-based payments using the fair value
based method described in SFAS 123. The requirements of SFAS 123R generally are
the same as SFAS 123, except that SFAS 123R provides significant additional
guidance regarding the valuation of employee stock options. The Company currently
uses the Black-Scholes-Merton formula to estimate the value of stock options
granted to employees and expects to continue to use this acceptable option
valuation model upon the required adoption of SFAS

123R on April 1, 2006. SFAS
123R also requires that the benefits of tax deductions in excess of recognized
compensation costs be reported as a financing cash flow, rather than as an
operating cash
flow as required under current guidance. For the fiscal years ended March 31, 2006, 2005 and
2004, the Company recognized no operating cash flows for such excess tax deductions. The Company
does not anticipate the adoption of SFAS 123R will have a material impact on its consolidated
financial statements as a whole.
 (2)
    
    Discontinued OperationsIn June 2003, the Company sold its digital visual effects business, Digiscope, for a de
minimis amount, which resulted in a loss of approximately $0.4 million, which is net of zero
income tax benefit. As a result of this sale, Digiscope has been accounted for as a discontinued
operation, and accordingly, Digiscopes operations are segregated and reported within
discontinued operations in the accompanying consolidated financial statements. Sales, cost of
sales, selling, general and administrative expenses and other expenses attributable to Digiscope
for the fiscal year ended March 31, 2004 have been classified and presented within discontinued
operations. Sales attributable to Digiscope for the fiscal year ended March 31, 2004 were $0.8
million.(3)
    
    InventoriesThe components of inventories are as follows (in thousands):
 March 31,2006
    
    
    2005Paper
    
    $
    5,959
    
    
    
    8,503Ink
    
    
    140
    
    
    
    171Supplies and other
    
    
    1,615
    
    
    
    1,773Total
    
    $
    7,714
    
    
    
    10,447
 (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 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.
 46




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##### Table of Contents



ACG HOLDINGS, INC.
  The
following table summarizes the assets and obligations under capital leases held for sale
at March 31, 2005 (in thousands). No assets or liabilities were held for sale at March
31, 2006.
 March 31, 2005Other receivables
    
    $
    112Property, plant and equipment, net
    
    
    6,877Other assets
    
    
    1,123Total assets held for sale
    
    
    8,112Obligations under capital leases held for sale
    
    
    (1,036
    )Net assets and liabilities held for sale
    
    $
    7,076
 (5)
    
    Other AssetsThe components of other assets are as follows (in thousands):
 March 31,2006
    
    
    2005Deferred financing costs, less
accumulated amortization of $7,183
in 2006 and $4,182 in 2005
    
    $
    11,466
    
    
    $
    10,894Spare parts inventory, net of
valuation allowance of $100 in
2006 and 2005
    
    
    6,965
    
    
    
    6,308Other
    
    
    358
    
    
    
    1,203Total
    
    $
    18,789
    
    
    
    18,405
 (6)
    
    Accrued ExpensesThe components of accrued expenses are as follows (in thousands):
 March 31,2006
    
    
    2005Compensation and related taxes
    
    $
    4,849
    
    
    
    2,817Employee benefits
    
    
    15,159
    
    
    
    17,328Interest
    
    
    9,268
    
    
    
    8,504Restructuring
    
    
    4,127
    
    
    
    9,922Other
    
    
    2,964
    
    
    
    3,533Total
    
    $
    36,367
    
    
    
    42,104
 47




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##### Table of Contents



ACG HOLDINGS, INC.
  (7) Notes Payable, Long-Term Debt and Capitalized Leases
  March 31,2006
    
    
    2005Revolving Credit Facility
    
    $
    
    
    
    
    16,0002005 Term Loan Facility
    
    
    35,000
    
    
    
    10% Senior Second Secured Notes Due 2010
    
    
    280,000
    
    
    
    280,000Capitalized leases
    
    
    9,284
    
    
    
    13,951Total long-term debt and capitalized leases
    
    
    324,284
    
    
    
    309,951Less current installments
    
    
    3,731
    
    
    
    4,667Long-term debt and capitalized leases,
excluding current installments
    
    $
    320,553
    
    
    
    305,284
 May 5, 2005 Refinancing Transaction
  
    
    a $55 million revolving credit facility ($40 million of which may be used for
letters of credit), which is not subject to a borrowing base limitation, maturing on
December 15, 2009 (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009
(the 2005 Term Loan Facility).
   48
    Table of Contents   ACG HOLDINGS, INC.
   
    
    change the nature of its business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to the Company or
Holdings from its subsidiaries;
    
    create or permit to exist certain liens; and
    
    pledge assets or engage in sale-leaseback transactions.
     49




---



##### Table of Contents



ACG HOLDINGS, INC.
   Long-Term
    
    
    CapitalizedFiscal Year
    
    Debt
    
    
    Leases2007
    
    $
    
    
    
    $
    4,3512008
    
    
    
    
    
    
    3,7362009
    
    
    
    
    
    
    1,9662010
    
    
    35,000
    
    
    
    2062011
    
    
    280,000
    
    
    
    Total
    
    $
    315,000
    
    
    
    10,259Imputed interest
    
    
    
    
    
    
    (975
    )Present value of minimum
lease payments
    
    
    
    
    
    $
    9,284
  50




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##### Table of Contents



ACG HOLDINGS, INC.
  (8) Income Taxes
  March 31,2006
    
    
    2005Deferred tax liabilities:Book over tax basis in fixed assets
    
    $
    11,558
    
    
    
    15,493Foreign taxes
    
    
    1,924
    
    
    
    4,953Accumulated amortization
    
    
    2,806
    
    
    
    2,428Other, net
    
    
    
    
    
    
    2,921Total deferred tax liabilities
    
    
    16,288
    
    
    
    25,795Deferred tax assets:Allowance for doubtful accounts
    
    
    500
    
    
    
    699Accrued expenses and other liabilities
    
    
    8,546
    
    
    
    18,515Net operating loss carryforwards
    
    
    55,892
    
    
    
    46,484AMT credit carryforwards
    
    
    1,203
    
    
    
    1,203Minimum pension liability
    
    
    8,477
    
    
    
    7,524Cumulative translation adjustment
    
    
    157
    
    
    
    229Other, net
    
    
    953
    
    
    
    Total deferred tax assets
    
    
    75,728
    
    
    
    74,654Valuation allowance for deferred tax assets
    
    
    61,897
    
    
    
    54,772Net deferred tax assets
    
    
    13,831
    
    
    
    19,882Net deferred tax liabilities
    
    $
    2,457
    
    
    
    5,913
   51




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##### Table of Contents



ACG HOLDINGS, INC.
    Year ended March 31,2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    
    
    
    
    
    
    
    
    State
    
    
    89
    
    
    
    129
    
    
    
    203Foreign
    
    
    174
    
    
    
    (990
    )
    
    
    704Total current
    
    
    263
    
    
    
    (861
    )
    
    
    907DeferredFederal
    
    
    (482
    )
    
    
    (310
    )
    
    
    8,069State
    
    
    47
    
    
    
    (417
    )
    
    
    1,528Foreign
    
    
    (3,197
    )
    
    
    (97
    )
    
    
    937Total deferred
    
    
    (3,632
    )
    
    
    (824
    )
    
    
    10,534Provision (benefit) for income taxes
    
    $
    (3,369
    )
    
    
    (1,685
    )
    
    
    11,441
  Year Ended March 31,2006
    
    2005
    
    2004Statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, less
federal tax impact
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (8.9
    )Foreign taxes, less federal
tax impact
    
    
    (0.5
    )
    
    
    2.3
    
    
    
    (2.7
    )Other nondeductible expenses
    
    
    
    
    
    
    (0.5
    )
    
    
    7.2Change in valuation allowance
    
    
    (33.4
    )
    
    
    (31.4
    )
    
    
    (104.0
    )Change in cumulative translation adjustment
    
    
    (1.1
    )
    
    
    (2.0
    )
    
    
    (3.1
    )Previously accrued taxes
    
    
    20.2
    
    
    
    1.6
    
    
    
    13.1Other, net
    
    
    (1.0
    )
    
    
    1.3
    
    
    
    (4.1
    )Effective income tax rate
    
    
    18.8
    %
    
    
    6.2
    %
    
    
    (67.5
    )%
 52




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##### Table of Contents



ACG HOLDINGS, INC.
      (9) Other Liabilities
  March 31,2006
    
    
    2005Deferred revenue agreements (see note 13)
    
    $
    45,641
    
    
    
    50,385Postretirement liabilities (see note 10)
    
    
    3,457
    
    
    
    3,804Pension liabilities and other benefit obligations
    
    
    11,601
    
    
    
    14,094Other
    
    
    2,013
    
    
    
    2,787Total
    
    $
    62,712
    
    
    
    71,070
 (10) Employee Benefit Plans
 Defined Benefit Pension Plans
 Pension Plans
  Supplemental Executive Retirement Plan
  53




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##### Table of Contents



ACG HOLDINGS, INC
   Defined Benefit Postretirement Plans
 Postretirement
Benefits
    401(k) Defined Contribution Plan
  54




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##### Table of Contents



ACG HOLDINGS, INC.
   Defined Benefit
    
    
    Defined BenefitPension Plans
    
    
    Postretirement Plan2006
    
    
    2005
    
    
    2006
    
    
    2005Change in Benefit ObligationBenefit obligation at beginning of year
    
    $
    69,624
    
    
    
    67,185
    
    
    
    2,823
    
    
    
    2,801Service cost
    
    
    462
    
    
    
    468
    
    
    
    34
    
    
    
    31Interest cost
    
    
    4,321
    
    
    
    4,217
    
    
    
    179
    
    
    
    170Plan amendments
    
    
    
    
    
    
    
    
    
    
    (600
    )
    
    
    Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    441
    
    
    
    368Actuarial loss (gain)
    
    
    3,537
    
    
    
    1,725
    
    
    
    251
    
    
    
    141Expected benefit payments
    
    
    (5,323
    )
    
    
    (3,971
    )
    
    
    (716
    )
    
    
    (688
    )Benefit obligation at end of year
    
    $
    72,621
    
    
    
    69,624
    
    
    
    2,412
    
    
    
    2,823Change in Plan AssetsFair value of plan assets at beginning
of year
    
    $
    49,675
    
    
    
    40,193
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    3,196
    
    
    
    4,176
    
    
    
    
    
    
    
    Employer contributions:Pension Plans
    
    
    8,017
    
    
    
    8,777
    
    
    
    
    
    
    
    SERP
    
    
    1,718
    
    
    
    500
    
    
    
    
    
    
    
    Postretirement Plan
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    319Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    441
    
    
    
    368Benefits paid
    
    
    (5,323
    )
    
    
    (3,971
    )
    
    
    (716
    )
    
    
    (687
    )Fair value of plan assets at end of year
    
    $
    57,283
    
    
    
    49,675
    
    
    
    
    
    
    
    Funded Status
    
    $
    (15,338
    )
    
    
    (19,949
    )
    
    
    (2,412
    )
    
    
    (2,823
    )Unrecognized net actuarial (gain) loss
    
    
    21,611
    
    
    
    19,178
    
    
    
    109
    
    
    
    (141
    )Unrecognized prior service gain
    
    
    
    
    
    
    
    
    
    
    (1,566
    )
    
    
    (1,188
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    48Additional minimum pension liability
    
    
    (21,611
    )
    
    
    (19,178
    )
    
    
    
    
    
    
    Accrued benefit liability
    
    $
    (15,338
    )
    
    
    (19,949
    )
    
    
    (3,757
    )
    
    
    (4,104
    )
 55




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##### Table of Contents



ACG HOLDINGS, INC.
  Defined Benefit Pension Plans
    
    Defined Benefit Postretirement Plan2006
    
    2005
    
    2006
    
    2005Weighted
 Average AssumptionsDiscount
rate  benefit obligation
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  Defined Benefit Pension Plans
    
    
    Defined Benefit Postretirement Plan2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Components of
Net Periodic Benefit Cost(in thousands)Service cost
    
    $
    462
    
    
    
    468
    
    
    
    390
    
    
    
    34
    
    
    
    31
    
    
    
    30Interest cost
    
    
    4,321
    
    
    
    4,217
    
    
    
    4,211
    
    
    
    179
    
    
    
    170
    
    
    
    182Expected return on plan assets
    
    
    (4,262
    )
    
    
    (3,510
    )
    
    
    (2,710
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (222
    )
    
    
    (222
    )
    
    
    (222
    )Amortization of unrecognized loss
    
    
    2,001
    
    
    
    2,022
    
    
    
    2,441
    
    
    
    
    
    
    
    
    
    
    
    Settlement loss
    
    
    169
    
    
    
    46
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    Recognized net actuarial (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    (43
    )
    
    
    (62
    )Net periodic benefit cost (income)
    
    $
    2,691
    
    
    
    3,243
    
    
    
    4,363
    
    
    
    (7
    )
    
    
    (64
    )
    
    
    (72
    )
 Expected Future Benefit Payments
  Defined Benefit
    
    
    Defined BenefitFiscal Year
    
    Pension Plans
    
    
    Postretirement Plan (a)2007
    
    $
    4,282
    
    
    
    2172008
    
    
    4,385
    
    
    
    2212009
    
    
    4,488
    
    
    
    2232010
    
    
    4,566
    
    
    
    2242011
    
    
    4,660
    
    
    
    2232012  2016
    
    
    24,801
    
    
    
    1,046Total
    
    $
    47,182
    
    
    
    2,154
 
 (a)
    
    Represents expected benefit payments net of plan participants contributions. 56




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##### Table of Contents



ACG HOLDINGS, INC.
   1% Point
    
    1% PointIncrease
    
    DecreaseEffect on total of service and interest
cost components of expense
    
    $
    4
    
    
    
    (4
    )Effect on postretirement benefit obligation
    
    $
    73
    
    
    
    (68
    )
 Plan Assets
  TargetAllocation
    
    Percentage of Plan Assets2006
    
    2006
    
    2005Global equity securities
    
    
    73.5
    %
    
    
    73.3
    %
    
    
    75.2
    %Fixed income securities
    
    
    22.0
    %
    
    
    20.9
    %
    
    
    23.2
    %Real Estate
    
    
    4.5
    %
    
    
    4.6
    %
    
    
    Cash
    
    
    0.0
    %
    
    
    1.2
    %
    
    
    1.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    (11) Capital Stock
  57




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##### Table of Contents



ACG HOLDINGS, INC.
  (12) Stock Option Plans
 Common Stock Option Plans
   Weighted-AverageExercise
    
    ExercisableOptions
    
    Price ($)
    
    Options (a)Outstanding at March 31, 2003
    
    
    10,322
    
    
    
    .01
    
    
    
    6,617Granted
    
    
    
    
    
    
    Exercised
    
    
    (1,125
    )
    
    
    .01Forfeited
    
    
    
    
    
    
    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
    
    
    
    6,466
 
 (a)
    
    At March 31, 2006, 2005 and 2004 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)2006
    
    
    2,504
    
    
    
    
    
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    As the grant date Fair Value was $0, the Black-Scholes pricing was not
calculated.  58




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##### Table of Contents



ACG HOLDINGS, INC.
   Preferred Stock Option Plan
   (13) Commitments and Contingencies
  Fiscal Year2007
    
    $
    3,3082008
    
    
    2,4982009
    
    
    2,0772010
    
    
    1,6422011
    
    
    889Thereafter
    
    
    146Total
    
    $
    10,560
 59




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##### Table of Contents



ACG HOLDINGS, INC.
        60




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##### Table of Contents



ACG HOLDINGS, INC.
  (14) Interim Financial Information (Unaudited)
  NetGross
    
    
    IncomeSales
    
    
    Profit
    
    
    (Loss)Fiscal Year 2006
    
    Quarter Ended:June 30
    
    $
    108,270
    
    
    
    12,650
    
    
    
    (2,390
    )September 30
    
    
    105,460
    
    
    
    11,776
    
    
    
    (4,198
    )December 31
    
    
    118,724
    
    
    
    14,911
    
    
    
    2,252
    (a)March 31
    
    
    102,035
    
    
    
    10,002
    
    
    
    (10,241
    ) (b)Total
    
    $
    434,489
    
    
    
    49,339
    
    
    
    (14,577
    )Fiscal Year 2005
    
    Quarter Ended:June 30
    
    $
    110,850
    
    
    
    12,863
    
    
    
    (2,188
    )September 30
    
    
    106,605
    
    
    
    10,623
    
    
    
    (3,463
    )December 31
    
    
    123,652
    
    
    
    13,392
    
    
    
    (2,286
    )March 31
    
    
    108,406
    
    
    
    8,994
    
    
    
    (17,730
    ) (c)Total
    
    $
    449,513
    
    
    
    45,872
    
    
    
    (25,667
    )
 
 (a)
    
    Includes ($0.5) million of pre-tax restructuring benefit.(b)
    
    Includes ($0.7) million of pre-tax restructuring benefit and a non-cash asset
impairment charge of $2.8 million.(c)
    
    Includes $10.0 million of pre-tax restructuring costs and other charges. (15) Restructuring Costs and Other Charges
 Fiscal Year 2005 Restructuring Costs
 New York Premedia Consolidation Plan
   61




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ACG HOLDINGS, INC.
   03/31/05
    
    
    
    
    
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee costs
    
    $
    195
    
    
    
    (155
    )
    
    
    (40
    )
    
    
    Lease termination
costs
    
    
    1,271
    
    
    
    (488
    )
    
    
    (207
    )
    
    
    576Other costs
    
    
    15
    
    
    
    
    
    
    
    (3
    )
    
    
    12$
    1,481
    
    
    
    (643
    )
    
    
    (250
    )
    
    
    588
  Pittsburg Facility Closure Plan
    03/31/05
    
    
    
    
    
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee costs
    
    $
    1,329
    
    
    
    (517
    )
    
    
    (812
    )
    
    
    Lease termination
costs
    
    
    774
    
    
    
    (58
    )
    
    
    (117
    )
    
    
    599Other costs
    
    
    37
    
    
    
    (11
    )
    
    
    
    
    
    
    26$
    2,140
    
    
    
    (586
    )
    
    
    (929
    )
    
    
    625
 62




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##### Table of Contents



ACG HOLDINGS, INC.
   Plant and SG&A Reduction Plan
    03/31/05
    
    
    
    
    
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee costs
    
    $
    3,208
    
    
    
    (2,097
    )
    
    
    (263
    )
    
    
    848Other costs
    
    
    249
    
    
    
    (22
    )
    
    
    (124
    )
    
    
    103$
    3,457
    
    
    
    (2,119
    )
    
    
    (387
    )
    
    
    951
  Fiscal Year 2004 Restructuring Costs
 January 2004 Plan
   63




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##### Table of Contents



ACG HOLDINGS, INC.
    03/31/05
    
    
    
    
    
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    
    Reserve
    
    
    RestructuringReserve Balance
    
    
    Activity
    
    
    Adjustment
    
    
    Reserve BalanceSeverance and
other employee costs
    
    $
    813
    
    
    
    (407
    )
    
    
    (183
    )
    
    
    223Other costs
    
    
    77
    
    
    
    (84
    )
    
    
    117
    
    
    
    110$
    890
    
    
    
    (491
    )
    
    
    (66
    )
    
    
    333
  July 2003 Plan
    03/31/05
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve BalanceSeverance and other
employee costs
    
    $
    430
    
    
    
    (328
    )
    
    
    102
  64




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ACG HOLDINGS, INC.
  Fiscal Year 2002 Restructuring Costs
    03/31/05
    
    
    
    
    
    
    
    
    
    03/31/06Restructuring
    
    
    
    
    
    
    
    
    
    RestructuringReserve Balance
    
    Activity
    
    Reserve Adjustment
    
    Reserve BalanceLease termination
costs
    
    
    1,524
    
    
    
    (461
    )
    
    
    465
    
    
    
    1,528
  Other Charges
  65




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##### Table of Contents



ACG HOLDINGS, INC.
  (16)
    
    Parent Guarantee of Subsidiary DebtGraphics, the issuer of the 10% Notes, is a wholly owned subsidiary of Holdings. Holdings
has no other subsidiaries. Holdings has fully and unconditionally guaranteed the payment of
principal and interest on the 10% Notes. The 10% Notes are fully and unconditionally
guaranteed on a senior basis by Holdings and by all future domestic subsidiaries of Graphics.
Holdings conducts no business other than as the sole shareholder of Graphics and has no
significant assets other than the capital stock of Graphics, all of which is pledged to
secure Holdings obligations under the 2005 Credit Agreement. Holdings is dependent upon
distributions from Graphics to fund its obligations. Graphics ability to pay dividends or
lend funds to Holdings is restricted under the terms of the indenture governing the 10% Notes
and the 2005 Credit Agreement (see note 7).(17)
    
    Industry Segment InformationThe Company has significant operations principally in two industry segments: (1) print and
(2) premedia services. All of the Companys print business and assets are attributed to the
print division and all of the Companys premedia services business and assets are attributed
to the premedia services division. The Companys corporate expenses have been segregated and
do not constitute a reportable segment.The Company has two reportable segments: (1) print and (2) premedia services. The print
business produces advertising inserts, comics (Sunday newspaper comics, comic insert
advertising and comic books) and other publications. The Companys premedia services
business assists customers in the design, creation and capture; manipulation; storage;
transmission and distribution of images. The majority of the premedia services work leads to
the production of four-color separations in a format appropriate for use by printers.The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on segment EBITDA,
which is defined as earnings before net interest expense, income tax expense (benefit),
depreciation and amortization. The Company generally accounts for intersegment revenues and
transfers as if the revenues or transfers were to third parties, that is, at current market
prices.In the first quarter of the fiscal year ended March 31, 2004, the Company sold its digital
visual effects business, Digiscope, for a de minimis amount and recorded a net loss of
approximately $0.4 million. Segment operating results for the fiscal year ended March 31,
2004 present Digiscopes operating results as a discontinued operation.The Companys reportable segments are business units that offer different products and
services. They are managed separately because each segment requires different technology and
marketing strategies. A substantial portion of the revenue, long-lived assets and other
assets of the Companys reportable segments are attributed to or located in the United
States.
 66




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##### Table of Contents



ACG HOLDINGS, INC.
  Premedia
    
    
    CorporatePrint
    
    
    Services
    
    
    and Other(In thousands)
    
    (a)
    
    
    (a)
    
    
    (b)
    
    
    TotalFiscal Year Ended March 31, 2006Sales
    
    $
    380,648
    
    
    
    53,841
    
    
    
    
    
    
    
    434,489EBITDA
    
    $
    31,571
    
    
    
    11,070
    
    
    
    (3,563
    )
    
    
    39,078Depreciation and amortization
    
    
    (16,767
    )
    
    
    (2,716
    )
    
    
    
    
    
    
    (19,483
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (37,624
    )
    
    
    (37,624
    )Interest income
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83Income tax benefit
    
    
    
    
    
    
    
    
    
    
    3,369
    
    
    
    3,369Net income (loss)
    
    $
    14,804
    
    
    
    8,354
    
    
    
    (37,735
    )
    
    
    (14,577
    )Total assets
    
    $
    205,753
    
    
    
    12,852
    
    
    
    12,897
    
    
    
    231,502Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    10,651
    
    
    
    1,835
    
    
    
    
    
    
    
    12,486Fiscal Year Ended March 31, 2005Sales
    
    $
    393,922
    
    
    
    55,591
    
    
    
    
    
    
    
    449,513EBITDA
    
    $
    22,997
    
    
    
    10,059
    
    
    
    (3,307
    )
    
    
    29,749Depreciation and amortization
    
    
    (19,867
    )
    
    
    (3,184
    )
    
    
    
    
    
    
    (23,051
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (34,087
    )
    
    
    (34,087
    )Interest income
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Income tax benefit
    
    
    
    
    
    
    
    
    
    
    1,685
    
    
    
    1,685Net income (loss)
    
    $
    3,130
    
    
    
    6,875
    
    
    
    (35,672
    )
    
    
    (25,667
    )Total assets
    
    $
    230,490
    
    
    
    15,179
    
    
    
    13,229
    
    
    
    258,898Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    5,418
    
    
    
    1,489
    
    
    
    
    
    
    
    6,907Fiscal Year Ended March 31, 2004Sales
    
    $
    418,004
    
    
    
    53,098
    
    
    
    
    
    
    
    471,102EBITDA
    
    $
    38,789
    
    
    
    9,564
    
    
    
    (7,299
    )
    
    
    41,054Depreciation and amortization
    
    
    (20,733
    )
    
    
    (3,529
    )
    
    
    
    
    
    
    (24,262
    )Depreciation from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (34,175
    )
    
    
    (34,175
    )Interest income
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9Income tax expense
    
    
    
    
    
    
    
    
    
    
    (11,441
    )
    
    
    (11,441
    )Net income (loss)
    
    $
    18,056
    
    
    
    6,035
    
    
    
    (52,932
    )
    
    
    (28,841
    )Total assets
    
    $
    237,680
    
    
    
    15,316
    
    
    
    14,917
    
    
    
    267,913Total goodwill
    
    $
    64,656
    
    
    
    1,892
    
    
    
    
    
    
    
    66,548Total capital expenditures
    
    $
    14,465
    
    
    
    1,501
    
    
    
    
    
    
    
    15,966
 67




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ACG HOLDINGS, INC.
  (a)
    
    EBITDA for the print and premedia services segments in the fiscal year ended March 31, 2006
includes the impact of restructuring benefit of ($0.9) 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. In the fiscal year ended March 31, 2004, EBITDA for the print and
premedia services segments includes the impact of restructuring costs and other charges of
$7.5 million and $0.6 million, respectively.
 (b)
    
    EBITDA for corporate and other includes corporate general and administrative expenses, as
well as revenues and expenses in the fiscal year ended March 31, 2004 associated with our
former digital visual effects business, Digiscope. Digiscope was sold on June 5, 2003. The
EBITDA loss of Digiscope included in the EBITDA table above for the fiscal year ended March
31, 2004 was ($0.4) million. In addition, corporate and other includes the write-off of
deferred financing costs related to a refinancing transaction entered into on July 3, 2003 of
$3.2 million in the fiscal year ended March 31, 2004.
 68




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  
 ITEM 9B. OTHER INFORMATION
  69




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    Position with Graphics and/or HoldingsStephen M. Dyott
    
    
    54
    
    
    Chairman, President, Chief Executive Officer and DirectorKathleen A. DeKam
    
    
    45
    
    
    President, Print and Premedia ServicesPatrick W. Kellick
    
    
    48
    
    
    Senior Vice President/Chief Financial Officer and SecretaryStuart R. Reeve
    
    
    42
    
    
    President, New Business DevelopmentDenis S. Longpré
    
    
    51
    
    
    Executive Vice President SalesEric T. Fry
    
    
    39
    
    
    DirectorMichael C. Hoffman
    
    
    43
    
    
    DirectorHwan-Yoon Chung
    
    
    32
    
    
    Director
 Stephen M. Dyott
 Kathleen A. DeKam
 Patrick W. Kellick
 Stuart R. Reeve
 Denis S. Longpré
 Eric T. Fry
 70




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Michael C. Hoffman
 Hwan-Yoon Chung
 Code of Ethics
  Audit Committee Financial Expert
  71




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ITEM 11. EXECUTIVE COMPENSATION
 Summary Compensation Table
  Summary Compensation Table
 Long-Term CompensationAnnual Compensation
    
    Awards
    
    PayoutsSecuritiesOther
    
    
    
    
    
    Under-Annual
    
    Restricted
    
    lying
    
    
    
    
    
    All OtherName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compen-
    
    Stock
    
    Options/
    
    LTIP
    
    Compen-Position
    
    Period
    
    Salary
    
    Bonus
    
    sation
    
    Award(s)
    
    SARs (#)
    
    Payouts (a)
    
    sation (b)Stephen M. Dyott
    
    Fiscal Year 2006
    
    $
    575,000
    
    
    $
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    497,363Chairman, President,
    
    Fiscal Year 2005
    
    $
    575,000
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Executive
    
    Fiscal Year 2004
    
    $
    575,000
    
    
    $
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,362,797
    
    
    
    Officer &
DirectorKathleen A. DeKam
    
    Fiscal Year 2006
    
    $
    350,000
    
    
    $
    225,000
    
    
    
    
    
    
    
    
    
    
    
    1,702
    
    
    
    
    
    
    
    President, Print and
    
    Fiscal Year 2005
    
    $
    324,039
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Premedia Services
    
    Fiscal Year 2004
    
    $
    275,000
    
    
    $
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Patrick W. Kellick
    
    Fiscal Year 2006
    
    $
    325,000
    
    
    $
    225,000
    
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    
    
    
    $
    175,269Senior Vice President,
    
    Fiscal Year 2005
    
    $
    304,231
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief
Financial Officer &
    
    Fiscal Year 2004
    
    $
    265,000
    
    
    $
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    219,377
    
    
    
    SecretaryStuart R. Reeve
    
    Fiscal Year 2006
    
    $
    350,000
    
    
    $
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    117,168President, New Business
    
    Fiscal Year 2005
    
    $
    350,000
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Development
    
    Fiscal Year 2004
    
    $
    350,000
    
    
    $
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denis S. Longpré
    
    Fiscal Year 2006
    
    $
    275,000
    
    
    $
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President
    
    Fiscal Year 2005
    
    $
    302,609
    
    
    $
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales
    
    Fiscal Year 2004
    
    $
    213,566
    
    
    $
    52,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    Represents a gain recognized from the cancellation of all outstanding options to
purchase shares of preferred stock of Holdings held by certain key officers as a part of
the refinancing transaction entered into on July 3, 2003.(b)
    
    See Supplemental Executive Retirement Plan below.  Option/SAR Grants in Last Fiscal Year
 AlternativeTo (f) and (g)Individual Grants
    
    Grant Date Value% of TotalNumber of
    
    Options/ SARsSecurities
    
    Granted to
    
    
    
    
    
    
    
    
    
    GrantUnderlying
    
    Employees
    
    Exercise or Base
    
    
    
    
    
    DateOptions/SARs
    
    in Fiscal Year
    
    Price
    
    Expiration
    
    PresentName
    
    Granted (#)
    
    2006
    
    ($/sh)
    
    Date
    
    Value ($)Common Stock Option PlansKathleen A. DeKam
    
    
    1,702
    
    
    
    68
    %
    
    $
    0.01
    
    
    
    12/05/2015
    
    
    
    (a
    )Patrick W. Kellick
    
    
    802
    
    
    
    32
    %
    
    $
    0.01
    
    
    
    12/05/2015
    
    
    
    (a
    )
 
 (a)
    
    At March 31, 2006, we believe the market value of common stock was $0, therefore no present
value is calculated. 72




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Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
 Number of Securities
    
    Value of UnexercisedUnderlying Unexercised
    
    In-the-Money Options/ SARs atShares Acquired
    
    Value
    
    Options/ SARs at 3/31/06
    
    3/31/06 Exercisable/Unexercisableon Exercise (#)
    
    Realized($)
    
    Exercisable/Unexercisable (#)
    
    ($)Common Stock
Option Plans (a)Stephen M. Dyott
    
    
    
    
    
    
    
    
    
    
    0/0
    
    
    
    (a
    )Kathleen A. DeKam
    
    
    
    
    
    
    
    
    
    
    402.25 / 1,702.00
    
    
    
    (a
    )Patrick W. Kellick
    
    
    
    
    
    
    
    
    
    
    675.00 / 1,027.00
    
    
    
    (a
    )Stuart R. Reeve
    
    
    
    
    
    
    
    
    
    
    380.25 / 90.00
    
    
    
    (a
    )Denis S. Longpré
    
    
    
    
    
    
    
    
    
    
    750.00/0
    
    
    
    (a
    )
 
 (a)
    
    Holdings common stock has not been registered or publicly traded and therefore, a public
market price of the stock is not available. At March 31, 2006 we believe the fair market
value to be $0 per share of Common Stock. Pension Plan
      Supplemental Executive Retirement Plan
  73




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Stephen M. Dyott
    
    $
    497,363Patrick W. Kellick
    
    $
    175,269Stuart R. Reeve
    
    $
    117,168
  Compensation of Directors
  Employment Agreements
     74




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Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  75




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ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  Shares ofHoldingsName
    
    Common Stock
    
    
    Percent of ClassMorgan Stanley Capital Partners III, L.P.
    
    
    22,497.9
    
    
    
    14.2MSCP 892 Investors, L.P.
c/o Metalmark Capital LLC
1177 Avenue of the Americas
New York, NY 10036Morgan Stanley Capital Investors, L.P.
    
    
    835.1
    
    
    
    0.5The Morgan Stanley Leveraged Equity Fund II, L.P.
    
    
    59,450.0
    
    
    
    37.61585 Broadway

New York, NY 10036First Plaza Group Trust
    
    
    17,000.0
    
    
    
    10.8c/o Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, PA 15258Directors and Named Executive Officers:Stephen M. Dyott
    
    
    14,970.0
    
    
    
    9.5Kathleen A. DeKam (a)
    
    
    1,809.0
    
    
    
    1.1Patrick W. Kellick (b)
    
    
    2,484.0
    
    
    
    1.6Stuart R. Reeve (c)
    
    
    2,610.0
    
    
    
    1.6Denis S. Longpré (d)
    
    
    750.0
    
    
    
    0.5Eric T. Fry
    
    
    
    
    
    
    Michael C. Hoffman
    
    
    
    
    
    
    Hwan-Yoon Chung
    
    
    
    
    
    
    All directors and executive officers as a
Group (eight persons, including Messrs. Dyott,
Kellick, Reeve and Longpré and Ms. DeKam) (e)
    
    
    22,623.0
    
    
    
    14.1
 
 (a)
    
    Includes 402.25 common stock options exercisable within 60 days.(b)
    
    Includes 675.00 common stock options exercisable within 60 days.(c)
    
    Includes 470.25 common stock options exercisable within 60 days.(d)
    
    Includes 750.00 common stock options exercisable within 60 days.(e)
    
    Includes 2,297.50 common stock options exercisable within 60 days. 76




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Relationship With Metalmark and Morgan Stanley
   Stockholders Agreement
  Tax Sharing Agreement
  Transactions With Management and Others
  77




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fiscal Year Ended March 31,2006
    
    
    2005(In thousands)Audit fees (a)
    
    $
    428
    
    
    
    406Audit-related fees (b)
    
    
    70
    
    
    
    75Tax fees (c)
    
    
    42
    
    
    
    121All other fees
    
    
    
    
    
    
    Total fees
    
    $
    540
    
    
    
    602
 
 (a)
    
    Audit fees consist of fees for professional services related to the audit of our
consolidated financial statements, review of financial statements included in our
quarterly reports, comfort letters and other services related to SEC matters, as well as
services that are normally provided by the independent auditor in connection with
statutory filings or engagements.(b)
    
    Audit-related fees consist of employee pension and benefit plan audits.(c)
    
    Tax fees include the review of federal, state, local and Canadian tax returns as
well as tax planning and consultation on new tax legislation, regulations, rulings and
developments. Board of Directors Pre-Approval Policies
   78




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as a part of this Report:
 Reports of Independent Registered Public Accounting Firm
 1 and 2.
    
    Financial Statements: The following Consolidated Financial Statements of
Holdings are included in Part II, Item 8:Consolidated balance sheets  March 31, 2006 and 2005For the Years Ended March 31, 2006, 2005 and 2004:Consolidated statements of operationsConsolidated statements of stockholders deficitConsolidated statements of cash flowsNotes to Consolidated Financial StatementsFinancial 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, 2006, 2005 and 2004 and as of March 31, 2006 and 2005
    
    
    82II.
    
    Valuation and qualifying accounts
    
    
    88
  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####10.2
    
    Employment Agreement, dated as of October 19, 1998, between Graphics and Stephen
M. Dyott***10.3
    
    Severance Letter, dated August 1, 1999, between Graphics and Stuart Reeve***10.4
    
    Severance Letter, dated October 3, 1996, between Graphics and Patrick Kellick****10.4 (a)
    
    Amendment to Severance Letter, dated August 30, 2004 between Graphics and Patrick
Kellick *****10.5
    
    Severance Letter, dated January 14, 2000, between Graphics and Denis S. Longpré10.6
    
    Severance Letter, dated November 19, 2000, between Graphics 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,
 79




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Exhibit No.
    
    DescriptionL.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##10.19
    
    Executive Incentive Compensation Program 12.1
    
    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
 80




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##### Table of Contents



*
    
    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.##
    
    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.***
    
    Incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended March 31, 2000 -
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 Annual Report on Form 10-K for the fiscal year ended March 31, 2004 
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 September 1, 2004  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.
 81




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 March 31,2006
    
    
    2005AssetsCurrent assets:Receivable from subsidiary
    
    $
    1,134
    
    
    
    1,299Total assets
    
    $
    1,134
    
    
    
    1,299Liabilities and Stockholders DeficitLiabilities of subsidiary in excess of assets
    
    $
    230,830
    
    
    
    214,003Income taxes payable
    
    
    36
    
    
    
    36Total liabilities
    
    
    230,866
    
    
    
    214,039Commitments and contingenciesStockholders deficit:Common stock, voting, $.01 par value, 5,852,223
shares authorized,158,205 and 160,067 shares
issued and outstanding at March 31, 2006 and
2005, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    2,038
    
    
    
    2,203Accumulated deficit
    
    
    (209,760
    )
    
    
    (195,183
    )Other accumulated comprehensive loss, net of tax
    
    
    (22,012
    )
    
    
    (19,762
    )Total stockholders deficit
    
    
    (229,732
    )
    
    
    (212,740
    )Total liabilities and stockholders deficit
    
    $
    1,134
    
    
    
    1,299
  82




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Year ended March 31,2006
    
    
    2005
    
    
    2004Equity in loss of subsidiary
    
    $
    14,577
    
    
    
    25,667
    
    
    
    28,841Net loss
    
    $
    14,577
    
    
    
    25,667
    
    
    
    28,841
  83




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Year ended March 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities
    
    $
    
    
    
    
    
    
    
    
    Cash flows from investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities
    
    
    
    
    
    
    
    
    
    
    Net change in cash
    
    $
    
    
    
    
    
    
    
    
    
  84




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 Description of ACG Holdings, Inc.
    1.
    
    Basis of PresentationThe accompanying condensed financial statements (parent company only) include the accounts of
Holdings and its investments in Graphics accounted for in accordance with the equity method,
and do not present the financial statements of Holdings and its subsidiary on a consolidated
basis. These parent company only financial statements should be read in conjunction with the
ACG Holdings, Inc. consolidated financial statements. The Acquisition was accounted for
under the purchase method of accounting applying the provisions of Accounting Principles
Board Opinion No. 16 (APB 16).2.
    
    GuaranteesAs set forth in ACG Holdings, Inc. consolidated financial statements, a substantial portion
of Graphics long-term obligations has been guaranteed by Holdings.Holdings has guaranteed Graphics indebtedness under the 2005 Credit Agreement, defined
below, which guarantee is secured by a pledge of all of Graphics stock. Borrowings under
the 2005 Credit Agreement are secured by substantially all assets of Graphics. Holdings is
restricted under its guarantee of the 2005 Credit Agreement from, among other things,
entering into mergers, acquisitions, incurring additional debt or paying cash dividends.On July 3, 2003, Graphics issued $280 million of 10% Senior Second Secured Notes Due 2010
(the 10% Notes) bearing interest at 10% and maturing June 15, 2010. The 10% Notes are
fully and unconditionally guaranteed on a senior basis by Holdings, and by all future
domestic subsidiaries of Graphics.3.
    
    Dividends from Subsidiaries and InvesteesNo cash dividends were paid to Holdings from any consolidated subsidiaries, unconsolidated
subsidiaries or investees accounted for by the equity method during the periods reflected in
these condensed financial statements.
 85




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 4.
    
    Tax Sharing AgreementHoldings and Graphics (collectively the Company) are parties to an amended and restated tax
sharing agreement effective July 27, 1989. Under the terms of the agreement, Graphics (the
income from which is consolidated with that of Holdings for U. S. federal income tax
purposes) is liable to Holdings for amounts representing U. S. federal income taxes
calculated on a stand-alone basis. Each year Graphics pays to Holdings the lesser of (i)
Graphics U. S. federal tax liability computed on a stand-alone basis and (ii) its allocable
share of the U. S. federal tax liability of the consolidated group. Accordingly, Holdings is
not currently reimbursed for the separate tax liability of Graphics to the extent Holdings
losses reduce the consolidated tax liability. Reimbursement for the use of such Holdings
losses will occur when the losses may be used to offset Holdings income computed on a
stand-alone basis. Graphics has also agreed to reimburse Holdings in the event of any
adjustment (including interest or penalties) to consolidated income tax returns based upon
Graphics obligations with respect thereto. No reimbursement obligation currently exists
between Graphics and Holdings. Also under the terms of the tax sharing agreement, Holdings
has agreed to reimburse Graphics for refundable U. S. federal income taxes equal to an amount
which would be refundable to Graphics had Graphics filed separate U. S. federal income tax
returns for all years under the agreement. Graphics and Holdings have also agreed to treat
foreign, state and local income and franchise taxes for which there is consolidated or
combined reporting in a manner consistent with the treatment of U. S. federal income taxes as
described above.5.
    
    Refinancing TransactionsJuly 3, 2003 RefinancingOn July 3, 2003, the Company sold $280 million aggregate principal amount of its 10% Senior
Second Secured Notes Due 2010 (the 10% Notes) as part of a recapitalization involving
Graphics, Holdings and certain affiliates of the Company and also entered into a $70 million
senior secured revolving credit facility maturing on July 3, 2008, with a syndicate of
lenders (the Revolving Credit Facility), (collectively the 2003 Refinancing). Graphics
repaid substantially all existing indebtedness (excluding capital leases) through:
 
    
    the repayment of all amounts outstanding under the old bank credit agreement,
and the concurrent termination of all related commitments thereunder;
    
    the issuance of letters of credit under the Revolving Credit Facility to replace
outstanding letters of credit; and
    
    effective August 3, 2003, the redemption of all of the 123/4% Senior Subordinated
Notes Due 2005 (the 123/4% Notes), at a redemption price equal to 100% of their
aggregate principal amount, plus accrued and unpaid interest thereon.
 In addition, the Company repurchased, and concurrently retired, all 5,223 outstanding shares
of preferred stock of Holdings, and canceled all outstanding options to purchase shares of
the preferred stock of Holdings held by certain key officers, for an aggregate purchase price
of $56.9 million. The canceled options would have been exercisable for 582 shares of
preferred stock of Holdings.The 10% Notes mature June 15, 2010, with interest payable semi-annually on June 15 and
December 15. The 10% Notes are redeemable at the option of Graphics in whole or in part on
June 15, 2007, at 105% of the principal amount, plus accrued interest. The redemption price
will decline each year after 2007 and will be 100% of the principal amount of the 10% Notes,
plus accrued interest, beginning on June 15, 2009. Upon a change of control, Graphics will
be required to make an offer to purchase the 10% Notes. The purchase price will equal 101%
of the principal amount of the 10% Notes on the date of purchase, plus accrued interest.In addition, before June 15, 2006, Graphics may redeem up to 35% of the aggregate principal
amount of the 10% Notes with the proceeds of sales of certain kinds of capital stock at 110%
of its principal amount, plus accrued interest to the redemption date. Graphics may make
such redemption only if, after any such redemption, at least $150 million aggregate principal
amount of the 10% Notes remains outstanding.
 86




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##### Table of Contents



SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACG HOLDINGS, INC.
 May 5, 2005 Refinancing
  
    
    a $55 million revolving credit facility ($40 million of which may be used for
letters of credit), which is not subject to a borrowing base limitation, maturing on
December 15, 2009 (the 2005 Revolving Credit Facility); and
    
    a $35 million non-amortizing term loan facility maturing on December 15, 2009
(the 2005 Term Loan Facility).
     
    
    change the nature of its business;
    
    pay dividends or make other distributions;
    
    make capital expenditures, other investments or acquisitions;
    
    enter into transactions with affiliates;
    
    dispose of assets or enter into mergers or other business combinations;
    
    incur or guarantee additional debt;
    
    repay debt or repurchase or redeem equity interests and debt;
    
    place restrictions on dividends, distributions or transfers to the Company or
Holdings from its subsidiaries;
    
    create or permit to exist certain liens; and
    
    pledge assets or engage in sale-leaseback transactions.
 87




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS  ACG HOLDINGS, INC.
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    Expense /
    
    Write-
    
    Other
    
    End ofof Period
    
    (Income)
    
    offs
    
    Adjustments
    
    Period(in thousands)Fiscal 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
    
    $
    54,772
    
    
    
    
    
    
    
    
    
    
    
    7,125
    (a)
    
    
    61,897Fiscal 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
    
    $
    45,185
    
    
    
    
    
    
    
    
    
    
    
    9,587
    (b)
    
    
    54,772Fiscal Year ended March 31, 2004Allowance for doubtful accounts
    
    $
    2,524
    
    
    
    998
    
    
    
    (689
    )
    
    
    20
    
    
    $
    2,853Reserve for inventory obsolescence
    
    $
    385
    
    
    
    (20
    )
    
    
    (80
    )
    
    
    
    
    
    $
    285Income tax valuation allowance
    
    $
    26,815
    
    
    
    12,800
    (c)
    
    
    
    
    
    
    5,570
    (b)
    
    $
    45,185
 
 (a)
    
    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 minimum
pension liability.(b)
    
    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 minimum pension liability.(c)
    
    The increase in the valuation allowance relates to a reduction in projected future use of
deferred tax assets. 88




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##### Table of Contents



SIGNATURES
  ACG Holdings, Inc.
 American Color Graphics, Inc.
 Date/s/

Stephen M. Dyott
    
    June 28, 2006Stephen M. DyottChairman, 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
    
    June 28, 2006Patrick W. Kellick
    
    Chief Financial Officerand Secretary(Principal Financial Officer)/s/ Linda G. Plisco
    
    Assistant Corporate Controller
    
    June 28, 2006Linda G. Plisco
    
    (Principal Accounting Officer)/s/ Michael C. Hoffman
    
    Director
    
    June 28, 2006Michael C. Hoffman/s/ Eric T. Fry
    
    Director
    
    June 28, 2006Eric T. Fry/s/ Hwan-Yoon Chung
    
    Director
    
    June 28, 2006Hwan-Yoon Chung
 89




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##### Table of Contents



ACG HOLDINGS, INC.
Annual Report on Form 10-K
Fiscal Year Ended March 31, 2006
 Index to Exhibits
 Exhibit No.
    
    Description10.5
    
    Severance Letter, dated January 14, 2000, between Graphics and Denis S. Longpré12.1
    
    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
 90