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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission file number 33-97090

ACG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

AMERICAN COLOR GRAPHICS, INC.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        ACG Holdings, Inc. has 163,411 shares outstanding of its Common Stock, $.01 Par Value, as of January 31, 2003 (all of which are privately owned and not traded on a public market).

INDEX

2

ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)

See accompanying notes to condensed consolidated financial statements.

3

ACG HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par values and liquidation preference)

See accompanying notes to condensed consolidated financial statements.

4

ACG HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

5

ACG HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

6

ACG HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

7

ACG HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Description of the Company

        ACG Holdings, Inc. ("Holdings") has no operations or significant assets other than its investment in American Color Graphics, Inc. ("Graphics"), (collectively the "Company"). Holdings owns 100% of the outstanding voting shares of Graphics. The two business segments of the commercial printing industry in which the Company operates are (i) print and (ii) premedia services conducted by its American Color division ("American Color").

1.    Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and are in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The operating results for the three and nine-month periods ended December 31, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2003. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 2002 and the Company's Post-Effective Amendment No. 8 to Registration Statement No. 33-97090 on Form S-1.

        The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.

2.    Inventories

        The components of inventories are as follows (in thousands):

3.    Notes Payable and Long-Term Debt

        The Company is currently in compliance with the financial covenants contained in the bank credit agreement, as amended.

4.    Comprehensive Income

        Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains or losses on available-for-sale securities to be included in comprehensive income. Total

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comprehensive income for the three and nine months ended December 31, 2002 and 2001 are as follows (in thousands):

5.    Commitments and Contingencies

        The Company has employment agreements with one of its principal officers and four other employees. Such agreements provide for minimum salary levels as well as for incentive bonuses, which are payable if specified management goals are attained. In addition, the Company has consulting agreements with two former employees. The aggregate commitment for future compensation at December 31, 2002, excluding bonuses, was approximately $2.5 million.

        In the quarter ended December 31, 1997, the Company entered into multi-year contracts to purchase a portion of the Company's raw materials to be used in its normal operations. In connection with such purchase agreements, pricing for a portion of the Company's raw materials is adjusted for certain movements in market prices, changes in raw material costs and other specific price increases. The Company is deferring certain contractual provisions over the life of the contracts, which are being recognized as the purchase commitments are achieved. The amount deferred at December 31, 2002 is $30.6 million and is included within Other liabilities in the Company's condensed consolidated balance sheet.

        Graphics, together with over 300 other persons, has been designated by the U.S. Environmental Protection Agency as a potentially responsible party (a "PRP") under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA," also known as "Superfund") at one Superfund site. Although liability under CERCLA may be imposed on a joint and several basis and the Company's ultimate liability is not precisely determinable, the PRPs have agreed that Graphics' share of removal costs is 0.46% and therefore Graphics believes that its share of the anticipated remediation costs at such site will not be material to its business or financial condition. Based upon an analysis of Graphics' volumetric share of waste contributed to the site and the agreement among the PRPs, the Company maintains a reserve of approximately $0.1 million in connection with this liability on its condensed consolidated balance sheet at December 31, 2002. The Company believes this amount is adequate to cover such liability.

        The Company has been named as a defendant in several legal actions arising from its normal business activities. In the opinion of management, any liabilities that may arise from such actions will not, individually or in the aggregate, have a material adverse effect on the condensed consolidated financial statements of the Company.

6.    Restructuring Costs

        In January 2002, the Company's Board of Directors approved a restructuring plan for the print and premedia services segments designed to improve asset utilization, operating efficiency and profitability. This plan included the closing of a print facility in Hanover, Pennsylvania and a premedia services facility in West Palm Beach, Florida, the downsizing of a Buffalo, New York premedia services

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facility and the elimination of certain administrative personnel. These combined actions resulted in the elimination of 189 positions within the Company.

        As a result of this plan, the Company recorded a pre-tax restructuring charge of approximately $8.6 million in the fourth quarter of the fiscal year ended March 31, 2002. This charge was classified within restructuring costs and other special charges in the consolidated statement of income in the fiscal year ended March 31, 2002. The cost of this restructuring plan was accounted for in accordance with the guidance set forth in Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The restructuring charge included severance and related termination benefits, lease termination costs primarily related to future lease commitments, equipment deinstallation costs directly associated with the disassembly of certain printing presses and other equipment, and other costs primarily including legal fees, site clean-up costs and the write-off of certain press related parts that provide no future use or functionality.

        The following table summarizes the activity related to this restructuring plan for the nine months ended December 31, 2002 (in thousands):

        As of December 31, 2002, the Company believes the restructuring reserve of approximately $2.3 million is adequate. The process of closing two facilities and downsizing one facility, including equipment deinstallation and relocation of that equipment to other facilities within the Company, was completed by March 31, 2002. The Company anticipates that approximately $0.6 million of the remaining costs will be paid before March 31, 2003, and the remainder of the costs will be paid by March 31, 2004. These costs will be funded through cash generated from operations and borrowings under the Company's revolving credit facility.

7.    Industry Segment Information

        The Company has significant operations principally in two industry segments: (1) print and (2) premedia services. All of the Company's print business and assets are attributed to the print division and all of the Company's premedia services business and assets are attributed to the American Color division. The Company's digital visual effects operations ("Digiscope") and corporate expenses have been aggregated and do not constitute a reportable segment of the Company as contemplated by Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information".

        The Company has two reportable segments: (1) print and (2) premedia services. The print business produces retail advertising inserts, comics (newspaper Sunday comics, comic insert advertising and comic books) and other publications. The Company's premedia services business assists customers in the capture, manipulation, transmission and distribution of images. The majority of the premedia services work leads to the production of four-color separations in a format appropriate for use by printers.

        The accounting policies of each of the segments are the same as those used by the Company in its consolidated financial statements. The Company evaluates performance based on segment EBITDA which is defined as earnings before net interest expense, income tax expense, depreciation, amortization

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and other expense (income). 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. Certain reclassifications have been made to prior year balances to conform with the current year presentation.

        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.

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8.    Impact of Recently Issued Accounting Pronouncements

        Goodwill was amortized on a straight-line basis by business segment through the fiscal year ended March 31, 2002. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), is effective for fiscal years beginning after December 15, 2001. In compliance with this pronouncement, the Company adopted SFAS 142 on April 1, 2002. For the nine-month period ended December 31, 2001, excluding the effect of goodwill amortization, operating income and net income would have been $36.6 million and $11.9 million, respectively. In the quarter ended December 31, 2001, excluding the effect of goodwill amortization, operating income and net income would have been $12.5 million and $4.4 million, respectively. Application of the non-amortization provisions of SFAS 142 is expected to result in an increase in pre-tax income of approximately $2.8 million in the fiscal year ending March 31, 2003. In the quarter ended September 30, 2002, the Company performed its initial assessment of impairment as of April 1, 2002 and noted no impairment. The Company performed the first of the required annual impairment tests of goodwill as of December 31, 2002 and noted no impairment.

        In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which provides clarifications of certain implementation issues within Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"), along with additional guidance on the accounting for the impairment or disposal of long-lived assets. SFAS 144 supercedes SFAS 121 and applies to all long-lived assets. SFAS 144 develops one accounting model (based on the model in SFAS 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. In compliance with this pronouncement, the Company adopted SFAS 144 on April 1, 2002. The adoption of SFAS 144 has not had a material effect on the Company's results of operations or financial position.

        In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt" ("SFAS 4"), which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses. SFAS 145 amends Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13") to require that certain

12

lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The provisions of SFAS 145 are effective for financial statements issued for fiscal years beginning after May 15, 2002, and interim periods within those fiscal years. The Company does not anticipate that the adoption of SFAS 145 will have a material effect on the Company's results of operations or financial position.

        In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost (as generally defined in EITF 94-3) was recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. In compliance with this pronouncement, the Company adopted SFAS 146 on January 1, 2003. The Company does not anticipate that the adoption of SFAS 146 will have a material effect on the Company's results of operations or financial position.

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ACG HOLDINGS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Special Note Regarding Forward Looking Statements

        This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Discussions containing such forward-looking statements may be found in this section, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of many factors outside of our control, including, but not limited to:

•

a failure to achieve improvements in operating efficiency or income from the consolidation of our operations,



•

fluctuations in the cost of paper and other 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,



•

our financial condition and liquidity,



•

the general condition of the United States economy,



•

demand for our products and services, and



•

the matters set forth in this Report generally.

        Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not undertake, and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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        The following table, including certain reclassifications in prior year results to conform with current year presentation, summarizes our results of operations for the three months ended December 31, 2002 (the "2002 Three-Month Period"), the three months ended December 31, 2001 (the "2001 Three-Month Period"), the nine months ended December 31, 2002 (the "2002 Nine-Month Period") and the nine months ended December 31, 2001 (the "2001 Nine-Month Period"):

(a)

Other operations primarily include revenues and expenses associated with Digiscope, our digital visual effects operation.

(b)

Also includes corporate general and administrative expenses, and amortization expense.

Print

        Sales.    In the 2002 Nine-Month Period, print sales decreased $9.5 million to $354.6 million from $364.1 million in the 2001 Nine-Month Period. The decrease in the 2002 Nine-Month Period is primarily attributable to the impact of decreased paper prices and an increase in customer supplied paper. These decreases were offset in part by an approximate 7% increase in print production volume.

        In the 2002 Three-Month Period, print sales decreased $3.0 million to $127.0 million from $130.0 million in the 2001 Three-Month Period. The decrease in the 2002 Three-Month Period is primarily attributable to the impact of decreased paper prices, an increase in customer supplied paper and certain changes in product and customer mix. These decreases were offset in part by an approximate 6% increase in print production volume.

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        Gross Profit.    In the 2002 Nine-Month Period, print gross profit decreased $1.8 million to $45.7 million from $47.5 million in the 2001 Nine-Month Period. In the 2002 Nine-Month Period, print gross margin decreased to 12.9% from 13.1% in the 2001 Nine-Month Period. The decrease in gross profit includes certain expenses incurred during the 2002 Nine-Month Period associated with the installation and start-up of 12 printing presses including seven presses relocated from our other print facilities, the impact of competitive pricing and certain changes in product and customer mix. These decreases were offset in part by the increased print production volume. The decrease in gross margin includes these items offset in part by the impact of decreased paper prices and increased levels of customer supplied paper reflected in sales.

        In the 2002 Three-Month Period, print gross profit decreased $3.3 million to $15.0 million from $18.3 million in the 2001 Three-Month Period. In the 2002 Three-Month Period, print gross margin decreased to 11.8% from 14.0% in the 2001 Three-Month Period. The decrease in gross profit includes certain expenses incurred during the 2002 Three-Month Period associated with the installation and start-up of 12 printing presses including seven presses relocated from our other print facilities, the impact of competitive pricing and certain changes in product and customer mix. These changes were offset in part by the increased print production volume. The decrease in gross margin includes these items, offset in part by the impact of decreased paper prices and increased levels of customer supplied paper reflected in sales.

        Selling, General and Administrative Expenses.    In the 2002 Nine-Month Period, print selling, general and administrative expenses increased $2.5 million to $16.4 million, or 4.6% of print sales, from $13.9 million, or 3.8% of print sales in the 2001 Nine-Month Period. The increase in the 2002 Nine-Month Period includes the impact of increased selling and selling related expenses and various other employee related administrative cost increases.

        In the 2002 Three-Month Period, print selling, general and administrative expenses increased $0.5 million to $6.2 million, or 4.9% of print sales, from $5.7 million, or 4.4% of print sales in the 2001 Three-Month Period. The increase in the 2002 Three-Month Period includes the impact of increased selling and selling related expenses and various other employee related administrative cost increases.

        Operating Income.    As a result of the factors discussed above, print operating income decreased to $29.3 million in the 2002 Nine-Month Period from $33.6 million in the 2001 Nine-Month Period and decreased to $8.8 million in the 2002 Three-Month Period from $12.6 million in the 2001 Three-Month Period.

American Color (Premedia Services)

        Sales.    In the 2002 Nine-Month Period, American Color's sales decreased $9.3 million to $44.9 million from $54.2 million in the 2001 Nine-Month Period. The decrease in the 2002 Nine-Month Period was primarily the result of reduced premedia production volume associated with weak market conditions in this segment, including the impact of certain premedia facility closures.

        In the 2002 Three-Month Period, American Color's sales decreased $1.9 million to $14.9 million from $16.8 million in the 2001 Three-Month Period. The decrease in the 2002 Three-Month Period was primarily the result of reduced premedia production volume associated with weak market conditions in this segment, including the impact of certain premedia facility closures.

        Gross Profit.    In the 2002 Nine-Month Period, American Color's gross profit decreased $2.0 million to $11.5 million from $13.5 million in the 2001 Nine-Month Period. In the 2002 Nine-Month Period, American Color's gross margin increased to 25.6% from 24.9% in the 2001 Nine-Month Period. The decrease in gross profit for the 2002 Nine-Month Period is primarily the result of the reduced premedia production volume, offset in part by reduced manufacturing costs related to various cost containment programs and certain premedia facility closures.

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        In the 2002 Three-Month Period, American Color's gross profit increased $0.2 million to $4.1 million from $3.9 million in the 2001 Three-Month Period. In the 2002 Three-Month Period, American Color's gross margin increased to 27.8% from 23.0% in the 2001 Three-Month Period. The increases in gross profit and gross margin for the 2002 Three-Month Period are primarily the result of reduced manufacturing costs related to various cost containment programs and certain premedia facility closures. These increases were offset in part by reduced premedia production volume.

        Selling, General and Administrative Expenses.    In the 2002 Nine-Month Period, American Color's selling, general and administrative expenses decreased $1.3 million to $6.2 million, or 13.8% of American Color's sales, from $7.5 million, or 13.9% of American Color's sales in the 2001 Nine-Month Period. The decrease in the 2002 Nine-Month Period is primarily attributable to decreased selling expenses.

        In the 2002 Three-Month Period, American Color's selling, general and administrative expenses decreased $0.7 million to $1.8 million, or 12.3% of American Color's sales, from $2.5 million, or 14.8% of American Color's sales in the 2001 Three-Month Period. The decrease in the 2002 Three-Month Period is primarily attributable to decreased selling expenses.

        Operating Income.    As a result of the factors discussed above, American Color's operating income decreased to $5.3 million in the 2002 Nine-Month Period from $6.0 million in the 2001 Nine-Month Period and increased to $2.3 million in the 2002 Three-Month Period from $1.4 million in the 2001 Three-Month Period.

Other Operations

        Other operations consist primarily of revenues and expenses associated with Digiscope and corporate general, administrative and other expenses, including amortization expense. In the 2002 Nine-Month Period, operating losses from other operations improved to a loss of $3.6 million from a loss of $5.3 million in the 2001 Nine-Month Period. In the 2002 Three-Month Period, operating losses from other operations improved to a loss of $1.3 million from a loss of $2.2 million in the 2001 Three-Month Period. Included in the 2002 Nine-Month Period is a reduction in goodwill amortization expense of $2.3 million, offset in part by increased corporate general and administrative expenses. Included in the 2002 Three-Month Period is a reduction in goodwill amortization expense of $0.8 million and decreased operating losses at Digiscope of $0.3 million. These operating loss reductions during the 2002 Three-Month Period were offset in part by increased corporate general and administrative expenses. See discussion of goodwill amortization below.

        Goodwill was amortized on a straight-line basis by business segment through the fiscal year ended March 31, 2002 ("Fiscal Year 2002"). Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), is effective for fiscal years beginning after December 15, 2001. In compliance with this pronouncement, we adopted SFAS 142 on April 1, 2002. As a result, we did not amortize goodwill during the 2002 Nine-Month Period. In the 2001 Nine-Month Period, goodwill amortization expense within other operations was $2.3 million and in the 2001 Three-Month Period goodwill amortization expense within other operations was $0.8 million. Application of the non-amortization provisions of SFAS 142 is expected to result in an increase in pre-tax income of approximately $2.8 million in fiscal year ending March 31, 2003 ("Fiscal Year 2003"). In the quarter ended September 30, 2002, we performed the initial assessment of impairment as of April 1, 2002 and noted no impairment. We performed the first of the required annual impairment tests of goodwill as of December 31, 2002 and noted no impairment.

Interest Expense

        In the 2002 Nine-Month Period, interest expense decreased to $21.5 million from $22.7 million in the 2001 Nine-Month Period and in the 2002 Three-Month Period interest expense decreased to

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$7.1 million from $7.3 million in the 2001 Three-Month Period. This decrease reflects both lower levels of indebtedness and lower borrowing costs.

Other, Net

        In the 2002 Nine-Month Period, Other, net increased to expense of $0.5 million from expense of $0.3 million in the 2001 Nine-Month Period and in the 2002 Three-Month Period, Other, net decreased to expense of less than $0.1 million from expense of $0.3 million in the 2001 Three-Month Period.

Income Taxes

        In the 2002 Nine-Month Period, income tax expense decreased to $1.3 million from $1.7 million in the 2001 Nine-Month Period. In the 2002 Three-Month Period income tax expense decreased to $0.4 million from $0.6 million in the 2001 Three-Month Period. The decrease in both the 2002 Nine-Month Period and the 2002 Three-Month Period is primarily due to lower amounts of U.S. and foreign taxable income, offset in part by a decreased reduction in the valuation allowance. Management continues to evaluate the need for a valuation allowance for deferred tax assets. In the 2002 Nine-Month Period and the 2002 Three-Month Period, there have been no changes in circumstances that would cause a change in judgment with respect to the realization of deferred tax assets in future years.

Net Income

        As a result of the factors discussed above, net income decreased to $7.8 million in the 2002 Nine-Month Period from $9.6 million in the 2001 Nine-Month Period and in the 2002 Three-Month Period, net income decreased to $2.2 million from $3.6 million in the 2001 Three-Month Period.

Liquidity and Capital Resources

        We have a $145 million credit facility with a syndicate of lenders (the "Bank Credit Agreement") that provides for:

(1)

a $25 million amortizing term loan facility maturing on March 31, 2004 (the "A Term Loan Facility"),



(2)

a $50 million amortizing term loan facility maturing on March 31, 2005 (the "B Term Loan Facility"), and



(3)

a revolving credit facility providing for a maximum of $70 million borrowing availability, subject to certain customary conditions, maturing on March 31, 2004, including up to $40 million for letters of credit (the "Revolving Credit Facility").

        At December 31, 2002, we had total borrowings and letters of credit outstanding under the Revolving Credit Facility of approximately $30.9 million and additional borrowing availability of approximately $17.2 million.

        At December 31, 2002, $5.3 million of the A Term Loan Facility and $35.0 million of the B Term Loan Facility remained outstanding. The scheduled A Term Loan Facility and B Term Loan Facility payments due over the remainder of Fiscal Year 2003 are $1.1 million and $0.1 million, respectively. Scheduled repayments of existing capital lease obligations and other senior indebtedness during the remainder of Fiscal Year 2003 are approximately $1.4 million and $1.1 million, respectively.

        During the 2002 Nine-Month Period, we repurchased in the open market, an aggregate principal amount of $1.7 million of our 12³/4% Senior Subordinated Notes Due 2005 (the "Notes") for approximately $1.7 million.

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        During the 2002 Nine-Month Period, we used net cash provided by operating activities of $27.9 million, net revolver borrowings of $10.7 million, the $4.5 million cash balance from March 31, 2002 and $0.3 million of proceeds from the sale of fixed assets to fund the following expenditures:

(1)

$18.5 million in principal repayments of indebtedness and financing costs (including capital lease obligations of $6.9 million and repurchase of the Notes of $1.7 million), and



(2)

$24.9 million in cash capital expenditures.

        Our cash-on-hand of approximately $4.1 million is presented net of outstanding checks within trade accounts payable at December 31, 2002. Accordingly, cash is presented at a balance of $0 in the December 31, 2002 balance sheet. We plan to continue our program of upgrading our print and premedia equipment and currently anticipate that full year Fiscal Year 2003 cash capital expenditures will be approximately $28.2 million and equipment acquired under capital leases will be approximately $0.8 million.

        Our primary sources of liquidity are cash provided by operating activities and borrowings under the Revolving Credit Facility. We anticipate that our primary needs for liquidity will be to conduct our business, meet our debt service requirements, make capital expenditures and, if we elect, redeem, repay or repurchase outstanding indebtedness, to the extent permitted by our Bank Credit Agreement.

        At December 31, 2002, we had total indebtedness, including capital lease obligations, of $246.2 million, as compared to $256.0 million at December 31, 2001, representing a net reduction in total indebtedness of $9.8 million. Of the total debt outstanding at December 31, 2002, $51.0 million (excluding letters of credit) was outstanding under the Bank Credit Agreement at a weighted-average interest rate of 4.1%. Indebtedness under the Bank Credit Agreement bears interest at floating rates. At December 31, 2002, we had indebtedness other than obligations under the Bank Credit Agreement of $195.2 million (including $170.1 million of the Notes). We are currently in compliance with the financial covenants contained in the Bank Credit Agreement, as amended.

        A significant portion of Graphics' long-term obligations, including indebtedness under the Bank Credit Agreement and the Notes, has been fully and unconditionally guaranteed by Holdings. Holdings is subject to certain restrictions under its guarantee of indebtedness under the Bank Credit Agreement, including, among other things, restrictions on mergers, acquisitions, incurrence of additional debt and payment of cash dividends.

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EBITDA

(a)

Other operations include revenues and expenses associated with our digital visual effects business and corporate general and administrative expenses.

        EBITDA is presented and discussed because management believes that investors regard EBITDA as a key measure of a leveraged company's performance and ability to meet its future debt service requirements. "EBITDA" is defined as earnings before net interest expense, income tax expense, depreciation, amortization, and other expense (income). "EBITDA Margin" is defined as EBITDA as a percentage of net sales. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to net income (or any other measure of performance under generally accepted accounting principles) as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Certain covenants in the Senior Subordinated Notes Indenture and the Bank Credit Agreement are based on EBITDA, subject to certain adjustments.

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ACG HOLDINGS, INC.

Part I

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

        There have been no significant changes since March 31, 2002. Reference is made to Item 7A (Quantitative and Qualitative Disclosures About Market Risk) disclosure in our Form 10-K filed for the fiscal year ended March 31, 2002.

Item 4. Controls and Procedures.

        As of December 31, 2002, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company's management including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2002.

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ACG HOLDINGS, INC.
Part II
Other Information

Item 1.    Legal Proceedings.

        There have been no significant changes since March 31, 2002. Reference is made to Item 3 (Legal Proceedings) disclosure in our Form 10-K filed for the fiscal year ended March 31, 2002.

Item 2.    Changes in Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

        During the third quarter of Fiscal Year 2003, certain officers exercised options to purchase an aggregate of 20,012 shares of Holdings' common stock for $.01/share. The securities that were sold were exempt from registration on the basis that all such officers are "accredited investors" as defined by the rules of the Securities Act of 1933, as amended.

        During the third quarter of fiscal year ended March 31, 2000, certain officers exercised options to purchase an aggregate of 1,106 shares of Holdings' common stock for $.01/share. The securities that were sold were exempt from registration on the basis that all such officers are "accredited investors" as defined by the rules of the Securities Act of 1933, as amended.

Item 6.    Exhibits and Reports on Form 8-K.

(a)

Exhibits

(b)

Reports on Form 8-K

        None filed in the quarter ended December 31, 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, Holdings and Graphics have duly caused this Report to be signed on their behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, Stephen M. Dyott, Chief Executive Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of ACG Holdings, Inc. and American Color Graphics, Inc., collectively (the "Company");

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

24

CERTIFICATIONS

I, Patrick W. Kellick, Chief Financial Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of ACG Holdings, Inc. and American Color Graphics, Inc., collectively (the "Company");

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

25

EXHIBIT INDEX

26

QuickLinks

Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 6. Exhibits and Reports on Form 8-K.