ACG Holdings, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006


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.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		62-1395968
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


100 Winners Circle, Brentwood, Tennessee		37027
(Address of Principal Executive Offices)		(Zip Code)

(615) 377-0377
(Registrant’s Telephone Number, Including Area Code)

AMERICAN COLOR GRAPHICS, INC.

(Exact Name of Registrant as Specified in Its Charter)


New York		16-1003976
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


100 Winners Circle, Brentwood, Tennessee		37027
(Address of Principal Executive Offices)		(Zip Code)

(615) 377-0377
(Registrant’s Telephone Number, Including Area Code)

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x

ACG Holdings, Inc. has 158,205 shares outstanding of its Common Stock, $.01 Par Value, as of October 31, 2006 (all of which are privately owned and not traded on a public market).

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ACG HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(In thousands)


	September 30, 2006			March 31, 2006
	(Unaudited)
Assets
Current assets:
Cash	$	—			—
Receivables:
Trade accounts, less allowance for doubtful accounts of $1,184 and $1,275 at September 30, 2006 and March 31, 2006, respectively		50,865			41,080
Other		2,907			3,463

Total receivables		53,772			44,543
Inventories		7,385			7,714
Deferred income taxes		1,409			1,409
Prepaid expenses and other current assets		4,894			4,733

Total current assets		67,460			58,399
Property, plant and equipment		295,952			287,270
Less accumulated depreciation		(209,722	)		(199,504	)

Net property, plant and equipment		86,230			87,766
Excess of cost over net assets acquired		66,548			66,548
Other assets		19,991			18,789

Total assets	$	240,229			231,502

See accompanying notes to condensed consolidated financial statements.

ACG HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par values)


	September 30, 2006			March 31, 2006
	(Unaudited)
Liabilities and Stockholders’ Deficit
Current liabilities:
Current installments of capitalized leases	$	3,950			3,731
Trade accounts payable		37,422			33,845
Accrued expenses		31,351			36,367
Income tax payable		218			160

Total current liabilities		72,941			74,103
Long-term debt and capitalized leases, excluding current installments		341,759			320,553
Deferred income taxes		3,399			3,866
Other liabilities		59,198			62,712

Total liabilities		477,297			461,234
Commitments and contingencies (note 9)
Stockholders’ deficit:
Common stock, voting, $.01 par value, 5,852,223 shares authorized, 158,205 shares issued and outstanding at September 30, 2006 and March 31, 2006		2			2
Additional paid-in capital		2,038			2,038
Accumulated deficit		(217,476	)		(209,760	)
Other accumulated comprehensive loss, net of tax		(21,632	)		(22,012	)

Total stockholders’ deficit		(237,068	)		(229,732	)

Total liabilities and stockholders’ deficit	$	240,229			231,502

See accompanying notes to condensed consolidated financial statements.

ACG HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended
	September 30,
	2006			2005
Cash flows provided (used) by operating activities:
Net loss	$	(7,716	)		(6,588	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation		9,259			9,717
Amortization of other assets		22			144
Amortization of deferred financing costs		1,610			1,483
Deferred income tax benefit		(557	)		(49	)
Decrease in working capital deficiency and other		(14,041	)		(19,910	)

Net cash used by operating activities		(11,423	)		(15,203	)

Cash flows provided (used) by investing activities:
Purchases of property, plant and equipment		(7,250	)		(4,312	)
Proceeds from sale of property, plant and equipment held for sale (note 3)		—			6,877
Proceeds from other sales of property, plant and equipment		12			167
Other		(131	)		(162	)

Net cash provided (used) by investing activities		(7,369	)		2,570

Cash flows provided (used) by financing activities:
Proceeds from 2005 term loan facility (note 4)		—			35,000
Net increase (decrease) in revolver borrowings		23,250			(16,000	)
Repayment and buyout of capital lease obligations		(1,825	)		(2,904	)
Payment of deferred financing costs		(2,608	)		(3,457	)

Net cash provided by financing activities		18,817			12,639
Effect of exchange rates on cash		(25	)		(6	)

Net change in cash		—			—
Cash:
Beginning of period		—			—

End of period	$	—			—

See accompanying notes to condensed consolidated financial statements.

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.

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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 six month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2007. 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, 2006.

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

2. Inventories

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


	September 30,		March 31,
	2006		2006
Paper	$	5,663		5,959
Ink		132		140
Supplies and other		1,590		1,615

Total inventories	$	7,385		7,714

3. Assets and Liabilities Held For Sale

At 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 print facility, resulting in the write-off of certain assets totaling approximately $0.5 million. 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 $6.9 million for property, plant and equipment, $1.1 million for other assets and $0.1 million of miscellaneous closing and settlement costs) and terminated $1.0 million of related capital lease obligations. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company wrote down the assets held for sale to fair value,

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

resulting in a $0.7 million impairment charge, in the quarter ended March 31, 2005. This charge was classified within restructuring costs and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2005. As a result, the Company has recorded no gain or loss on this transaction subsequent to March 31, 2005.

4. May 5, 2005 Refinancing Transaction

On May 5, 2005, the Company entered into an 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 (as amended on September 26, 2006, the “2005 Credit Agreement”) which resulted in the refinancing of the Company’s $70 million senior secured revolving credit facility, maturing on July 3, 2008, with a syndicate of lenders (the “Revolving Credit Facility”) and significantly improved the Company’s liquidity position. The 2005 Credit Agreement is a $90 million secured facility comprised of :

•		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”).

Interest on borrowings under the 2005 Credit Agreement is floating based upon existing market rates (generally based upon LIBOR), plus agreed upon margins (which was 5.50% per annum for LIBOR loans at September 30, 2006), which margin level increases as the levels of receivables sold by Graphics to Graphics Finance (as defined in note 5 below) meet certain thresholds under the Receivables Facility (as defined in note 5 below). In addition, Graphics is obligated to pay specified commitment and letter of credit fees.

Borrowings under the 2005 Term Loan Facility must be repaid in full on the facility’s maturity date of December 15, 2009. Graphics is also required to prepay the 2005 Term Loan Facility and the 2005 Revolving Credit Facility under certain circumstances with excess cash flows and proceeds from certain sales of assets, equity issuances and incurrences of indebtedness.

Borrowings under the 2005 Credit Agreement are secured by substantially all of Graphics’ assets. Receivables sold to Graphics Finance under the Receivables Facility are released from this lien at the time they are sold. In addition, Holdings has guaranteed all indebtedness under the 2005 Credit Agreement which guarantee is secured by a pledge of all of Graphics’ capital stock.

The 2005 Credit Agreement requires satisfaction of a specified first-lien debt-to-earnings ratio. In addition, the 2005 Credit Agreement includes various other customary affirmative and negative covenants and events of default. The 2005 Credit Agreement places conditions upon the Company’s ability to, among other things:

	•		change the nature of its business;

	•		pay dividends or make other distributions;

	•		make capital expenditures, other investments or acquisitions;

	•		enter into transactions with affiliates;

	•		dispose of assets or enter into mergers or other business combinations;

	•		incur or guarantee additional debt;

	•		repay debt or repurchase or redeem equity interests and debt;

	•		place restrictions on dividends, distributions or transfers to the Company from its subsidiaries;

	•		create or permit to exist certain liens; and

	•		pledge assets or engage in sale-leaseback transactions.

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

The Company was in compliance with the covenant requirements set forth in the 2005 Credit Agreement at September 30, 2006.

As of April 30, 2005, the Company had approximately $2.8 million of unamortized deferred financing costs associated with the Revolving Credit Facility. These costs are being amortized over the term of the 2005 Credit Agreement in accordance with the guidance set forth in Emerging Issues Task Force Issue 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF 98-14”).

At September 30, 2006, the Company had borrowings outstanding under the 2005 Revolving Credit Facility totaling $23.3 million and had letters of credit outstanding of approximately $24.2 million. As a result, the Company had additional borrowing availability under the 2005 Revolving Credit Facility of approximately $7.5 million. During the quarter ended June 30, 2005, the Company used the proceeds from the 2005 Term Loan Facility to repay borrowings outstanding under the Revolving Credit Facility (of which the balance was $16.0 million as of March 31, 2005) and settle certain other of its obligations.

5. September 26, 2006 Revolving Trade Receivables Facility

On September 26, 2006, American Color Graphics Finance, LLC (“Graphics Finance”), a newly formed wholly-owned subsidiary of Graphics, entered into a $35 million revolving trade receivables facility (the “Receivables Facility”) with Banc of America Securities, as Sole Lead Arranger and Book Manager, and Bank of America, N.A., as Administrative Agent, Collateral Agent and Lender.

The Receivables Facility will be used to improve Graphics’ liquidity position and to provide additional funding for future growth.

The maximum availability under the Receivables Facility is $35 million. Availability at any time will be limited to a borrowing base linked to 85% of the balances of eligible receivables less certain minimum excess availability requirements. Graphics expects most of its receivables from U.S. customers will be eligible for inclusion in the borrowing base.

Borrowings under the Receivables Facility are secured by substantially all the assets of Graphics Finance, which will consist primarily of receivables to be sold by Graphics to Graphics Finance pursuant to a receivables contribution and sale agreement. Graphics will service these receivables pursuant to a servicing agreement with Graphics Finance.

The Receivables Facility contains covenants customary for facilities of this type, including requirements related to credit and collection policies, deposits of collections and maintenance by each party of its separate corporate identity, including maintenance of separate records, books, assets and liabilities and disclosures about the transactions in the financial statements of Holdings and its consolidated subsidiaries. Failure to meet these covenants could lead to an acceleration of the obligations under the Receivables Facility, following which the lenders would have the right to sell the assets securing the Receivables Facility.

Borrowings under the Receivables Facility must be repaid in full on the maturity date of December 15, 2009.

Interest on borrowings under the Receivables Facility will accrue at floating rates, based on existing market rates, plus an agreed upon margin. In addition, Graphics Finance is obligated to pay specified unused commitment fees and other customary fees.

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

On September 30, 2006, there were no borrowings under the Receivables Facility. Graphics Finance will not purchase any receivables from Graphics until such time as Graphics Finance proposes to draw under the Receivables Facility, and availability under the Receivables Facility will not exist until such time as Graphics Finance purchases receivables from Graphics. If Graphics Finance had purchased from Graphics all eligible receivables at September 30, 2006, availability under the Receivables Facility at September 30, 2006 would have been approximately $31.4 million.

The Receivables Facility requires Graphics Finance to maintain $0.2 million of cash deposits with Bank of America so long as there are no outstanding borrowings. Accordingly, at September 30, 2006, the Company has $0.2 million of cash deposits which have been classified as Other current assets in the condensed consolidated balance sheet as such funds are not available to meet the Company’s cash operating requirements.

6. Comprehensive Income (Loss)

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 (loss).

Total comprehensive loss for the three and six months ended September 30, 2006 and 2005 is as follows (in thousands):


	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Net loss	$	(4,374	)		(4,198	)		(7,716	)		(6,588	)
Foreign currency translation adjustment, net of tax		(28	)		358			380			117

Total comprehensive loss	$	(4,402	)		(3,840	)		(7,336	)		(6,471	)

7. Income Taxes

Income taxes have been provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts as measured by tax laws and regulations.

The Company recorded income tax benefit of less than $0.1 million and $0.3 million for the three and six months ended September 30, 2006, respectively. The benefit in the six months ended September 30, 2006 relates primarily to an adjustment of $0.4 million, recorded in the quarter ended June 30, 2006, to reflect a change in estimate with respect to our income tax liability. The adjustment arose from events that changed our probability assessment (as discussed in Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”) regarding the likelihood that certain contingent income tax items would become actual future liabilities. The income tax benefit from U.S. losses in the three and six months ended September 30, 2006 was primarily offset by an increase in the deferred tax asset valuation allowance.

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

8. Employee Benefit Plans

Components of Net Periodic Benefit Cost (in thousands)


	Defined Benefit						Defined Benefit
	Pension Plans						Postretirement Plan
	Three months ended						Three months ended
	September 30,						September 30,
	2006			2005			2006			2005
Service cost	$	98			97			11			12
Interest cost		889			967			68			62
Expected return on plan assets		(1,070	)		(861	)		—			—
Amortization of prior service cost		—			—			(71	)		(56	)
Amortization of unrecognized loss		411			409			—			—
Recognized net actuarial loss (gain)		—			—			4			(6	)

Net periodic benefit cost	$	328			612			12			12


	Six months ended						Six months ended
	September 30,						September 30,
	2006			2005			2006			2005
Service cost	$	231			232			23			25
Interest cost		2,119			2,242			136			124
Expected return on plan assets		(2,443	)		(2,131	)		—			—
Amortization of prior service cost		—			—			(142	)		(111	)
Amortization of unrecognized loss		1,016			1,002			—			—
Recognized net actuarial loss (gain)		—			—			8			(13	)

Net periodic benefit cost	$	923			1,345			25			25

9. Commitments and Contingencies

The Company has an employment agreement with one of its principal officers. The agreement provides for a minimum salary level as well as incentive bonuses, which are payable if specified management goals are attained. The aggregate commitment for future compensation at September 30, 2006, excluding bonuses, is approximately $1.7 million.

In the fiscal year ended March 31, 1998, the Company entered into multi-year contracts to purchase a portion of the Company’s raw materials to be used in its normal operations. In connection with such purchase agreements, pricing for a portion of the Company’s raw materials is adjusted for certain movements in market prices, changes in raw material costs and other specific price increases, while purchase quantity levels are variable based upon certain contractual requirements and conditions. The Company is deferring certain contractual provisions over the life of the contracts, which are being recognized as the purchase commitments are achieved and the related inventory is sold. The amount deferred at September 30, 2006 is $43.5 million and is included within Other liabilities in the Company’s condensed consolidated balance sheet.

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

Graphics, together with over 300 other persons, has been designated by the U.S. Environmental Protection Agency as a potentially responsible party (a “PRP”) under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”, also known as “Superfund”) at a solvent recovery operation that closed in 1989. Although liability under CERCLA may be imposed on a joint and several basis and the Company’s ultimate liability is not precisely determinable, the PRPs have agreed in writing that Graphics’ share of removal costs is approximately 0.583%; therefore, Graphics believes that its share of the anticipated remediation costs at such site will not be material to its business or the Company’s consolidated financial statements as a whole.

Graphics received written notice, dated May 10, 2004, of its potential liability in connection with the Gibson Environmental Site at 2401 Gibson Street, Bakersfield, California. Gibson Environmental, Inc. operated the six acre site as a storage and treatment facility for used oil and contaminated soil from June 1987 through October 1995. Graphics received the notice and a settlement offer from LECG, a consultant representing approximately 60 companies comprising the Gibson Group Trust. Graphics is investigating this matter but it believes its potential liability in connection with this site will not be material to its business or the Company’s consolidated financial statements as a whole.

Based upon an analysis of Graphics’ volumetric share of waste contributed to the sites, the Company maintains a reserve of approximately $0.1 million in connection with these liabilities included within Other liabilities in its condensed consolidated balance sheet at September 30, 2006. The Company believes this amount is adequate to cover such liabilities.

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

10. Restructuring Costs

Fiscal Year 2005 Restructuring Costs

New York Premedia Consolidation Plan

In March 2005, the Company’s Board of Directors approved a restructuring plan for the premedia services segment designed to improve operating efficiencies and overall profitability. This plan included the consolidation of the Company’s two premedia facilities located in New York, New York. This action resulted in the elimination of 10 positions within the Company.

As a result, the Company recorded a pre-tax restructuring charge of approximately $1.5 million in the quarter ended March 31, 2005 associated with this plan. This charge was classified within restructuring and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2005. The costs of this restructuring plan were accounted for in accordance with the guidance set forth in Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). This restructuring charge was composed of severance and related termination benefits, lease termination costs primarily related to future lease commitments and other costs. The Company reduced the restructuring reserve related to this plan by approximately $0.3 million in the quarter ended March 31, 2006. This was primarily the result of lower than anticipated severance and other employee costs due to certain terminated employees obtaining other employment during their severance periods and certain changes in assumptions related to lease termination costs. The reduction of the restructuring reserve was classified within restructuring costs (benefit) and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2006.

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

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006, (in thousands):


	03/31/06					09/30/06
	Restructuring					Restructuring
	Reserve Balance		Activity			Reserve Balance
Lease termination costs		576		(87	)		489
Other costs		12		—			12

	$	588		(87	)		501

The process of consolidating the two premedia services facilities and the elimination of certain personnel within the Company was substantially completed by April 30, 2005. During the fiscal year ended March 31, 2006, $0.6 million of these costs were paid. As of September 30, 2006 the Company believes the restructuring reserve of approximately $0.5 million is adequate. The Company anticipates approximately $0.1 million will be paid during the remainder of the fiscal year ending March 31, 2007 and $0.2 million will be paid during each of the fiscal years ending March 31, 2008 and March 31, 2009 and the remaining less than $0.1 million will be paid during the fiscal year ending March 31, 2010. These payments will be funded through cash generated from operations and borrowings under the 2005 Revolving Credit Facility and Receivables Facility.

Pittsburg Facility Closure Plan

In March 2005, the Company’s Board of Directors approved a restructuring plan for the print segment to reduce manufacturing costs and improve profitability. This plan included the closure of the Pittsburg, California print facility. This action resulted in the elimination of 136 positions within the Company.

As a result, the Company recorded a pre-tax restructuring charge of approximately $3.1 million in the quarter ended March 31, 2005 associated with this plan. This charge was classified within restructuring and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2005. The costs of this restructuring plan were accounted for in accordance with the guidance set forth in SFAS 146. This restructuring charge was composed of severance and related termination benefits, lease termination costs and other costs. The Company reduced the restructuring reserve related to this plan by approximately $0.8 million in the quarter ended December 31, 2005 as a result of lower than anticipated severance and other employee costs due to certain terminated employees obtaining other employment during their severance periods. The reduction of the restructuring reserve was classified within restructuring costs (benefit) in the condensed consolidated statements of operations for the quarter ended December 31, 2005. The Company further reduced the restructuring reserve related to this plan by approximately $0.1 million in the quarter ended March 31, 2006 as a result of certain changes in assumptions related to lease termination costs. The reduction of the reserve was classified within restructuring costs (benefit) and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2006.

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

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006 (in thousands):


	03/31/06					09/30/06
	Restructuring					Restructuring
	Reserve Balance		Activity			Reserve Balance
Lease termination costs	$	599		(1	)		598
Other costs		26		—			26

	$	625		(1	)		624

The process of closing the print facility and the elimination of certain personnel within the Company was completed by March 31, 2005. During the fiscal years ended March 31, 2006 and 2005, $0.6 million and $1.0 million of these costs were paid, respectively. As of September 30, 2006 the Company believes the restructuring reserve of approximately $0.6 million is adequate. The Company anticipates that the remainder of these costs will be paid by March 31, 2007. These payments will be funded through cash generated from operations and borrowings under the 2005 Revolving Credit Facility and Receivables Facility.

Plant and SG&A Reduction Plan

In February 2005, the Company’s Board of Directors approved a restructuring plan for the print and premedia services segments to reduce overhead costs and improve operating efficiency and profitability. This plan resulted in the elimination of 60 positions within the Company, including both facility and selling and administrative employees.

As a result, the Company recorded a pre-tax restructuring charge of approximately $3.8 million in the quarter ended March 31, 2005 associated with this plan. This charge was classified within restructuring costs and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2005. The costs of this restructuring plan were accounted for in accordance with the guidance set forth in SFAS 146. This restructuring charge was composed of severance and related termination benefits and other costs. The Company reduced the reserve related to this plan by approximately $0.4 million in the quarter ended March 31, 2006 primarily as a result of lower than anticipated severance and other employee costs due to certain terminated employees obtaining other employment during their severance periods. This reduction of the reserve was classified within restructuring costs (benefit) and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2006.

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006 (in thousands):


	03/31/06					09/30/06
	Restructuring					Restructuring
	Reserve Balance		Activity			Reserve Balance
Severance and other employee costs	$	848		(388	)		460
Other costs		103		(1	)		102

	$	951		(389	)		562

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

Employee terminations related to this plan were substantially completed by March 31, 2005. During the fiscal years ended March 31, 2006 and 2005, $2.1 million and $0.3 million of these costs were paid, respectively. As of September 30, 2006 the Company believes the restructuring reserve of approximately $0.6 million is adequate. The Company anticipates that approximately $0.5 million will be paid during the remainder of the fiscal year ending March 31, 2007 and $0.1 million will be paid during the fiscal year ending March 31, 2008. These payments will be funded through cash generated from operations and borrowings under the 2005 Revolving Credit Facility and Receivables Facility.

Fiscal Year 2004 Restructuring Costs

January 2004 Plan

In January 2004, the Company approved a restructuring plan for the print and premedia services segments designed to improve operating efficiency and profitability. This plan included a consolidation of capacity and the related downsizing of a print facility in Stevensville, Ontario, a reduction of personnel in certain of the Company’s other print and premedia facilities and the elimination of certain selling and administrative positions. These actions included the elimination of 208 positions within the Company.

As a result, the Company recorded a pre-tax restructuring charge of approximately $5.7 million in the quarter ended March 31, 2004 associated with this plan. This charge was classified within restructuring costs and other charges in the consolidated statement of operations for the fiscal year ended March 31, 2004.

The costs of this restructuring plan were accounted for in accordance with the guidance set forth in SFAS 146. This restructuring charge was composed primarily of severance and related termination benefits. The Company reduced the restructuring reserve related to this plan by approximately $0.1 and $0.7 million in the quarters ended March 31, 2006 and 2005, respectively. These reductions were primarily the result of lower than anticipated severance and other employee costs due to certain terminated employees obtaining other employment during their severance periods. These reductions were classified within restructuring costs (benefit) and other charges in the consolidated statements of operation for the fiscal years ended March 31, 2006 and 2005, respectively.

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006 (in thousands):


	03/31/06								09/30/06
	Restructuring					Reserve			Restructuring
	Reserve Balance		Activity			Adjustment			Reserve Balance
Severance and other employee costs	$	223		—			—			223
Other costs		110		(95	)		(11	)		4

	$	333		(95	)		(11	)		227

During the fiscal years ended March 31, 2006, 2005 and 2004, $0.5 million, $2.3 million and $1.8 million of these costs were paid, respectively. As of September 30, 2006 the Company believes the restructuring reserve of approximately $0.2 million is adequate. The Company anticipates that the remaining $0.2 million will be paid by March 31, 2007. These costs will be funded through cash generated from operations and borrowings under the 2005 Revolving Credit Facility and Receivables Facility.

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

July 2003 Plan

In July 2003, the Company implemented a restructuring plan for the print and premedia services segments to further reduce its selling, general and administrative expenses. This plan resulted in the termination of four administrative employees.

As a result of this plan, the Company recorded a pre-tax restructuring charge of approximately $1.8 million in the quarter ended September 30, 2003. This charge was classified within restructuring costs in the condensed consolidated statement of operations in the quarter ended September 30, 2003. The cost of this restructuring plan was accounted for in accordance with the guidance set forth in SFAS 146. The restructuring charge was composed of severance and related termination benefits.

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006 (in thousands):

03/31/06

09/30/06

Restructuring

Reserve

Restructuring

Reserve Balance

Activity

Adjustment

Reserve Balance

Severance and other employee costs

102

(113

)

—

During the fiscal year ended March 31, 2006, $0.3 million of these costs were paid and in each of the fiscal years ended March 31, 2005 and 2004, $0.7 million of these costs were paid. As of September 30, 2006, the Company has paid all costs associated with this plan.

Fiscal Year 2002 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 facility and the elimination of certain administrative personnel. This action 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 charges in the consolidated statements of operations for 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 including primarily legal fees, site clean-up costs and the write-off of certain press related parts that provided no future use or functionality. The Company recorded an additional $0.2 million, $0.3 million and $0.7 million of restructuring charges related to this plan in the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively, and $0.2 million in each of the quarters ended March 31, 2004 and September 30, 2003. These charges primarily related to

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

future lease commitments and were classified within restructuring costs (benefit) in the consolidated statements of operations for the fiscal years ended March 31, 2006, 2005 and 2004.

The following table summarizes the activity related to this restructuring plan for the six months ended September 30, 2006 (in thousands):

03/31/06

09/30/06

Restructuring

Reserve Balance

Activity

Reserve Balance

Lease termination costs

1,528

(181

)

1,347

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. During each of the fiscal years ended March 31, 2006 and 2005, $0.5 million of these costs were paid, in the fiscal year ended March 31, 2004, $0.9 million of these costs were paid and in each of the fiscal years ended March 31, 2003 and 2002, $3.4 million of these costs were paid. As of September 30, 2006, the Company believes the restructuring reserve of approximately $1.3 million is adequate. The Company anticipates that $0.1 million will be paid during the remainder of fiscal year ending March 31, 2007 and approximately $0.3 million will be paid in each of the fiscal years ending March 31, 2008 through March 31, 2011. These costs will be funded through cash generated from operations and borrowings under the 2005 Revolving Credit Facility and Receivables Facility.

11. 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 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 used by the Company in its condensed consolidated financial statements. 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.

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.

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


				Premedia			Corporate
(In thousands)	Print			Services			and Other			Total
Six Months Ended September 30, 2006
Sales	$	196,244			25,420			—			221,664
EBITDA	$	17,678			5,202			(2,026	)		20,854
Depreciation and amortization		(8,245	)		(1,036	)		—			(9,281	)
Interest expense		—			—			(19,625	)		(19,625	)
Interest income		—			—			50			50
Income tax benefit		—			—			286			286

Net income (loss)	$	9,433			4,166			(21,315	)		(7,716	)
Total assets	$	214,540			11,594			14,095			240,229
Total goodwill	$	64,656			1,892			—			66,548
Total capital expenditures	$	6,891			359			—			7,250


Six Months Ended September 30, 2005
Sales	$	186,213			27,517			—			213,730
EBITDA	$	17,438			6,019			(1,646	)		21,811
Depreciation and amortization		(8,509	)		(1,352	)		—			(9,861	)
Interest expense		—			—			(18,563	)		(18,563	)
Interest income		—			—			63			63
Income tax expense		—			—			(38	)		(38	)

Net income (loss)	$	8,929			4,667			(20,184	)		(6,588	)
Total assets	$	220,261			15,242			15,190			250,693
Total goodwill	$	64,656			1,892			—			66,548
Total capital expenditures	$	3,799			513			—			4,312


Three Months Ended September 30, 2006
Sales	$	99,091			12,563			—			111,654
EBITDA	$	8,996			2,436			(1,188	)		10,244
Depreciation and amortization		(4,129	)		(509	)		—			(4,638	)
Interest expense		—			—			(10,020	)		(10,020	)
Interest income		—			—			39			39
Income tax benefit		—			—			1			1

Net income (loss)	$	4,867			1,927			(11,168	)		(4,374	)
Total assets	$	214,540			11,594			14,095			240,229
Total goodwill	$	64,656			1,892			—			66,548
Total capital expenditures	$	4,086			141			—			4,227

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


				Premedia			Corporate
(In thousands)	Print			Services			and Other			Total
Three Months Ended September 30, 2005
Sales	$	91,671			13,789			—			105,460
EBITDA	$	7,997			3,077			(1,014	)		10,060
Depreciation and amortization		(4,227	)		(656	)		—			(4,883	)
Interest expense		—			—			(9,486	)		(9,486	)
Interest income		—			—			10			10
Income tax benefit		—			—			101			101

Net income (loss)	$	3,770			2,421			(10,389	)		(4,198	)
Total assets	$	220,261			15,242			15,190			250,693
Total goodwill	$	64,656			1,892			—			66,548
Total capital expenditures	$	2,153			218			—			2,371

12. Impact of Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”). SFAS 123R supersedes Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows” (“SFAS 95”). Generally, the fair value approach in SFAS 123R is similar to the fair value approach described in SFAS 123. In the fiscal year ended March 31, 2006 the Company used the Black-Scholes-Merton formula to estimate fair value of stock options granted to employees. Upon adoption of SFAS 123R on April 1, 2006, the Company elected to continue to estimate the fair value of stock options using the Black-Scholes-Merton formula. The adoption of SFAS 123R had no impact on compensation expense for the three and six months ended September 30, 2006 as the Company granted no options during the these periods. Additionally, all outstanding options on the date of adoption had a fair value of $0. Further, the adoption of SFAS 123R is not expected to have a material impact on the Company’s future stock-based compensation expense. SFAS 123R also requires that the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow rather than as an operating cash flow. The Company reported no such financing cash flows in the three or six month periods ended September 30, 2006. For the three and six months ended September 30, 2005, as well as for the fiscal year ended March 31, 2006, the Company recognized no operating cash flows for such excess tax deductions.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), a replacement of Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB 20”) and Statement of Financial Accounting Standards No. 3, “Reporting Accounting Changes in Interim Financial Statements” (“SFAS 3”). SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. The adoption of SFAS 154 as of April 1, 2006 has had no impact on the condensed consolidated financial statements as a whole. The Company will continue to apply the requirements of SFAS 154 to any future accounting changes and error corrections.

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

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), to clarify the accounting for uncertainty in income taxes in financial statements prepared in accordance with the provisions of SFAS 109 and to provide greater consistency in criteria used to determine benefits related to income taxes. In accounting for uncertain tax positions, the Company currently applies the provisions of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”). SFAS 5 provides that a contingency should be recorded if it is probable that an uncertain position will become an actual future liability. FIN 48 provides that the benefit of an uncertain position should not be recorded unless it is more likely-than-not that the position will be sustained upon review. The Company will be required to adopt FIN 48 on April 1, 2007. At that time, the cumulative effect of applying FIN 48 will be reported as an adjustment to the opening balance sheet. Although the Company has begun its analysis of the impact of the adoption of FIN 48, the impact of adoption on the condensed consolidated financial statements as a whole is currently unknown due to the recent issuance of the pronouncement and to the fact that the impact will depend on facts and circumstances that will exist at the time of adoption.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires an entity to (a) recognize in its statement of financial position an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a defined benefit postretirement plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income in the year in which the changes occur. The requirement to recognize the funded status of a defined benefit postretirement plan prospectively and the disclosure requirements are effective for the Company for the fiscal year ending March 31, 2008. The requirement to measure plan assets and benefit obligations as of the date of the Company’s fiscal year end will be effective for the fiscal year ending March 31, 2009. The Company has begun its analysis of the impact of the adoption of SFAS 158 but does not currently anticipate a significant impact on the condensed consolidated financial statements as a whole.

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 the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and 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,” “intends,” “expects,” “may,” “will,” “estimates,” “should,” “could,” “anticipates,” “plans” or other comparable terms 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 the control of Holdings, together with its wholly-owned subsidiary, Graphics, including, but not limited to:

	•		a failure to achieve expected cost reductions or to execute other key strategies;

	•		fluctuations in the cost of paper, ink and other key raw materials;

	•		changes in the advertising and print markets;

	•		actions by our competitors, particularly with respect to pricing;

	•		the financial condition of our customers;

	•		downgrades of our credit ratings;

	•		our financial condition and liquidity and our leverage and debt service obligations;

	•		the general condition of the United States economy;

	•		interest rate and foreign currency exchange rate fluctuations;

	•		the level of capital resources required for our operations;

	•		changes in the legal and regulatory environment;

	•		the demand for our products and services; and

	•		other risks and uncertainties, including the matters set forth in this Report generally and those described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements in this Report are qualified by these cautionary statements and are made only as of the date of this Report. We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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.

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

The following table summarizes our results of operations for the three months ended September 30, 2006 (the “2006 Three-Month Period”), the three months ended September 30, 2005 (the “2005 Three-Month Period”), the six months ended September 30, 2006 (the “2006 Six-Month Period”) and the six months ended September 30, 2005 (the “2005 Six-Month Period”):


	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Sales:
Print	$	99,091			91,671			196,244			186,213
Premedia Services		12,563			13,789			25,420			27,517

Total	$	111,654			105,460			221,664			213,730
Gross Profit:
Print	$	8,938			7,751			17,342			16,718
Premedia Services		3,410			4,026			7,153			7,710
Other		(1	)		(1	)		(2	)		(2	)

Total	$	12,347			11,776			24,493			24,426
Gross Margin:
Print		9.0	%		8.5	%		8.8	%		9.0	%
Premedia Services		27.1	%		29.2	%		28.1	%		28.0	%
Total		11.1	%		11.2	%		11.0	%		11.4	%
EBITDA:
Print	$	8,996			7,997			17,678			17,438
Premedia Services		2,436			3,077			5,202			6,019
Other(a)		(1,188	)		(1,014	)		(2,026	)		(1,646	)

Total	$	10,244			10,060			20,854			21,811
EBITDA Margin:
Print		9.1	%		8.7	%		9.0	%		9.4	%
Premedia Services		19.4	%		22.3	%		20.5	%		21.9	%
Total		9.2	%		9.5	%		9.4	%		10.2	%

(a) Other operations include 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 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 Margin” is defined as EBITDA as a percentage of net sales. 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. Certain covenants in the indenture governing the 10% Senior Second Secured Notes Due 2010 (the “10% Notes”), 2005 Credit Agreement and Receivables Facility are based on, or include EBITDA, subject to certain adjustments.

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

The following table provides a reconciliation (in thousands) of EBITDA to net income (loss):


				Premedia
	Print			Services			Other			Total
Three Months Ended September 30, 2006
EBITDA	$	8,996			2,436			(1,188	)		10,244
Depreciation and amortization		(4,129	)		(509	)		—			(4,638	)
Interest expense, net		—			—			(9,981	)		(9,981	)
Income tax benefit		—			—			1			1

Net income (loss)	$	4,867			1,927			(11,168	)		(4,374	)




Three Months Ended September 30, 2005
EBITDA	$	7,997			3,077			(1,014	)		10,060
Depreciation and amortization		(4,227	)		(656	)		—			(4,883	)
Interest expense, net		—			—			(9,476	)		(9,476	)
Income tax benefit		—			—			101			101

Net income (loss)	$	3,770			2,421			(10,389	)		(4,198	)




Six Months Ended September 30, 2006
EBITDA	$	17,678			5,202			(2,026	)		20,854
Depreciation and amortization		(8,245	)		(1,036	)		—			(9,281	)
Interest expense, net		—			—			(19,575	)		(19,575	)
Income tax benefit		—			—			286			286

Net income (loss)	$	9,433			4,166			(21,315	)		(7,716	)




Six Months Ended September 30, 2005
EBITDA	$	17,438			6,019			(1,646	)		21,811
Depreciation and amortization		(8,509	)		(1,352	)		—			(9,861	)
Interest expense, net		—			—			(18,500	)		(18,500	)
Income tax expense		—			—			(38	)		(38	)

Net income (loss)	$	8,929			4,667			(20,184	)		(6,588	)

Print

Sales. In the 2006 Six-Month Period, print sales increased $10.0 million to $196.2 million from $186.2 million in the 2005 Six-Month Period. The increase in the 2006 Six-Month Period includes increased paper prices, an increase in print production volume of approximately 4.8% and certain changes in customer and product mix. These increases were offset in part by the continued impact of competitive industry pricing and an increase in the level of customer supplied paper. See “—Value Added Revenue and Print Impressions for the Print Segment” below.

In the 2006 Three-Month Period, print sales increased $7.4 million to $99.1 million from $91.7 million in the 2005 Three-Month Period. The increase in the 2006 Three-Month Period includes increased paper prices,

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

an increase in print production volume of approximately 3.2%, certain changes in customer and product mix and a decrease in the level of customer supplied paper. These increases were offset in part by the continued impact of competitive industry pricing. See “—Value Added Revenue and Print Impressions for the Print Segment” below.

Gross Profit. In the 2006 Six-Month Period, print gross profit increased $0.6 million to $17.3 million from $16.7 million in the 2005 Six-Month Period. In the 2006 Six-Month Period, print gross margin decreased slightly to 8.8% from 9.0% in the 2005 Six-Month Period. The increase in gross profit includes increased print production volume, certain changes in customer and product mix and net benefits from various cost reduction programs at our facilities. These increases were offset in part by the continuing impact of competitive pricing pressures, increased utility costs, increased foreign exchange losses and continued excess costs associated with the startup of a replacement press. Our gross margin may not be comparable from period to period because of 1) the impact of changes in paper prices included in sales and 2) changes in the level of customer supplied paper.

In the 2006 Three-Month Period, print gross profit increased $1.1 million to $8.9 million from $7.8 million in the 2005 Three-Month Period. In the 2006 Three-Month Period, print gross margin increased to 9.0% from 8.5% in the 2005 Three-Month Period. The increase in gross profit includes increased print production volume, certain changes in customer and product mix and net benefits from various cost reduction programs at our facilities. These increases were offset in part by the continuing impact of competitive pricing pressures, increased utility costs, increased foreign exchange losses and continued excess costs associated with the startup of a replacement press. Our gross margin may not be comparable from period to period because of 1) the impact of changes in paper prices included in sales and 2) changes in the level of customer supplied paper.

Selling, General and Administrative Expenses. In the 2006 Six-Month Period, print selling, general and administrative expenses increased $0.4 million to $7.8 million, or 4.0% of print sales, from $7.4 million, or 4.0% of print sales, in the 2005 Six-Month Period. The increase in the 2006 Six-Month Period includes increases in certain employee related costs, offset in part by the impact of the change in our estimates related to the allowance for doubtful accounts.

In the 2006 Three-Month Period, print selling, general and administrative expenses increased $0.1 million to $4.0 million, or 4.0% of print sales, from $3.9 million, or 4.2% of print sales, in the 2005 Three-Month Period.

Other Expense (Income). In the 2006 Six-Month Period, print other expense (income) decreased to expense of $0.2 million from expense of $0.4 million in the 2005 Six-Month Period. The 2005 Six-Month Period expense included $0.4 million of non-recurring costs related to the closure of the Pittsburg, California print facility, which we were unable to accrue as part of restructuring costs in the fiscal year ended March 31, 2005.

In both the 2006 Three-Month Period and 2005 Three-Month Period, print other expense (income) was expense of $0.1 million.

EBITDA. As a result of the above factors and excluding the impact of depreciation and amortization, EBITDA for the print business increased to approximately $17.7 million in the 2006 Six-Month Period from $17.4 million in the 2005 Six-Month Period and increased to approximately $9.0 million in the 2006 Three-Month Period from $8.0 million in the 2005 Three-Month Period.

Premedia Services

Sales. In the 2006 Six-Month Period, premedia services’ sales decreased approximately $2.1 million to $25.4 million from $27.5 million in the 2005 Six-Month Period. The decrease in the 2006 Six-Month Period

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

includes a decrease in premedia production volume, the impact of continued competitive pricing pressures in this segment and reductions in certain service requirements related to one major customer.

In the 2006 Three-Month Period, premedia services’ sales decreased approximately $1.2 million to $12.6 million from $13.8 million in the 2005 Three-Month Period. The decrease in the 2006 Three-Month Period includes a decrease in premedia production volume, the impact of continued competitive pricing pressures in this segment and reductions in certain service requirements related to one major customer.

Gross Profit. In the 2006 Six-Month Period, premedia services’ gross profit decreased approximately $0.5 million to $7.2 million from $7.7 million in the 2005 Six-Month Period. Included were reductions associated with reduced sales, as discussed above, offset in part by reduced manufacturing costs as a result of various cost containment initiatives. In the 2006 Six-Month Period, premedia services’ gross margin increased slightly to 28.1% from 28.0% in the 2005 Six-Month Period.

In the 2006 Three-Month Period, premedia services’ gross profit decreased approximately $0.6 million to $3.4 million from $4.0 million in the 2005 Three-Month Period. Included were reductions associated with reduced sales, as discussed above, offset in part by reduced manufacturing costs as a result of various cost containment initiatives. In the 2006 Three-Month Period, premedia services’ gross margin decreased to 27.1% from 29.2% in the 2005 Three-Month Period.

Selling, General and Administrative Expenses. In the 2006 Six-Month Period, premedia services’ selling, general and administrative expenses remained relatively unchanged at $2.9 million, from the 2005 Six-Month Period.

In the 2006 Three-Month Period, premedia services’ selling, general and administrative expenses decreased $0.1 million to $1.4 million from $1.5 million in the 2005 Three-Month Period.

Other Expense (Income). Premedia services’ other expense (income) was expense of $0.1 million in both the 2006 and 2005 Six-Month Periods.

Premedia services’ other expense (income) was expense of less than $0.1 million in the 2006 Three-Month Period versus expense of $0.1 million in the 2005 Three-Month Period.

EBITDA. As a result of the above factors and excluding the impact of depreciation and amortization, premedia services’ EBITDA decreased to $5.2 million in the 2006 Six-Month Period from $6.0 million in the 2005 Six-Month Period and decreased to $2.4 million in the 2006 Three-Month Period from $3.1 million in the 2005 Three-Month Period.

Other Operations

Other operations consist primarily of corporate general and administrative expenses. In the 2006 Six-Month Period, EBITDA from other operations increased to a loss of $2.0 million from a loss of $1.6 million in the 2005 Six-Month Period. In the 2006 Three-Month Period, EBITDA from other operations increased to a loss of $1.2 million from a loss of $1.0 million in the 2005 Three-Month Period. The increased loss in both the 2006 Six-Month Period and the 2006 Three-Month Period includes incremental legal expenses associated with a trial in which the Company is the plaintiff.

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

Interest Expense, Net

In the 2006 Six-Month Period, interest expense, net increased to $19.6 million from $18.5 million in the 2005 Six-Month Period. In the 2006 Three-Month Period, interest expense, net increased to $10.0 million from $9.5 million in the 2005 Three-Month Period. These increases are the result of both higher levels of indebtedness and increased borrowing costs.

Income Tax Expense (Benefit)

In the 2006 Six-Month Period, income tax expense (benefit) improved to benefit of $0.3 million from expense of less than $0.1 million in the 2005 Six-Month Period. In the 2006 Three-Month Period, income tax expense (benefit) changed to benefit of less than $0.1 million from benefit of $0.1 in the 2005 Three-Month Period.

The income tax benefit recorded in the 2006 Six-Month Period is primarily due to an adjustment of $0.4 million, recorded in the quarter ended June 30, 2006, to reflect a change in estimate with respect to our income tax liability. The adjustment arose from events that changed our probability assessment (as discussed in Statement of Financial Accounting Standards No.5, “Accounting for Contingencies”) regarding the likelihood that certain contingent income tax items would become actual future liabilities. The income tax benefit from U.S. losses in the 2006 Six and Three-Month Periods was primarily offset by an increase in the deferred tax asset valuation allowance.

Income tax benefit from U.S. losses in the 2005 Six and Three-Month Periods was primarily offset by an increase in the deferred tax asset valuation allowance. The income tax benefit recorded in the 2005 Three-Month Period relates primarily to tax benefit in foreign jurisdictions.

Net Income (Loss)

As a result of the factors discussed above, our net loss increased to $7.7 million in the 2006 Six-Month Period from $6.6 million in the 2005 Six-Month Period and our net loss increased to $4.4 million in the 2006 Three-Month Period from $4.2 million in the 2005 Three-Month Period.

Liquidity and Capital Resources

May 2005 Refinancing Transaction

On May 5, 2005, we entered into the 2005 Credit Agreement which resulted in the refinancing of our $70 million senior secured revolving credit facility, maturing on July 3, 2008, with a syndicate of lenders (the “Revolving Credit Facility”) and significantly improved our liquidity position. The 2005 Credit Agreement, as amended on September 26, 2006, is a $90 million secured facility comprised of:

•		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”).

Interest on borrowings under the 2005 Credit Agreement is floating based upon existing market rates (generally based upon LIBOR), plus agreed upon margins (which was 5.50% per annum for LIBOR loans at September 30, 2006), which margin level increases as the levels of receivables sold by Graphics to Graphics Finance (defined below) meet certain thresholds under the Receivables Facility (defined below). In addition, Graphics is obligated to pay specified commitment and letter of credit fees.

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

•		change the nature of our business;

•		pay dividends or make other distributions;

•		make capital expenditures, other investments or acquisitions;

•		enter into transactions with affiliates;

•		dispose of assets or enter into mergers or other business combinations;

•		incur or guarantee additional debt;

•		repay debt or repurchase or redeem equity interests and debt;

•		place restrictions on dividends, distributions or transfers to us from our subsidiaries;

•		create or permit to exist certain liens; and

•		pledge assets or engage in sale-leaseback transactions.

As of April 30, 2005, we had approximately $2.8 million of unamortized deferred financing costs associated with the Revolving Credit Facility. These costs are being amortized over the term of the 2005 Credit Agreement in accordance with the guidance set forth in EITF 98-14.

September 2006 Revolving Trade Receivables Facility

The Receivables Facility will be used to improve Graphics’ liquidity position and to provide additional funding for future growth.

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

Borrowings under the Receivables Facility must be repaid in full on the maturity date of December 15, 2009.

Interest on borrowings under the Receivables Facility will accrue at floating rates, based on existing market rates, plus an agreed upon margin level. In addition, Graphics Finance is obligated to pay specified unused commitment fees and other customary fees.

Graphics Finance will not purchase any receivables from Graphics until such time as Graphics Finance proposes to draw under the Receivables Facility, and availability under the Receivables Facility will not exist until such time as Graphics Finance purchases receivables from Graphics.

The Receivables Facility requires Graphics Finance to maintain $0.2 million of cash deposits with Bank of America so long as there are no outstanding borrowings. Accordingly, at September 30, 2006, we have $0.2 million of cash deposits which have been classified as Other current assets in the condensed consolidated balance sheet as such funds are not available to meet our cash operating requirements.

Summary of Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operating activities and borrowings under the 2005 Revolving Credit Facility. At September 30, 2006, we had borrowings outstanding under the 2005 Revolving Credit Facility totaling $23.3 million and letters of credit outstanding of approximately $24.2 million. As a result, we had additional borrowing availability under the 2005 Revolving Credit Facility of approximately $7.5 million. On September 30, 2006, there were no borrowings under the Receivables Facility. If Graphics Finance had purchased from Graphics all eligible receivables at September 30, 2006, availability under the Receivables Facility at September 30, 2006 would have been approximately $31.4 million.

Scheduled repayments of existing capital lease obligations during the remainder of our fiscal year ending March 31, 2007 are approximately $1.9 million.

During the quarter ended June 30, 2005, we used proceeds from the 2005 Term Loan Facility to repay borrowings outstanding under the Revolving Credit Facility (of which the balance was $16.0 million as of March 31, 2005) and settle certain other obligations.

During the 2006 Six-Month Period, we used net borrowings from the 2005 Revolving Credit Facility of $23.3 million primarily to fund the following:

	•		$11.4 million of operating activities (see our condensed consolidated statements of cash flows appearing elsewhere in this Report);

	•		$7.3 million in cash capital expenditures; and

	•		$4.4 million to service other indebtedness (including repayment of capital lease obligations of $1.8 million and payment of deferred financing costs of $2.6 million).

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

Our cash-on-hand of approximately $2.2 million is presented net of outstanding checks within trade accounts payable at September 30, 2006. Accordingly, cash is presented at a balance of $0 million in the September 30, 2006 condensed consolidated balance sheet.

We anticipate that our primary needs for liquidity will be to conduct our business, meet our debt service requirements and make capital expenditures. We believe that we have sufficient liquidity to meet our requirements over the next 12 months.

At September 30, 2006, we had total indebtedness of $345.7 million, including borrowings under the 2005 Term Loan Facility of $35.0 million, borrowings under the 2005 Revolving Credit Facility of $23.3 million, $280.0 million of our 10% Notes and capital lease obligations of $7.4 million. We have no off-balance sheet financial instruments other than operating leases. We are currently in compliance with the covenant requirements set forth in the 2005 Credit Agreement and the Receivables Facility.

A significant portion of Graphics’ long-term obligations, including indebtedness under the 2005 Credit Agreement and the 10% Notes, has been fully and unconditionally guaranteed by Holdings. Holdings is subject to certain restrictions under its guarantee of indebtedness under the 2005 Credit Agreement including among other things, restrictions on mergers, acquisitions, incurrence of additional debt and payment of cash dividends.

Value Added Revenue and Print Impressions for the Print Segment

We have included value-added revenue (“VAR”) information to provide a better understanding of sales activity within our print segment. VAR is a non-GAAP measure and is defined as sales less the cost of paper, ink and subcontract services. We generally pass the costs of paper, ink and subcontract services through to our customers. We have also included print impressions because we use this as an internal measure of production throughput. Although we believe print impressions to be indicative of overall production volume, total impressions may not be fully comparable period to period due to (1) differences in the type, performance and width of press equipment utilized and (2) product mix produced.


	Three Months Ended				Six-Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Print segment VAR (in thousands)	$	47,992		44,257		95,065		89,685
Print segment impressions (in millions)		2,848		2,760		5,712		5,448

The following table provides a reconciliation of print segment sales to print segment VAR:


	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
				(In thousands)
Print segment sales	$	99,091			91,671			196,244			186,213
Paper, ink and subcontract services		(51,099	)		(47,414	)		(101,179	)		(96,528	)

Print segment VAR	$	47,992			44,257			95,065			89,685

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

New Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R. SFAS 123R supersedes SFAS 123 and amends SFAS 95. Generally, the fair value approach in SFAS 123R is similar to the fair value approach described in SFAS 123. In the fiscal year ended March 31, 2006, we used the Black-Scholes-Merton formula to estimate fair value of stock options granted to employees. Upon adoption of SFAS 123R on April 1, 2006, we elected to continue to estimate the fair value of stock options using the Black-Scholes-Merton formula. The adoption of SFAS 123R had no impact on compensation expense for the three and six months ended September 30, 2006 as no options were granted during these periods. Additionally, all outstanding options the date of adoption had a fair value of $0. Further, the adoption of SFAS 123R is not expected to have a material impact on our future stock-based compensation expense. SFAS 123R also requires that the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow rather than as an operating cash flow. We reported no such financing cash flows in the three or six months ended September 30, 2006. For the three and six months ended September 30, 2005, as well as for the fiscal year ended March 31, 2006, we recognized no operating cash flows for such excess tax deductions.

In May 2005, the FASB issued SFAS 154, a replacement of APB 20 and SFAS 3. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. The adoption of SFAS 154 as of April 1, 2006 has had no impact on the condensed consolidated financial statements as a whole. We will continue to apply the requirements of SFAS 154 to any future accounting changes and error corrections.

In July 2006, the FASB issued FIN 48, to clarify accounting for uncertainty in income taxes in financial statements prepared in accordance with the provisions of SFAS 109 and to provide greater consistency in criteria used to determine benefits related to income taxes. In accounting for uncertain tax positions, we currently apply the provisions of SFAS 5. SFAS 5 provides that a contingency should be recorded if it is probable that an uncertain position will become an actual future liability. FIN 48 provides that the benefit of an uncertain position should not be recorded unless it is more likely-than-not that the position will be sustained upon review. We will be required to adopt FIN 48 on April 1, 2007. At that time, the cumulative effect of applying FIN 48 will be reported as an adjustment to the opening balance sheet. Although we have begun our analysis of the impact of the adoption of FIN 48, the impact of adoption on the condensed consolidated financial statements as a whole is currently unknown due to the recent issuance of the pronouncement and to the fact that the impact will depend on facts and circumstances that will exist at the time of adoption.

In September 2006, the FASB issued SFAS 158. SFAS 158 requires an entity to (a) recognize in its statement of financial position an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a defined benefit postretirement plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income in the year in which the changes occur. The requirement to recognize the funded status of a defined benefit postretirement plan prospectively and the disclosure requirements are effective for our fiscal year ending March 31, 2008. The requirement to measure plan assets and benefit obligations as of the date of our fiscal year end will be effective for the fiscal year ending March 31, 2009. We have begun our analysis of the impact of the adoption of SFAS 158 but do not currently anticipate a significant impact on the condensed consolidated financial statements as a whole.

ACG HOLDINGS, INC.
PART I — FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative Information. At September 30, 2006, we had fixed and variable rate debt (both excluding capital lease obligations) of approximately $280.0 million and $58.3 million, respectively. At March 31, 2006, we had fixed and variable rate debt (both excluding capital lease obligations) of approximately $280.0 million and $35.0 million, respectively. The estimated fair value of our debt instruments, excluding capital lease obligations, at September 30, 2006 was $253.6 million, or $84.7 million less than the carrying value, and at March 31, 2006 was $232.4 million, or $82.6 million less than the carrying value. At our September 30, 2006 and March 31, 2006 borrowing levels, a 1% adverse change in interest rates would result in an approximate $15 million reduction in the fair value of our fixed rate debt and would have resulted in additional annual interest expense and related payments of approximately $0.6 million at September 30, 2006 and approximately $0.4 million at March 31, 2006 on our variable rate debt.

Qualitative Information. In the ordinary course of business, our exposure to market risks is limited as is described below. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest and foreign currency exchange rates. Currently, we do not utilize derivative financial instruments such as forward exchange contracts, futures contracts, options and swap agreements to mitigate such exposures.

Interest rate risk for us primarily relates to interest rate fluctuations on variable rate debt.

We have only one print facility outside the United States, in Canada, which is subject to foreign currency exchange rate risk; however, any fluctuations in net asset values as a result of changes in foreign currency exchange rates associated with activity at this one facility have been, and are expected to continue to be, immaterial to our Company as a whole.

The above market risk discussions are forward-looking statements of market risk assuming the occurrence of certain adverse market conditions. Actual results in the future may differ materially from those projected as a result of actual developments in the market.

Item 4. Controls and Procedures.

As of September 30, 2006 an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2006. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2006. There have not been any changes in our internal controls over financial reporting during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ACG HOLDINGS, INC.
PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There have been no significant changes since March 31, 2006. Reference is made to “Business — Legal Proceedings” disclosure in our Form 10-K filed for the fiscal year ended March 31, 2006.

Item 6. Exhibits.


Exhibit No.			Description
	10.1	(a)	First Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as of September 26, 2006, among Graphics and Holdings; with Bank of America, N.A., as Administrative Agent and L/C Issuer; and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager, and certain lenders

	10.20		Credit Agreement dated as of September 26, 2006, among American Color Graphics Finance, LLC; with Bank of America, N.A., as Administrative Agent and Collateral Agent; and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager

	10.21		Security Agreement dated as of September 26, 2006, between American Color Graphics Finance, LLC; among Bank of America, N.A., as Collateral Agent

	10.22		Servicing Agreement dated as of September 26, 2006, by and among American Color Graphics, Inc., as Servicer, American Color Graphics Finance, LLC, as Purchaser, and Bank of America, N.A., as Administrative Agent and Collateral Agent

	10.23		Contribution and Sale Agreement dated as of September 26, 2006, by and between American Color Graphics, Inc., as Seller and American Color Graphics Finance, LLC, as Purchaser

	12.1		Statement Re: Computation of Ratio of Earnings to Fixed Charges

	31.1		Rule 13a — 14(a)/15d-14(a) Certification of Chief Executive Officer

	31.2		Rule 13a — 14(a)/15d-14(a) Certification of Chief Financial Officer

	32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

EXHIBIT INDEX


Exhibit No.			Description
	10.1	(a)	First Amendment to May 5, 2005 Amended and Restated Credit Agreement dated as of September 26, 2006, among Graphics and Holdings; with Bank of America, N.A., as Administrative Agent and L/C Issuer; and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager, and certain lenders

	10.20		Credit Agreement dated as of September 26, 2006, among American Color Graphics Finance, LLC; with Bank of America, N.A., as Administrative Agent and Collateral Agent; and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager

	10.21		Security Agreement dated as of September 26, 2006, between American Color Graphics Finance, LLC; among Bank of America, N.A., as Collateral Agent

	10.22		Servicing Agreement dated as of September 26, 2006, by and among American Color Graphics, Inc., as Servicer, American Color Graphics Finance, LLC, as Purchaser, and Bank of America, N.A., as Administrative Agent and Collateral Agent

	10.23		Contribution and Sale Agreement dated as of September 26, 2006, by and between American Color Graphics, Inc., as Seller and American Color Graphics Finance, LLC, as Purchaser

	12.1		Statement Re: Computation of Ratio of Earnings to Fixed Charges

	31.1		Rule 13a — 14(a)/15d-14(a) Certification of Chief Executive Officer

	31.2		Rule 13a — 14(a)/15d-14(a) Certification of Chief Financial Officer

	32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350


	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2006 and March 31, 2006		3
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2005		5
Condensed Consolidated Statements of Operations for the Six Months Ended September 30, 2006 and 2005		6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2006 and 2005		7
Notes to Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 6. Exhibits		34
SIGNATURES		35
EXHIBIT INDEX		36
Ex-10.1(a) First Amendment to Credit Agreement
Ex-10.20 September 26, 2006 Credit Agreement
Ex-10.21 Security Agreement
Ex-10.22 September 26, 2006 Servicing Agreement
Ex-10.23 Contribution and Sale Agreement
Ex-12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO & CFO


	Three Months Ended
	September 30,
	2006			2005
Sales	$	111,654			105,460
Cost of sales		99,307			93,684

Gross profit		12,347			11,776
Selling, general and administrative expenses		6,293			6,308
Operating income		6,054			5,468
Other expense (income):
Interest expense		10,020			9,486
Interest income		(39	)		(10	)
Other, net		448			291

Total other expense		10,429			9,767

Loss before income taxes		(4,375	)		(4,299	)
Income tax expense (benefit):
Current		76			(60	)
Deferred		(77	)		(41	)

Total income tax benefit		(1	)		(101	)

Net loss	$	(4,374	)		(4,198	)


	Six Months Ended
	September 30,
	2006			2005
Sales	$	221,664			213,730
Cost of sales		197,171			189,304

Gross profit		24,493			24,426
Selling, general and administrative expenses		12,245			11,994

Operating income		12,248			12,432
Other expense (income):
Interest expense		19,625			18,563
Interest income		(50	)		(63	)
Other, net		675			482

Total other expense		20,250			18,982

Loss before income taxes		(8,002	)		(6,550	)
Income tax expense (benefit):
Current		271			87
Deferred		(557	)		(49	)

Total income tax expense (benefit)		(286	)		38

Net loss	$	(7,716	)		(6,588	)


	ACG Holdings, Inc. American Color Graphics, Inc.
Date: November 13, 2006	By /s/ Stephen M. Dyott
	Stephen M. Dyott
	Chairman, President and Chief Executive Officer (Authorized Officer)



Date: November 13, 2006	By /s/ Patrick W. Kellick
	Patrick W. Kellick
	Senior Vice President/Chief Financial Officer and Secretary (Authorized Officer and Principal Financial Officer)

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