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

                                    FORM 10-Q

(Mark One)
[X]      QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the quarterly period ended September 30, 1996

                                       or

[ ]      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 33-31706-01

                          SULLIVAN COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                     62-1395968
(State or other jurisdiction of          (I.R.S. employer identification number)
 incorporation or organization)      


                               225 High Ridge Road
                           Stamford, Connecticut 06905
                                 (203) 977-8101

(Address,  including zip code,  and telephone  number,  including  area code, of
registrant's principal executive offices)

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

          New York                                     16-1003976
(State or other jurisdiction of          (I.R.S. employer identification number)
 incorporation or organization)                 


                               100 Winners Circle
                           Brentwood, Tennessee 37027
                                 (615) 377-0377

(Address,  including zip code,  and telephone  number,  including  area code, of
registrant's principal executive offices)

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    X     No
    ------       ------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

Sullivan  Communications,  Inc.  has 123,889  shares  outstanding  of its Common
Stock,  $.01 Par Value, as of October 31, 1996 (all of which are privately owned
and not traded on a public market).

                   Exhibit Index on page 26 of 50 total pages


<PAGE>




                                      INDEX


Part I.  Financial Information                                          Page No.


 Item 1.   Condensed Consolidated Financial Statements

             Condensed Consolidated Balance Sheets as of
             September 30, 1996 and March 31, 1996                            3

             Condensed Consolidated Statements of Operations for the
             three months ended September 30, 1996 and 1995                   5

             Condensed Consolidated Statements of Operations for the          6
             six months ended September 30, 1996 and 1995

             Condensed Consolidated Statements of Cash Flows for the
             six months ended September 30, 1996 and 1995                     7

             Notes to Condensed Consolidated Financial Statements             8

  Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations                   14


Part II. Other Information

     Item 1. Legal Proceedings                                               24

     Item 6. Exhibits and Reports on Form 8-K                                24


             Signatures                                                      25

             Exhibit Index                                                   26

















                                        2

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                      Condensed Consolidated Balance Sheets
                    (Dollars in thousands, except par values)

<TABLE>
<CAPTION>


                                                                               September 30, 1996        March 31, 1996
                                                                               ------------------        --------------
                                                                                   (Unaudited)
<S>                                                                               <C>                    <C>  

Assets

Current assets:
  Cash and cash equivalents                                                            --                     --
  Receivables:
     Trade accounts,  less allowance for doubtful  accounts of $6,109 and $4,830
       at September 30, 1996 and March 31, 1996,
       respectively                                                               $ 63,117                64,465
     Other                                                                           3,588                 3,588
                                                                                  --------               -------
               Total receivables                                                    66,705                68,053

  Inventories                                                                       12,755                13,181
  Prepaid expenses and other current assets                                          5,146                 4,285
                                                                                  --------               -------
               Total current assets                                                 84,606                85,519

Property, plant and equipment                                                      228,415               207,264
Less accumulated depreciation                                                      (63,111)              (51,103)
                                                                                  --------               -------
               Net property, plant and equipment                                   165,304               156,161

Excess of cost  over net  assets  acquired,  less  accumulated  amortization  of
  $29,368 and $25,269 at September 30, 1996 and March 31, 1996,
  respectively                                                                      85,379                89,324

Other assets                                                                        18,561                20,177
                                                                                  --------               -------

               Total assets                                                       $353,850               351,181
                                                                                  ========               =======
</TABLE>


















See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                      Condensed Consolidated Balance Sheets
                    (Dollars in thousands, except par values)


<TABLE>
<CAPTION>

                                                     September 30, 1996         March 31, 1996
                                                     ------------------         --------------
                                                         (Unaudited)

<S>                                                     <C>                       <C>   
Liabilities and Stockholders' Deficit

Current liabilities:
  Current installments of long-term debt and
    capitalized leases                                  $  15,256                    11,490
  Trade accounts payable                                   39,068                    35,931
  Accrued expenses                                         24,416                    27,271
  Income taxes                                                882                     1,215
                                                        ---------                 ---------
        Total current liabilities                          79,622                    75,907

Long-term debt and capitalized leases, excluding
  current installments                                    296,113                   286,127
Deferred income taxes                                       8,504                     7,801
Other liabilities                                          29,232                    25,742
                                                        ---------                 ---------
        Total liabilities                                 413,471                   395,577

Stockholders' deficit:

Common stock, voting, $.01 par value, 5,852,223
  shares authorized, 123,889 shares issued and
  outstanding                                                   1                         1
Series A convertible preferred stock, $.01 par value,
  4,000 shares authorized, issued and outstanding,
  $40,000,000 liquidation preference                           --                        --
Series B convertible preferred stock, $.01 par value,
  1,750 shares authorized, issued and outstanding,
  $17,500,000 liquidation preference                           --                        --
Additional paid-in capital                                 57,499                    57,499
Accumulated deficit                                      (115,677)                 (100,525)
Cumulative translation adjustment                          (1,444)                   (1,371)
                                                        ---------                 ---------

        Total stockholders' deficit                       (59,621)                  (44,396)
                                                        ---------                 ---------

Commitments and contingencies

        Total liabilities and stockholders' deficit     $ 353,850                   351,181
                                                        =========                   =======
</TABLE>








See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                 Condensed Consolidated Statements of Operations
                                 (In thousands)
                                   (Unaudited)


                                                           Three Months Ended
                                                               September 30,
                                                           ------------------

                                                          1996           1995
                                                          ----           ----

Sales                                                   $ 138,495      130,653
Cost of sales                                             121,005      113,458
                                                        ---------    ---------

      Gross profit                                         17,490       17,195

Selling, general and administrative expenses (note 8)      12,850       10,152
Amortization of goodwill                                    2,050        2,158
Restructuring costs                                            75          644
                                                        ---------    ---------

       Operating income                                     2,515        4,241

Other expense (income):
  Interest expense                                          9,464        8,006
  Interest income                                             (44)         (69)
  Other, net                                                   34          878
                                                        ---------    ---------

  Total other expense                                       9,454        8,815
                                                                         

      Loss from operations before income taxes
      and extraordinary item                               (6,939)      (4,574)

Income tax expense                                           (609)        (371)
                                                        ---------    ---------

       Loss from operations before
       extraordinary item                                  (7,548)      (4,945)

Loss on early extinguishment of debt, net of
  tax                                                          --       (4,526)
                                                        ---------    ---------

                          Net loss                      $  (7,548)      (9,471)
                                                        =========     =========














See accompanying notes to condensed consolidated financial statements.


                                        5

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                 Condensed Consolidated Statements of Operations
                                 (In thousands)
                                   (Unaudited)

                                                             Six Months Ended
                                                               September 30,
                                                           ------------------

                                                          1996           1995
                                                          ----           ----
Sales                                                   $ 278,199      255,143
Cost of sales                                             245,316      221,193
                                                        ---------    ---------

       Gross profit                                        32,883       33,950

Selling, general and administrative expenses (note 8)      23,899       18,352
Amortization of goodwill                                    4,099        4,315
Restructuring costs                                           488        2,724
                                                        ---------    ---------

      Operating income                                      4,397        8,559

Other expense (income):
  Interest expense                                         18,094       15,219
  Interest income                                             (91)        (180)
  Nonrecurring charge related to terminated
    merger                                                     --        1,534
  Other, net                                                  (45)       1,022
                                                        ---------    ---------

 Total other expense                                       17,958       17,595
                                                        ---------    ---------

       Loss from operations before income taxes
       and extraordinary item                             (13,561)      (9,036)

Income tax expense                                         (1,591)      (3,187)
                                                        ---------    ---------

       Loss from operations before
       extraordinary item                                 (15,152)     (12,223)

Loss on early extinguishment of debt, net of
  tax                                                          --       (4,526)
                                                        ---------    ---------

                          Net loss                      $ (15,152)     (16,749)
                                                        =========    =========
















See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                      September 30,
                                                                                  ------------------

                                                                                    1996         1995
                                                                                    ----         ----
<S>                                                                                <C>         <C>  

Cash flows provided (used) by operating activities:

  Net loss                                                                         $(15,152)    (16,749)




Adjustments  to  reconcile  net  loss  to  cash  provided  (used)  by  operating
activities:

  Depreciation                                                                       12,054      10,288

  Amortization of goodwill and other assets                                           4,931       5,052

  Amortization of deferred financing costs and bond premium                             869         480
                                                                                   --------    --------

                                                                                     17,854      15,820

Extraordinary non-cash credit from early retirement of debt, net                         --      (1,803)

Decrease (increase) in working capital and other                                      5,498     (11,827)
                                                                                   --------    --------

     Net cash provided (used) by operating activities                                 8,200     (14,559)





Cash flows provided (used) by investing activities:

  Cash purchases of property, plant and equipment                                    (4,981)    (13,635)

  Proceeds from sales of property, plant and equipment                                   21           1

  Other                                                                                 (80)       (137)
                                                                                   --------    --------








      Net cash used by investing activities                                          (5,040)    (13,771)

Cash flows provided (used) by financing activities:

  Proceeds from long-term borrowings                                                     --     245,000

  Repayment of long-term debt, including current maturities                          (4,450)   (218,611)

  Net increase in revolver borrowings                                                 3,123       9,770

  Payments under capital lease obligations                                           (1,278)       (124)

  Payment of deferred financing costs                                                  (555)    (11,846)

  Other, net                                                                             --         121
                                                                                   --------    --------

     Net cash (used) provided by financing activities                                (3,160)     24,310

Effect of exchange rates on cash and cash equivalents                                    --          10

Decrease in cash and cash equivalents                                                    --      (4,010)
                                                                                   --------    --------

Cash and cash equivalents:

  Beginning of period                                                                    --       4,635
                                                                                   --------    --------






  End of period                                                                    $     --         625
                                                                                   ========    ========


Noncash investing activity:

  Equipment purchases under capital leases                                         $ 16,243       1,844
                                                                                   ========    ========
</TABLE>








See accompanying notes to condensed consolidated financial statements.

                                        7

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
Description of the Company

Sullivan Communications, Inc. ("Communications"),  and, together with its wholly
owned subsidiary,  Sullivan  Graphics,  Inc.  ("Graphics"),  collectively,  (the
"Company") was formed in April 1989 under the name GBP Holdings,  Inc. to effect
the  purchase  of all  the  capital  stock  of GBP  Industries,  Inc.  from  its
stockholders in a leveraged buyout  transaction.  In October 1989, GBP Holdings,
Inc.  changed its name to  Sullivan  Holdings,  Inc.  and GBP  Industries,  Inc.
changed  its name to  Sullivan  Graphics,  Inc.  Effective  June 1993,  Sullivan
Holdings, Inc. changed its name to Sullivan Communications, Inc.

On April 8, 1993 (the "Acquisition Date"),  pursuant to an Agreement and Plan of
Merger dated as of March 12, 1993, as amended (the "Merger Agreement"),  between
Communications  and SGI Acquisition  Corp.  ("Acquisition  Corp."),  Acquisition
Corp. was merged with and into Communications (the  "Acquisition").  Acquisition
Corp. was formed by The Morgan Stanley  Leveraged Equity Fund II, L.P.,  certain
institutional investors and certain members of management (the "Purchasers") for
the purpose of  acquiring a majority  interest  in  Communications.  Acquisition
Corp. acquired a substantial and controlling majority interest in Communications
in  exchange  for  $40  million  in  cash.  In the  Acquisition,  Communications
continued as the surviving  corporation and the separate corporate  existence of
Acquisition Corp. was terminated.

On August 15, 1995, the Company  completed a merger  transaction  (the "Shakopee
Merger") with Shakopee Valley Printing Inc. ("Shakopee"). Shakopee was formed to
effect the purchase of certain assets and  assumption of certain  liabilities of
Shakopee Valley Printing, a division of Guy Gannett Communications.  On December
22,  1994,  pursuant to an  Agreement  for the  Purchase  of Assets  between Guy
Gannett  Communications  (the "Seller") and Shakopee (the  "Buyer"),  the Seller
agreed to sell (effective at the close of business on December 22, 1994) certain
assets and transfer certain liabilities of Shakopee Valley Printing to the Buyer
for a total purchase price of approximately  $42.6 million,  primarily  financed
through the issuance of 35,000 shares of Common Stock and bank  borrowings.  The
35,000 shares were  purchased by Morgan  Stanley  Capital  Partners  III,  L.P.,
Morgan  Stanley  Capital  Investors,  L.P.  and  MSCP  III 892  Investors,  L.P.
(collectively,  the "MSCP III Entities"),  together with First Plaza Group Trust
and  Leeway & Co. The  general  partner  of each of the MSCP III  Entities  is a
wholly owned  subsidiary of Morgan Stanley Group Inc., the parent company of the
general partner of the Company's majority  stockholder.  In addition,  the other
stockholders of Shakopee were also stockholders of the Company.

Communications has no operations or significant assets other than its investment
in Graphics.  Communications  is dependent upon  distributions  from Graphics to
fund its  obligations.  Under the terms of its debt  agreements at September 30,
1996,  Graphics'  ability to pay dividends or lend to  Communications  is either
restricted or  prohibited,  except that  Graphics may pay  specified  amounts to
Communications  (i) to pay  the  repurchase  price  payable  to any  officer  or
employee  (or  their  estates)  of  Communications,  Graphics  or any  of  their
respective  subsidiaries  in respect of their stock or options to purchase stock
in  Communications  upon the death,  disability or  termination of employment of
such  officers and  employees  (so long as no default,  or event of default,  as
defined,  has  occurred  under the terms of the New Bank  Credit  Agreement,  as
defined below,  and provided the aggregate  amount of all such  repurchases does
not exceed $2,000,000) and (ii) to fund the payment of Communications' operating
expenses incurred in the ordinary course of business,  other corporate  overhead
costs and expenses (so long as the  aggregate  amount of such  payments does not
exceed $250,000 in any fiscal year) and Communications'  obligations pursuant to
a tax sharing agreement with Graphics.  Substantially all of Graphics' long-term
obligations have been fully and unconditionally guaranteed by Communications.








                                        8

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

The two  business  sectors  of the  commercial  printing  industry  in which the
Company operates are printing and digital imaging/prepress services conducted by
its American Color division ("American Color").

1.  Summary of Significant Accounting Policies

a.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and are in accordance with  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 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, 1996 are not  necessarily  indicative of the
results  that may be expected  for the fiscal year ended March 31,  1997.  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, 1996 and
the  Company's  Post-Effective  Amendment  No. 2 to  Registration  Statement No.
33-97090 on Form S-1.

Certain  prior  period  amounts have been  reclassified  to conform with current
period presentation.

2.    The Shakopee Merger

On August 15, 1995, the Shakopee  Merger was  consummated  and each  outstanding
share of the Common Stock of Shakopee was converted into one share of the Common
Stock of the Company  and 1/20 of one share of Series B  Preferred  Stock of the
Company.   Also  on  August  15,  1995,  concurrent  with  the  Shakopee  merger
transaction,  the Company  refinanced a significant  portion of its  outstanding
indebtedness,  including  indebtedness  assumed  in  the  Shakopee  Merger  (the
"Refinancing"). See note 3 for a description of the Refinancing.

The Shakopee  Merger has been  accounted for as a combination  of entities under
common  control  (similar  to  a  pooling-of-interests),  and  accordingly,  the
unaudited condensed consolidated financial statements give retroactive effect to
the Shakopee Merger and include the combined  operations of  Communications  and
Shakopee subsequent to December 22, 1994.
















                                        9

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

3.    The Refinancing

On August 15, 1995, the Company sold $185 million of 12 3/4% Senior Subordinated
Notes Due 2005 (the "New Notes").  In connection with the sale of the New Notes,
the Company entered into a series of transactions  (the Refinancing and together
with the Shakopee Merger, the "Transactions"),  including the following: (i) the
Company entered into a Credit Agreement with BT Commercial  Corporation ("BTCC")
and other financial  institutions (the "New Bank Credit  Agreement"),  providing
Graphics with a $75 million revolving credit facility maturing in 2000 (the "New
Revolving Credit Facility") and a $60 million  amortizing term loan with a final
maturity in 2000 (the "New Term Loan"); (ii) the repayment of all $126.5 million
of indebtedness outstanding under Graphics' old bank credit agreement (plus $2.3
million of accrued  interest to the date of repayment);  (iii) the redemption of
all  outstanding  15%  Senior  Subordinated  Notes  Due 2000 of  Graphics  at an
aggregate  redemption  price of $105.6  million  (plus  $1.8  million of accrued
interest to the  redemption  date);  (iv) the  repayment of all $24.6 million of
indebtedness  assumed  in the  Shakopee  Merger  (plus  $0.1  million of accrued
interest to the date of repayment) and (v) the incurrence of approximately $11.8
million of fees and  expenses  related to the  Transactions.  As a result of the
Transactions,  the  Company  recorded  an  extraordinary  loss  related to early
extinguishment of debt of $4.5 million, net of $0 taxes. This extraordinary loss
primarily   consisted  of  the  early  redemption  premium  on  the  15%  Senior
Subordinated  Notes and the  write-off of deferred  financing  costs  related to
refinanced  indebtedness  partially  offset by the  write-off  of a bond premium
associated with the 15% Senior Subordinated Notes.

Borrowings  under the New Revolving  Credit  Facility are subject to a borrowing
base which  consists of (i) 85% of Eligible  Accounts  Receivable  plus (ii) the
lesser  of (x)  $15.0  million  or (y)  60% of  Eligible  Inventory  plus  (iii)
Equipment  Acquisition Loans in an amount not to exceed $7.5 million outstanding
at any time,  each of which must be repaid  within  six months  from the date of
borrowing minus (iv) the aggregate amount of reserves against Eligible  Accounts
Receivable and Eligible Inventory established by BTCC.

At September 30, 1996,  the  remaining New Term Loan  amortizes in the following
annual amounts: (i) $4.6 million through the remainder of Fiscal Year 1997, (ii)
$10.6 million in Fiscal Year 1998, (iii) $13.3 million in Fiscal Year 1999, (iv)
$15.2 million in Fiscal Year 2000 and (v) $8.0 million in Fiscal Year 2001.

Communications has guaranteed  Graphics'  indebtedness under the New Bank Credit
Agreement, as amended (the "Bank Credit Agreement"),  which guarantee is secured
by a  pledge  of  all  Graphics'  and  its  subsidiaries'  stock.  In  addition,
borrowings under the Bank Credit  Agreement are secured by substantially  all of
the assets of Graphics.  Communications is restricted under its guarantee of the
Bank  Credit  Agreement  from,  among  other  things,   entering  into  mergers,
acquisitions,  incurring  additional debt and paying  dividends.  The Company is
currently  in  compliance  with all  financial  covenants  set forth in the Bank
Credit Agreement.

Interest under the Bank Credit Agreement is floating based on prevailing  market
rates and is computed  using  various rate options over periods of 30, 60, 90 or
180 days as selected by the Company.











                                       10

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
4.    The Gowe Acquisition

On March 12, 1996,  Graphics  acquired the assets of Gowe, Inc., a Medina,  Ohio
based regional printer of newspapers,  T.V. books and retail advertising inserts
and catalogs ("Gowe"),  for approximately $6.7 million in cash and assumption of
certain  liabilities of Gowe,  Inc.,  pursuant to an Asset  Purchase  Agreement,
among Graphics,  Gowe, Inc. and ComCorp,  Inc., the parent company of Gowe, Inc.
(the "Gowe  Acquisition").  The Gowe  Acquisition  was  accounted  for under the
purchase method of accounting  applying the provisions of Accounting  Principles
Board  Opinion No. 16 ("APB 16").  Pursuant to the  requirements  of APB 16, the
purchase price was allocated to the tangible assets and identifiable  intangible
assets and liabilities assumed based upon their respective fair values.

The Company's pro forma unaudited results of operations for the six months ended
September 30, 1995,  assuming that the Gowe Acquisition  occurred as of April 1,
1995, were $271.2 million in sales and a $16.6 million net loss.

5.    Disposal of 51% Interest in National Inserting Systems, Inc.

On March 11,  1996,  the Company  sold its 51%  interest  in National  Inserting
Systems,  Inc.  ("NIS") for  approximately  $2.5  million in cash and a note for
approximately  $0.2  million  under  the terms of a Stock  Redemption  Agreement
between NIS and Graphics. This transaction resulted in a net gain on disposal of
approximately  $1.3  million,   which  was  classified  as  other,  net  in  the
consolidated  statement of operations  for the fiscal year ended March 31, 1996.
The proceeds from the sale were used to repay  indebtedness under Graphics' Bank
Credit Agreement (as defined herein).

6.    Inventories

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


                                       September 30, 1996       March 31, 1996
                                       ------------------       --------------

Paper                                     $  10,635                 11,277

Ink                                             302                    272

Equipment held for sale                         366                    349

Supplies and other                            1,452                  1,283
                                              -----                 ------

      Total                              $   12,755                 13,181
                                         ==========                 ======


In the third  quarter  of the fiscal  year ended  March 31,  1996,  the  Company
changed  to the  first-in,  first-out  ("FIFO")  method of  accounting  from the
last-in,  first-out  ("LIFO")  method of accounting  as the principal  method of
accounting  for  inventories.  The change  results in a balance  sheet (1) which
reflects inventories at a value that more closely represents current costs which
the Company believes are the primary concern of its constituents  (bank lenders,
financial markets,  customers,  trade creditors, etc.) and (2) that enhances the
comparability  of  the  Company's  financial   statements  by  changing  to  the
predominant method used by key competitors in the printing industry.  The effect
(approximately  $0.8  million) of the change for the six months ended  September
30,  1995  resulted  in the  retroactive  restatement  of the first  and  second
quarters of the fiscal year ended March 31, 1996 of  approximately  $0.5 million
and $0.3  million,  respectively,  as a  decrease  of cost of  goods  sold and a
decrease to net loss.








                                       11

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

7.   Non-recurring Charges Related to Terminated Merger

The Company  recognized $1.5 million of expenses related to a terminated  merger
in the six month period ended September 30, 1995.

8.  Non-recurring Charge Related to Resignation of Chief Executive Officer

A  non-recurring  charge of $1.9  million was recorded  and is  classified  as a
selling,  general and administrative  expense in the quarter ended September 30,
1996 relating to the  resignation  of the  Company's  Chief  Executive  Officer.
Payments under the related agreement  continue through 2001,  subject to certain
requirements.

9.   Restructuring Costs

In April 1995, the Company approved a plan for its American Color division which
is   designed   to  improve   productivity,   increase   customer   service  and
responsiveness,  and provide increased growth in this business. The cost of this
plan is being  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)".  The  estimated  pretax  costs
associated  with  this  plan of $5.0  million  represent  employee  termination,
goodwill  write-down  and other  related costs that will be incurred as a direct
result of the plan. In the quarter ended June 30, 1995,  the Company  recognized
$2.1  million of such  charges,  primarily  for  severance  and other  personnel
related costs. In the quarter ended  September 30, 1995, the Company  recognized
$0.6 million of restructuring  costs primarily  related to hiring and relocating
certain  management  personnel.  In the quarter  ended  December 31,  1995,  the
Company  recognized an additional  $0.1 million of  restructuring  costs. In the
quarter  ended  March  31,  1996,  the  Company   recognized   $1.3  million  of
restructuring costs, which included $0.9 million of goodwill write-down and $0.4
million  primarily  related  to certain  relocation  costs  associated  with the
restructuring.  The goodwill  write-down related to certain facilities that were
either  shut  down  or  relocated  as part of the  restructuring.  In  addition,
approximately  $0.4 million and $0.1 million of  restructuring  costs  primarily
related to relocation  costs were recognized in the quarters ended June 30, 1996
and September 30, 1996, respectively.  The remaining costs of approximately $0.4
million,  principally  related to  additional  relocation  and other  transition
expenses, will be recorded as incurred.

10. 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.  The aggregate  commitment for future  salaries at September 30, 1996,
excluding bonuses, was approximately $2.3 million.












                                       12

<PAGE>




                          SULLIVAN COMMUNICATIONS, 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 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  has  recorded a reserve of  approximately  $0.1  million in
connection  with this liability on its  consolidated  balance sheet at September
30, 1996. The Company believes this amount is adequate to cover such liability.

On  December  21,  1989,  Graphics  sold its ink  manufacturing  operations  and
facilities ("CPS").  Graphics remains  contingently liable under $4.7 million of
industrial  revenue  bonds  assumed  by the  purchaser  ("CPS  Buyer")  in  this
transaction.  The CPS  Buyer  which  assumed  these  liabilities  has  agreed to
indemnify  Graphics  for any  resulting  obligation  and has  also  provided  an
irrevocable letter of credit in favor of the holders of such bonds. Accordingly,
management  believes that any obligation of Graphics  under this  contingency is
unlikely.

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


























                                       13

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Results of Operations

General

On August 15, 1995, Shakopee Valley Printing,  Inc. ("Shakopee") was merged with
and into Sullivan  Graphics,  Inc.  ("Graphics")  (the "Shakopee  Merger").  The
merger has been  accounted for as a combination of entities under common control
(similar to a pooling-of-interests), and accordingly, the condensed consolidated
financial  statements give retroactive effect to the Shakopee Merger and include
the combined operations of Sullivan Communications,  Inc. ("Communications") and
Shakopee  subsequent  to December  22, 1994 (the date on which  Shakopee  became
under common control with Graphics and Communications (the "Company")).

On March 11, 1996,  Graphics sold its 51% interest in National Inserting Systems
("NIS") for approximately $2.5 million in cash and a note for approximately $0.2
million  under  the  terms  of a  Stock  Redemption  Agreement  between  NIS and
Graphics.  The proceeds from the sale were used to repay  indebtedness under the
Bank Credit Agreement (as defined herein).

On March 12, 1996,  Graphics  acquired the assets of Gowe, Inc., a Medina,  Ohio
based regional printer of newspapers,  T.V. books and retail advertising inserts
and catalogs ("Gowe"),  for approximately $6.7 million in cash and assumption of
certain  liabilities of Gowe, Inc., pursuant to an Asset Purchase Agreement (the
"Gowe  Acquisition").  The Gowe Acquisition was accounted for under the purchase
method of accounting  applying the  provisions of  Accounting  Principles  Board
Opinion No. 16 ("APB 16").  Pursuant to the requirements of APB 16, the purchase
price was allocated to the tangible assets and  identifiable  intangible  assets
and liabilities  assumed based upon their respective fair values. The allocation
of the  purchase  price is  preliminary  and may change  during  the  allocation
period.  Gowe's results of operations  for the three months ended  September 30,
1996 (the "1996 Three Month Period") and the six months ended September 30, 1996
(the  "1996  Six Month  Period")  are  included  in the  Company's  consolidated
financial statements.

During March 1996, the Company  completed the construction and start-up of a new
plant in Hanover,  Pennsylvania ("Flexi-Tech").  Flexi-Tech will be dedicated to
the production of commercial flexi books (a form of advertising inserts) serving
various  segments of the retail  advertising  market and the  production of T.V.
listing guides serving the newspaper market.

In the 1996 Six Month Period,  the Company began to present  certain fixed costs
of its American Color production  facilities within cost of sales rather than as
selling,   general  and  administrative   expenses.  This  new  presentation  is
consistent with the Company's  presentation of the printing  sector's  financial
information,  and the Company  believes that this is a more accurate  measure of
the gross margin of the business. The financial information for the three months
ended  September  30, 1995 (the "1995 Three  Month  Period")  and the six months
ended  September 30, 1995 (the "1995 Six Month  Period") for the American  Color
sector has been reclassified to conform with this presentation.










                                       14

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations



The following table summarizes the Company's  results of operations for the 1996
Three-Month Period,  the 1995 Three-Month Period,  the 1996 Six-Month Period and
the 1995 Six-Month Period.


                            Three Months Ended            Six Months Ended
                               September 30,                 September 30,
                            ------------------            ----------------

                            1996           1995           1996            1995
                            ----           ----           ----            ----

                                       (dollars in thousands)

Sales:
  Printing             $ 117,586       $ 110,253     $ 237,928       $ 215,631
  American Color          18,204          18,037        35,963          35,990
  Other (b)                2,705           2,363         4,308           3,522
                       ---------       ---------     ---------       ---------
    Total              $ 138,495       $ 130,653     $ 278,199       $ 255,143

Gross Profit:
  Printing             $  12,565       $  12,526     $  23,877       $  25,699
  American Color           3,760           3,644         7,140           6,904
  Other (b)                1,165           1,025         1,866           1,347
                       ---------       ---------     ---------       ---------
    Total              $  17,490       $  17,195     $  32,883       $  33,950

Gross Margin:
  Printing                  10.7%           11.4%         10.0%           11.9%
  American Color            20.7%           20.2%         19.9%           19.2%
    Total                   12.6%           13.2%         11.8%           13.3%


Operating Income
(Loss):
  Printing             $   6,981       $   7,260     $  13,006       $  16,241
  American Color (a)         475               6          (469)         (1,188)
  Other (b) (c)           (4,941)(d)      (3,025)       (8,140)(d)      (6,494)
                       ---------       ---------     ---------       ---------
    Total              $   2,515       $   4,241     $   4,397       $   8,559



(a) Includes the impact of restructuring costs of $0.1 million in the 1996 Three
    Month Period and $0.6 million in the 1995 Three Month  Period,  $0.5 million
    in the 1996 Six Month Period and $2.7 million in the 1995 Six Month Period.
(b) Other operations consist primarily of revenues and expenses  associated with
    the Company's 51% owned  subsidiary,  NIS (sold on March 11, 1996),  and its
    wholly-owned subsidiary, Sullivan Media Corporation ("SMC").
(c) Also reflects corporate selling,  general and administrative  expenses,  and
    amortization expense.
(d) Also  reflects   non-recurring   charge  of  $1.9  million  related  to  the
    resignation  of the  Company's  Chief  Executive  Officer (see note 8 to the
    Unaudited Condensed Consolidated Financial Statements).







                                       15

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
Printing

Sales.  Printing sales increased $22.3 million to $237.9 million in the 1996 Six
Month Period from $215.6  million in the 1995 Six Month  Period.  This  increase
includes  $22.8 million of sales by Gowe and  Flexi-Tech  and an  approximate 4%
increase  in  volume  (excluding  Gowe and  Flexi-Tech).  These  increases  were
partially  offset by a decrease  in paper  prices,  the effect of an increase in
customer supplied paper, and the impact of competitive  pricing pressure,  which
in part resulted from the continuing impact of the weak retail environment which
existed throughout the second half of Fiscal Year 1996.

Printing sales  increased $7.3 million to $117.6 million in the 1996 Three Month
Period  from  $110.3  million  in the 1995 Three  Month  Period.  This  increase
includes  $10.9 million of sales by Gowe and  Flexi-Tech  and an  approximate 8%
increase  in  volume  (excluding  Gowe and  Flexi-Tech).  These  increases  were
partially  offset by a decrease  in paper  prices,  the effect of an increase in
customer supplied paper, and the impact of competitive  pricing pressure,  which
in part resulted from the continuing impact of the weak retail environment which
existed throughout the second half of Fiscal Year 1996.

Gross Profit.  Printing gross profit  decreased $1.8 million to $23.9 million in
the 1996 Six Month  Period  from  $25.7  million  in the 1995 Six Month  Period.
Printing gross margin decreased to 10.0% in the 1996 Six Month Period from 11.9%
in the 1995 Six Month  Period.  The  decrease in gross  profit and gross  margin
includes the impact of continued  competitive  pricing pressure,  a reduction in
the price of scrap paper,  an increase in  depreciation  expense and incremental
costs related to the start-up of  Flexi-Tech.  These  decreases  were  partially
offset by reduced variable  production and certain other manufacturing costs due
to continued cost  containment  programs at the printing  plants,  the effect of
higher volume and incremental gross margin from Gowe.

Printing gross profit  increased $0.1 million to $12.6 million in the 1996 Three
Month Period from $12.5 million in the 1995 Three Month Period.  Printing  gross
margin  decreased to 10.7% in the 1996 Three Month Period from 11.4% in the 1995
Three Month Period.  The increase in gross profit  includes the effect of higher
volume,   the  impact  of  reduced   variable   production   and  certain  other
manufacturing  costs due to continued cost containment  programs at the printing
plants and  incremental  gross margin from Gowe.  These increases were partially
offset by continued  competitive  pricing pressure,  a reduction in the price of
scrap paper, an increase in depreciation  expense and incremental  costs related
to the start-up of  Flexi-Tech.  The decrease in gross margin as a percentage of
sales is primarily due to the impact of continued  competitive  pricing pressure
and a reduction in the price of scrap paper.

Selling,  General and  Administrative  Expenses.  Printing selling,  general and
administrative  expenses increased to $10.9 million or 4.6% of printing sales in
the 1996 Six Month  Period from $9.5  million or 4.4% of  printing  sales in the
1995  Six  Month  Period.   This   increase   includes   selling,   general  and
administrative  expenses  of  Gowe  and  Flexi-Tech,  and  increased  sales  and
marketing  expenses  offset in part by  decreases  in certain  employee  related
expenses.

Printing selling,  general and administrative expenses increased to $5.6 million
or 4.8% of printing  sales in the 1996 Three Month  Period from $5.3  million or
4.8% of printing  sales in the 1995 Three Month Period.  This increase  includes
selling,  general  and  administrative  expenses  of Gowe  and  Flexi-Tech,  and
increased sales and marketing expenses.

Operating  Income.  As a result of the above factors,  operating income from the
printing  business  decreased to $13.0 million in the 1996 Six Month Period from
$16.2  million in the 1995 Six Month Period and decreased to $7.0 million in the
1996 Three Month Period from $7.3 million in the 1995 Three Month Period.






                                       16

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

American Color

Sales.  American  Color's  sales were  $36.0  million in both the 1996 Six Month
Period and the 1995 Six Month Period.

American Color's sales increased $0.2 million to $18.2 million in the 1996 Three
Month Period from $18.0 million in the 1995 Three Month Period. This increase is
primarily  the result of increases  in digital  visual  effects  work  partially
offset by lower prepress production volume.

Gross  Profit.  American  Color's  gross profit  increased  $0.2 million to $7.1
million  in the 1996 Six Month  Period  from $6.9  million in the 1995 Six Month
Period.  American  Color's gross margin increased to 19.9% in the 1996 Six Month
Period from 19.2% in the 1995 Six Month  Period.  These  increases are primarily
the result of cost savings in material and other production costs offset in part
by facilities management start-up costs.

American Color's gross profit increased $0.2 million to $3.8 million in the 1996
Three Month  Period from $3.6 million in the 1995 Three Month  Period.  American
Color's  gross  margin  increased  to 20.7% in the 1996 Three Month  Period from
20.2% in the 1995 Three Month Period.  These  increases are primarily the result
of cost  savings  in  material  and  other  production  costs  offset in part by
facilities management start-up costs.

Selling, General and Administrative Expenses.  American Color's selling, general
and  administrative  expenses  increased  to $7.1  million or 19.8% of  American
Color's  sales  in the 1996 Six  Month  Period  from  $5.4  million  or 14.9% of
American  Color's  sales in the 1995  Six  Month  Period.  These  increases  are
primarily a result of increased sales and marketing expenses and the addition of
operations  and  administrative  personnel and related  expenses,  including its
digital visual effects group.

American Color's selling,  general and administrative expenses increased to $3.2
million or 17.6% of American  Color's  sales in the 1996 Three Month Period from
$3.0 million or 16.6% of American Color's sales in the 1995 Three Month Period.

Operating Income (Loss).  As a result of the above factors and the incurrence of
restructuring costs related primarily to employee termination and other expenses
associated  with the American  Color  restructuring  plan of $0.5 million,  $2.7
million,  $0.1 million and $0.6 million in the 1996 Six Month  Period,  the 1995
Six Month  Period,  the 1996 Three Month Period and the 1995 Three Month Period,
respectively,  operating losses at American Color were reduced to a loss of $0.5
million in the 1996 Six Month Period from a loss of $1.2 million in the 1995 Six
Month Period.  Operating  income at American  Color  increased to income of $0.5
million in the 1996 Three Month Period from zero in the 1995 Three Month Period.

See discussion below for information  regarding the American Color restructuring
plan.











                                       17

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Other Operations

Other operations consist primarily of revenues and expenses  associated with the
Company's 51% owned subsidiary,  NIS (sold March 11, 1996), and its wholly-owned
subsidiary,  SMC. In  addition,  other  operations  include  corporate  selling,
general  and  administrative  and  other  expenses  and  amortization   expense.
Amortization   expense   related  to  other   operations,   including   goodwill
amortization (see below), was $4.4 million,  $4.8 million, $2.1 million and $2.4
million, in the 1996 Six Month Period, the 1995 Six Month Period, the 1996 Three
Month Period and the 1995 Three Month Period, respectively.

Operating losses from other operations  increased $1.6 million to a loss of $8.1
million in the 1996 Six Month Period from a loss of $6.5 million in the 1995 Six
Month  Period.  This  increase  includes the $1.9 million  non-recurring  charge
related to the resignation of the Company's Chief Executive  Officer (see note 8
to the Unaudited Condensed Consolidated Financial Statements).

Operating losses from other operations  increased $1.9 million to a loss of $4.9
million in the 1996 Three Month  Period from a loss of $3.0  million in the 1995
Three Month Period.  This increase also includes the $1.9 million  non-recurring
charge related to the resignation of the Company's Chief Executive Officer.

Goodwill Amortization

Amortization  expense  associated with goodwill was $4.1 million,  $4.3 million,
$2.1 million and $2.2 million for the 1996 Six Month Period,  the 1995 Six Month
Period,   the  1996  Three  Month  Period  and  the  1995  Three  Month  Period,
respectively.

Restructuring Costs

In April 1995, the Company approved a plan for its American Color division which
is   designed   to  improve   productivity,   increase   customer   service  and
responsiveness,  and provide increased growth in this business. The cost of this
plan is being  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)".  The  estimated  pretax  costs
associated  with  this  plan of $5.0  million  represent  employee  termination,
goodwill  write-down  and other  related costs that will be incurred as a direct
result of the plan. In the quarter ended June 30, 1995,  the Company  recognized
$2.1  million of such  charges,  primarily  for  severance  and other  personnel
related costs. In the quarter ended  September 30, 1995, the Company  recognized
$0.6 million of restructuring  costs, related primarily to hiring and relocating
certain management personnel. In the quarter ended December 31,1995, the Company
recognized an additional  $0.1 million of  restructuring  costs.  In the quarter
ended March 31,  1996,  the Company  recognized  $1.3  million of  restructuring
costs,  which  included  $0.9  million of goodwill  write-down  and $0.4 million
primarily related to certain relocation costs associated with the restructuring.
The goodwill write-down related to certain facilities that were either shut down
or  relocated as part of the  restructuring.  In  addition,  approximately  $0.4
million  and  $0.1  million  of  restructuring   charges  primarily  related  to
relocation  costs  were  recognized  in the  quarters  ended  June 30,  1996 and
September 30, 1996,  respectively.  The remaining  costs of  approximately  $0.4
million,  principally  related to  additional  relocation  and other  transition
expenses, will be recorded as incurred.






                                       18

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Interest Expense

Interest  expense  increased 18.9% to $18.1 million in the 1996 Six Month Period
from $15.2  million in the 1995 Six Month  Period.  Interest  expense  increased
18.2% to $9.5  million in the 1996 Three Month  Period from $8.0  million in the
1995 Three Month Period.  These  increases are primarily the result of increased
average  indebtedness levels including  indebtedness related to the Transactions
(see note 3 to the Unaudited Condensed  Consolidated  Financial  Statements) and
obligations under capital leases.

Non-recurring Charges Related to Terminated Merger

The Company  recognized $1.5 million of expenses related to a terminated  merger
in the 1995 Six Month Period.

Other Expense, Net

Other  expense,  net  decreased  to  expense of $0 million in the 1996 Six Month
Period from expense of $1.0 million in the 1995 Six Month Period. Other expense,
net  decreased  to expense of $0 million  in the 1996 Three  Month  Period  from
expense  of $0.9  million  in the  1995  Three  Month  Period.  These  decreases
primarily  include the impact of reduced  expenses  associated  with an employee
benefit program.

Income Tax Expense

Income tax expense  decreased  to $1.6 million in the 1996 Six Month Period from
$3.2 million in the 1995 Six Month  Period and  increased to $0.6 million in the
1996 Three Month Period from $0.4 million in the 1995 Three Month Period.  These
changes are primarily  due to the Shakopee  Merger,  smaller  amounts of taxable
income in foreign jurisdictions, the sale of NIS and changes in the deferred tax
valuation allowance.

Net Loss

As a result of the factors  discussed above, the Company's net loss decreased to
$15.2  million in the 1996 Six Month  Period from $16.7  million in the 1995 Six
Month Period,  and decreased to $7.5 million in the 1996 Three Month Period from
$9.5 million in the 1995 Three Month Period.
















                                       19

<PAGE>



                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Liquidity and Capital Resources

In  August  1995,  the  Company  refinanced  substantially  all of its  existing
indebtedness  (the  "Refinancing")  (see  note  3  to  the  Unaudited  Condensed
Consolidated  Financial  Statements).  The primary objectives of the Refinancing
were to gain greater  financial and  operating  flexibility,  to facilitate  the
merger with Shakopee,  to refinance  near-term debt service  requirements and to
provide further opportunity for internal growth and growth through acquisitions.

As part of the Refinancing,  the Company received gross proceeds of $185 million
from the sale of 12 3/4% Senior  Subordinated  Notes Due 2005 (the "New Notes").
The gross proceeds of the offering of the New Notes, together with $85.6 million
in borrowings under the amended credit agreement with BT Commercial  Corporation
and other financial  institutions  (the "Bank Credit  Agreement"),  and existing
cash balances were used (i) to redeem all $100 million  principal  amount of the
15% Senior Subordinated Notes at a redemption price of $105.6 million (plus $1.8
million of accrued interest to September 15, 1995, the redemption date), (ii) to
repay all $126.5 million of  indebtedness  outstanding  under Graphics' old bank
credit  agreement (plus $2.3 million of accrued interest at the repayment date),
(iii) to repay all $24.6 million of indebtedness  assumed in the Shakopee Merger
(plus $0.1 million of accrued  interest at the repayment  date) and (iv) to fund
approximately $11.8 million of fees and expenses incurred in connection with the
Transactions.

The Bank Credit Agreement  includes a revolving credit facility which matures on
September  30,  2000 (the "New  Revolving  Credit  Facility"),  providing  for a
maximum of $75 million of borrowing  availability,  subject to a borrowing  base
requirement  (see  note  3 to the  Unaudited  Condensed  Consolidated  Financial
Statements). As of October 31, 1996, the Company had borrowings of $37.9 million
outstanding  under  the New  Revolving  Credit  Facility  and $13.5  million  of
additional borrowing availability. The Company expects that it will from time to
time  during the fiscal year ending  March 31, 1997  ("Fiscal  Year 1997") use a
substantial portion of its availability in the normal course of its operations.

The Bank Credit  Agreement also provides for a $60 million  amortizing term loan
with a final  maturity on September  30, 2000 (the "New Term  Loan").  Remaining
Fiscal  Year  1997  scheduled  payments  due  under  the New Term  Loan are $4.6
million.

Cash from operations and net borrowings  under the New Revolving Credit Facility
(see the Unaudited Condensed Consolidated Statements of Cash Flows) were used to
repay $4.5 million in scheduled  principal  payments on indebtedness  during the
1996 Six Month  Period.  Additionally,  these cash sources were used to fund the
Company's  cash  capital  expenditures  during the 1996 Six Month Period of $5.0
million and the repayment of capital  lease  obligations  of $1.3  million.  The
Company  plans to continue  its program of  upgrading  its printing and prepress
equipment and expanding production capacity and currently  anticipates that full
year Fiscal Year 1997 cash capital expenditures will approximate $13 million and
repayment  of capital  lease  obligations  will  approximate  $3.5  million.  In
addition,  the  Company  plans to  acquire  equipment  under  capital  leases of
approximately  $29 million  during  full year Fiscal Year 1997.  The Company had
zero  cash  and  cash  equivalents  on  hand  at  September  30,  1996  due to a
requirement  under  the Bank  Credit  Agreement  that  substantially  all of the
Company's  daily  available  funds be used to  reduce  borrowings  under the New
Revolving  Credit  Facility.  The Company  expects  that its  ongoing  liquidity
requirements  during Fiscal Year 1997 will be met from cash from  operations and
amounts available under the Bank Credit  Agreement.  The Company is currently in
compliance with all financial covenants set forth in the Bank Credit Agreement.






                                       20

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

At September 30, 1996, the Company had total debt outstanding of $311.4 million,
including capital lease obligations.  Of the total debt outstanding at September
30, 1996,  $94.3 million was  outstanding  under the Bank Credit  Agreement at a
weighted  average  interest  rate of 8.25%.  Indebtedness  under the Bank Credit
Agreement bears interest at floating rates,  causing the Company to be sensitive
to  prevailing   interest   rates.  At  September  30,  1996,  the  Company  had
indebtedness  other than  obligations  under the Bank Credit Agreement of $217.1
million (including $185 million of New Notes).






























                                       21

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


   EBITDA


                             Three Months Ended           Six Months Ended
                                 September 30,              September 30,
                             ------------------           ----------------

                             1996          1995          1996           1995
                             ----          ----          ----           ----


                                       (dollars in thousands)

EBITDA:
 Printing                $ 12,004       $ 11,176     $ 22,815       $ 24,212
 American Color (a)         1,966          1,252        2,313          1,245
 Other (b) (c)             (2,864)(d)       (553)      (3,746)(d)     (1,558)
                         --------       --------     --------       --------
    Total                $ 11,106       $ 11,875     $ 21,382       $ 23,899
                         
EBITDA Margin:           
  Printing                   10.2%          10.1%         9.6%          11.2%
  American Color             10.8%           6.9%         6.4%           3.5%
    Total                     8.0%           9.1%         7.7%           9.4%
                         
                         
                      
(a) Includes the impact of restructuring costs of $0.1 million in the 1996 Three
    Month Period and $0.6 million in the 1995 Three Month  Period,  $0.5 million
    in the 1996 Six Month Period and $2.7 million in the 1995 Six Month Period.
(b) Other operations consist primarily of revenues and expenses  associated with
    the Company's 51% owned  subsidiary,  NIS (sold on March 11, 1996),  and its
    wholly owned subsidiary SMC.
(c) Also reflects corporate selling, general and administrative expenses.
(d) Also  reflects  a  non-recurring  charge  of  $1.9  million  related  to the
    resignation  of the  Company's  Chief  Executive  Officer (see note 8 to the
    Unaudited Condensed Consolidated Financial Statements).


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)  benefit,  depreciation,
amortization, other special charges related to asset write-offs and write-downs,
other income (expense), discontinued operations and extraordinary items. "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 New Notes and the Bank  Credit  Agreement  are based on  EBITDA,  subject to
certain adjustments.










                                       22

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Printing.  As a result of the reasons  previously  described under  "--Printing"
(excluding the increase in depreciation  expense),  Printing EBITDA decreased to
$22.8  million in the 1996 Six Month  Period from $24.2  million in the 1995 Six
Month Period,  representing a decrease of $1.4 million,  and the Printing EBITDA
Margin decreased to 9.6% in the 1996 Six Month Period from 11.2% in the 1995 Six
Month Period. Printing EBITDA increased to $12.0 million in the 1996 Three Month
Period  from $11.2  million  in the 1995 Three  Month  Period,  representing  an
increase of $0.8 million,  and the Printing EBITDA Margin  increased to 10.2% in
the 1996 Three Month Period from 10.1% in the 1995 Three Month Period.

American  Color.  As  a  result  of  the  reasons  previously   described  under
"--American  Color,"  American  Color's EBITDA  increased to $2.3 million in the
1996  Six  Month  Period  from  $1.2  million  in the  1995  Six  Month  Period,
representing  an increase of $1.1 million,  and the American Color EBITDA Margin
increased  to 6.4% in the 1996 Six Month  Period from 3.5% in the 1995 Six Month
Period.  These EBITDA increases included  restructuring costs of $0.5 million in
the 1996 Six Month  Period as compared  with $2.7  million in the 1995 Six Month
Period.  American  Color's  EBITDA  increased  to $2.0 million in the 1996 Three
Month Period from $1.3 million in the 1995 Three Month Period,  representing  an
increase of $0.7  million,  and the American  Color EBITDA  Margin  increased to
10.8% in the 1996 Three Month  Period from 6.9% in the 1995 Three Month  Period.
These EBITDA increases included  Restructuring costs of $0.1 million in the 1996
Three Month Period as compared with $0.6 million in the 1995 Three Month Period.

Other.  As  a  result  of  the  reasons  previously   described  under  "--Other
Operations"  (excluding  changes  in  amortization  expense),  other  operations
negative  EBITDA  increased  to negative  EBITDA of $3.7 million in the 1996 Six
Month Period from negative  EBITDA of $1.6 million in the 1995 Six Month Period.
Other operations negative EBITDA increased to negative EBITDA of $2.9 million in
the 1996 Three Month  Period from  negative  EBITDA of $0.6  million in the 1995
Three  Month  Period.  EBITDA  for the 1996 Six Month  Period and the 1996 Three
Month Period includes the impact of a $1.9 million  non-recurring charge related
to the resignation of the Company's Chief Executive Officer.

Change in Inventory Valuation Method

During the third  quarter of the fiscal year ended March 31,  1996,  the Company
changed  to the  first-in,  first-out  ("FIFO")  method of  accounting  from the
last-in,  first-out  ("LIFO")  method of accounting  as the principal  method of
accounting  for  inventories.  The change  results in a balance  sheet (1) which
reflects inventories at a value that more closely represents current costs which
the Company believes are the primary concern of its constituents  (bank lenders,
financial markets,  customers,  trade creditors, etc.) and (2) that enhances the
comparability  of  the  Company's  financial   statements  by  changing  to  the
predominant method used by key competitors in the printing industry.  The effect
(approximately  $0.8  million) of the change for the six months ended  September
30,  1995  resulted  in the  retroactive  restatement  of the first  and  second
quarters of the fiscal year ended March 31, 1996 of  approximately  $0.5 million
and $0.3  million ,  respectively,  as a  decrease  of cost of goods  sold and a
decrease to net loss.










                                       23

<PAGE>




                          SULLIVAN COMMUNICATIONS, INC.
                            Part II Other Information

Item 1.   (a) Legal Proceedings

              Reference is made to Item 3 (Legal Proceedings)  disclosure in the
              Company's  Form 10-K  filed for the fiscal  year  ended  March 31,
              1996.


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

              Exhibit No.     Description

                   10.1(d)    August  13,  1996,   Fourth   Amendment  to Credit
                              Agreement,  dated as of  August  15,  1995,  among
                              Communications,     Graphics,     BT    Commercial
                              Corporation,  as Agent,  Bankers Trust Company, as
                              Issuing Bank, and the parties signatory thereto

                   10.3       Resignation  letter,  dated  as of  September  18,
                              1996, between Graphics and James T. Sullivan

                   10.4(d)    Amendment to Employment Agreement, dated September
                              18, 1996, between Graphics and Stephen M. Dyott

                   10.8       Severance   agreement,   dated  October  3,  1996,
                              between Graphics and Patrick W. Kellick

                   27.0       Financial Data Schedule

         (b)  Reports on Form 8-K

              None were filed during the quarter ended September 30, 1996.



                                       24


<PAGE>



                                   SIGNATURES




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




                                     Sullivan Communications, Inc.
                                     Sullivan Graphics, Inc.



Date  November 13, 1996              By  /s/ Joseph M. Milano
      --------------------------        ---------------------
                                     Joseph M. Milano
                                     Senior Vice President and
                                     Chief Financial Officer
                                     (Authorized Officer and
                                     Principal Financial Officer)




Date  November 13, 1996             By  /s/ Patrick W. Kellick
      --------------------------        ---------------------
                                    Patrick W. Kellick
                                    Vice President - Corporate Controller
                                    (Chief Accounting Officer)

                                       25