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

                                    FORM 10-K
(Mark One)

[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
         For the fiscal year ended March 31, 2001

                                       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 33-97090

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

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

                               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)

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

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

                               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 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 if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
          ---

Aggregate market value of the voting and non-voting common stock of ACG
Holdings, Inc. held by non-affiliates: Not applicable.

ACG Holdings, Inc. has 143,399 shares outstanding of its common stock, $.01 Par
Value, as of May 31, 2001 (all of which are privately owned and not traded on a
public market).

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

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                                      INDEX

<TABLE>
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                                                                                                                          Page
                                                                                                                       Referenced
                                                                                                                        Form 10-K
                                                                                                                       -----------

                                                               PART I


<S>             <C>                                                                                                       <C>
Item 1.         Business...............................................................................................    2
Item 2.         Properties.............................................................................................    7
Item 3.         Legal Proceedings......................................................................................    8
Item 4.         Submission of Matters to A Vote of Security Holders....................................................    8



                                                               PART II

Item 5.         Market for Registrant's Common Equity and Related Stockholder Matters .................................    9
Item 6.         Selected Financial Data................................................................................    9
Item 7.         Management's Discussion and Analysis of Financial Condition and Results of Operations..................   13
Item 7A.        Quantitative and Qualitative Disclosures About Market Risk.............................................   22
Item 8.         Financial Statements and Supplementary Data............................................................   23
Item 9.         Changes In and Disagreements With Accountants on Accounting and Financial Disclosure...................   50



                                                              PART III

Item 10.        Directors and Executive Officers ......................................................................   51
Item 11.        Executive Compensation.................................................................................   52
Item 12.        Security Ownership of Certain Beneficial Owners and Management.........................................   57
Item 13.        Certain Relationships and Related Transactions.........................................................   58



                                                               PART IV

Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................   60



                Signatures.............................................................................................   68

</TABLE>

<PAGE>


                                                               PART I

Special Note Regarding Forward Looking Statements

This Annual Report on Form 10-K (this "Report") contains forward-looking
statements within the meaning of Section 21E of the Securities Act of 1934.
Discussions containing such forward-looking statements may be found in Items 1,
3, 7 and 7A hereof, as well as within this Report generally. In addition, when
used in this Report, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements are subject to a number of risks and uncertainties. Actual results in
the future could differ materially from those described in the forward-looking
statements as a result of many factors outside the control of ACG Holdings, Inc.
("Holdings"), together with its wholly-owned subsidiary, American Color
Graphics, Inc. ("Graphics"), including, but not limited to:


     -    fluctuations in the cost of paper and other raw materials used,

     -    changes in the advertising and print markets,

     -    actions by our competitors, particularly with respect to pricing,

     -    the financial condition of our customers,

     -    our financial condition and liquidity,

     -    the general condition of the United States economy,

     -    demand for our products and services, and

     -    the matters set forth in this Report generally.

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

ITEM 1.  BUSINESS

General

We are a successor to a business that commenced operations in 1926, and are one
of the largest national diversified commercial printers in North America with
ten print plants in eight states and Canada, nine premedia facilities located
throughout the United States and one digital visual effects facility located in
California that provides special effects services for the motion picture
industry. We operate primarily in two business segments of the commercial
printing industry: print, (which accounted for approximately 85% of total sales
during the fiscal year ended March 31, 2001 ("Fiscal Year 2001")) and premedia
services conducted through our American Color division (which accounted for
approximately 14% of total sales in Fiscal Year 2001). Our print business and
our premedia services business are both headquartered in Brentwood, Tennessee.
Partnerships affiliated with Morgan Stanley Dean Witter & Co. ("MSDW") currently
own 57.7% of the outstanding common stock and 72.7% of the outstanding preferred
stock of Holdings.

Market data used throughout this Report was obtained from industry publications
and internal company estimates. While we believe such information is reliable,
the accuracy of such information has not been independently verified and cannot
be guaranteed.

Financial Information About Industry Segments

See disclosure in note 15 of our consolidated financial statements appearing
elsewhere in this Report.


                                       2
<PAGE>

Print

Our print business, which accounted for approximately 85%, 84% and 83% of our
sales in Fiscal Year 2001, the fiscal year ended March 31, 2000 ("Fiscal Year
2000") and the fiscal year ended March 31, 1999 ("Fiscal Year 1999"),
respectively, produces retail advertising inserts, comics and other
publications.


Retail Advertising Inserts (85% of print sales in Fiscal Year 2001, 83% in
Fiscal Year 2000 and 81% in Fiscal Year 1999). We believe that we are one of the
largest printers of retail advertising inserts in the United States. We print
advertising inserts for approximately 275 retailers. Retail advertising inserts
are preprinted advertisements, generally in color, that display products sold by
a particular retailer or manufacturer. Advertising inserts are used extensively
by many different retailers; including discount, department, supermarket, home
center, drug and automotive stores. Inserts are an important and cost effective
means of advertising for these merchants. Advertising inserts are primarily
distributed through insertion in newspapers but are also distributed by direct
mail or in-store by retailers. They generally advertise for a specific, limited
sale period. As a result, advertising inserts are both time sensitive and
seasonal.


Comics (8% of print sales in Fiscal Year 2001, 11% in Fiscal Year 2000 and 13%
in Fiscal Year 1999). We believe that we are one of the largest printers of
comics in the United States. Comics consist of newspaper Sunday comics, comic
insert advertising and comic books. We print Sunday comics for over 200
newspapers in the United States and Canada and print a significant share of the
annual comic book requirements of Marvel Entertainment Group, Inc.


Other Publications (7% of print sales in Fiscal Year 2001 and 6% in both Fiscal
Year 2000 and Fiscal Year 1999). We print local newspapers, TV guide listings
and other publications.

Print Production

Our network of ten print plants in the United States and Canada is strategically
well positioned to service major metropolitan centers, providing us with
distribution efficiencies and shorter turnaround times, two factors that we
believe will allow our continuing success in servicing large national and
regional accounts. There are primarily three printing processes used to produce
advertising inserts and newspaper supplements: offset lithography (heatset and
cold), rotogravure and flexography. We principally use heatset offset and
flexographic web printing equipment in our print operations. We own the majority
of our printing equipment, which currently consists of 42 heatset offset
presses, 5 coldset offset presses and 11 flexographic presses. Most of our
advertising inserts, publications and comic books are printed using the offset
process, while substantially all of our newspaper Sunday comics and comic
advertising inserts are printed using the flexographic process.

In the heatset offset process, the desired printed images are distinguished
chemically from non-image areas of a metal plate which allows the image area to
attract the ink which is then transferred from the plate to a rubber blanket and
then to the paper surface. Once printed, the web goes through an oven that
evaporates the solvents from the ink, thereby setting the ink on the paper. In
the cold offset process, inks are set by the absorption of solvents into the
paper. Due to the drying process, the heatset offset process can be utilized on
a wide variety of papers. Generally, heatset offset presses have the ability to
provide a more colorful and attractive product than cold offset presses.

The flexographic process differs from offset printing in that it utilizes relief
image plates and rapid-drying, water-based (as opposed to solvent-based) inks.
The flexographic image area results from application of ink to the raised image
surface on the plate, which is transferred directly to the paper. Our
flexographic printing generally can provide vibrant color reproduction at a
lower cost than heatset offset printing. The strengths of flexography compared
with the rotogravure and offset processes are faster press set up times, reduced
paper waste, reduced energy use and maintenance costs, and environmental
advantages due to the use of water-based inks and the use of less paper. Faster
press set up times make the process particularly attractive to commercial
customers with shorter runs and extensive regional versioning.

                                       3
<PAGE>

In addition to press capacity, certain equipment parameters are critical to
competing in the advertising insert market, including cut-off length, folder
capabilities and certain in-line and off-line finishing capabilities. Cut-off
length is one of the determinants of the size of the printed page, the other
being web width. Folder capabilities for advertising inserts must include a wide
variety of page sizes, page counts and page layouts. Finally, some advertising
inserts require gluing or stitching of the product, adding cards, trimming and
numbering. These production activities generally are done in-line with the press
to meet the expedited delivery schedules required by many customers. We believe
that our mix and configuration of presses and press services allows for
efficient tailoring of printing services to customers' product needs.


We are one of the United States' largest mailers. In combination with our
national account status with the United States Postal Service and our experience
in such areas as list services, addressing accuracy and postal service, we are
able to offer distribution and mailing services that help to maximize the
advertising impact and financial return for our customers.


Premedia Services


Our premedia services business is conducted by our American Color division
("American Color") which accounted for approximately 14%, 15% and 16% of our
Fiscal Year 2001, Fiscal Year 2000 and Fiscal Year 1999 sales, respectively. We
believe we are one of the largest full-service providers of premedia services in
the United States and a technological leader in this industry. Premedia services
consist of digital imaging, digital asset management, prepress and color
separation services. Our premedia services business commenced operations in 1975
and maintains nine full service locations nationwide.


We assist customers in the capture, manipulation, transmission and distribution
of images. The majority of this work leads to the production of a four-color
image in a format appropriate for use by printers. We make page changes,
including type changes, and combine digital page layout information with
electronically captured and color-corrected four-color images. From these
digital files, proofs, final corrections, and finally, four-color films or
digital files are produced for each advertising or editorial page. The final
four-color films or digital files enable printers to prepare plates for each
color resulting in the appearance of full color on the printed page. Our revenue
from these traditional services is being supplemented by additional revenue
sources including digital asset management, facilities management (operating
premedia service facilities at a customer location), computer-to-plate services,
creative services, conventional and digital photography, consulting and training
services, multimedia and internet services, and software and data-base
management. We have been a leader in implementing these new technologies, which
enables us to reduce unit costs and effectively service the increasingly complex
demands of our customers more quickly than many of our competitors. We have also
been one of the leaders in the integration of electronic page make-up,
microcomputer-based design and layout, and digital cameras into premedia
production.

The premedia services industry is highly fragmented, primarily consisting of
smaller local and regional companies, with only a few national full-service
premedia service companies such as American Color, none of which has a
significant nationwide market share. Many smaller premedia service companies
have left the industry in recent years due to their inability to keep pace with
technological advances in the industry.

Competitive Advantages and Strategy

Competitive Advantages. We believe that we have the following competitive
advantages in our print and premedia services businesses:

Modern Equipment. We believe that our web heatset offset and flexographic web
printing equipment is generally among the most advanced in the industry and that
the average age of our equipment is significantly less than the majority of our
regional competitors and is comparable to our major national competitors. We are
also committed to a comprehensive, long-term maintenance program, which enhances
the reliability and extends the life of our presses and other production
equipment. We also believe that our premedia equipment is significantly more
advanced than many of our smaller regional competitors, many of whom have not
incorporated digital premedia technologies and computer-to-plate services to the
same extent as we have, nor adopted an open systems environment which allows
greater flexibility and more efficient maintenance.

                                       4
<PAGE>

Strong Customer Base. We provide printing services to a diverse base of
customers, including approximately 275 retailers and over 200 newspapers in the
United States and Canada. Our print services customer base includes a
significant number of the major national retailers and larger newspaper chains
as well as numerous smaller regional retailers. Our consistent focus on
providing high quality print products and strong customer service at competitive
prices has resulted in long-term relationships with many of these customers. Our
premedia services customer base includes large and medium-sized customers in the
retail, publishing, catalog and packaging businesses, many of whom also have
long-term relationships with our print segment. We have been successful in
continuing to increase the proportion of our business under long-term contracts.

Competitive Cost Structure. We have reduced the variable and fixed costs of
production at our print facilities over the past several years and believe we
are well positioned to maintain our competitive cost structure in the future due
to economies of scale. We have also reduced manufacturing costs and selling,
general and administrative expenses in our premedia services business primarily
through the adoption of new digital premedia production methodologies and
continued cost containment focus.

Strong Management Team. Our print management group maintains a clear focus on
growth, quality and continued cost reduction, resulting in an improved cost
structure and a well-defined strategy for future expansion. Our management group
in the premedia services business consists of individuals who we believe will
manage the premedia services business for growth and profitability and will
continue to upgrade our capabilities.

National Presence. Our nine print plants in the United States and one plant in
Canada provide us with distribution efficiencies, strong customer service,
flexibility and short turnaround times, all of which are instrumental in our
continued success in servicing our large national and regional retail accounts.
Our expanded sales and marketing groups provide greater customer coverage and
enable us to more successfully penetrate regional markets. We believe that our
nine premedia services facilities provide us with contingency capabilities,
increased capacity during peak periods, access to top quality internal technical
personnel throughout the country, short turnaround time and other customer
service advantages.

Strategy. Our objective is to increase shareholder value by growing our
revenues, increasing our market share and reducing costs. Our strategy to
achieve this objective is as follows:

Grow Unit Volume. Management believes that our level of national sales coverage,
when coupled with our significant industry experience and customer-focused sales
force, will result in continued unit growth. In an effort to stimulate unit
volume growth, we have strengthened our print sales group. Unit volume growth is
also expected to result from continued capital expansion and selective print
acquisitions. In addition, in our premedia services business, we have
strengthened our sales force, provided expanded training, and more closely
focused our marketing efforts on new, larger customers.

Continue to Improve Product Mix. We intend to increase our share of the retail
advertising insert market. In addition, we expect to continue to adjust the mix
of our customers and products within the retail advertising insert market to
those that are more profitable and less seasonal and to maximize the use of
our equipment. We are also continuing expansion of our print facilities'
capabilities for in-plant prepress and postpress services. Our premedia services
business will continue to focus on high value-added new business opportunities,
particularly large-scale projects that will best utilize the breadth of services
and technologies we have to offer. Additionally, we will continue to pursue
large scale facilities management opportunities as well as national and large
regional customers that require more sophisticated levels of service and
technologies.

Continue to Reduce Manufacturing Costs and Improve Quality. We intend to further
reduce our production costs at our print and premedia service facilities through
our Total Quality Management Process, an ongoing cost reduction and continuous
quality improvement process. Additionally, we plan to continue to maximize scale
advantages in the purchasing, technology and engineering areas. We also intend
to continue to gain variable cost efficiencies in our premedia services business
by using our technical resources to improve digital premedia workflows at our
various facilities. In addition, we believe we will be able to reduce our per
unit technical, sales and management costs as we increase sales in this
business.

Continue to Make Opportunistic Acquisitions. An integral part of our long-term
growth strategy includes a plan to selectively assess and acquire other print
and premedia services companies that we believe will enhance our leadership
position in these industries.

                                       5
<PAGE>

Customers and Distribution


Customers. We sell our print products and services to a large number of
customers, primarily retailers and newspapers, and all of the products are
produced in accordance with customer specifications. We perform approximately
one-third of our print work, including the printing of retail advertising
inserts, Sunday comics and comic books, under contracts, ranging in term from
one year to ten years. The contracts vary in length and many of the contracts
automatically extend for one year unless there has been notice to the contrary
from either of the contracting parties within a certain number of days before
the end of any term. For the balance of our print work, we obtain varying time
commitments from our customers ranging from job to job to annual allocations.
Print prices are generally fixed during such commitments; however, our standard
terms of trade call for the pass-through of changes in the price of raw
materials, primarily paper and ink.


Our premedia services customers consist of magazine and newspaper publishers,
retailers, catalog sales organizations, printers, consumer products companies,
packaging manufacturers, advertising agencies and direct mail advertisers. Our
customers typically have a need for high levels of technical expertise, short
turnaround times and responsive customer service. In addition to our historical
regional customer base, our premedia services business is increasingly focused
on larger, national accounts that have a need for a broad range of fully
integrated services and communication capabilities requiring leading edge
technology. This trend has resulted in an increase in the volume related to
facilities management arrangements with customers over the past several years.
These contracts typically extend from three to five years in length.

The print and premedia services businesses have historically had certain common
customers and our ability to cross-market is an increasingly valuable tool as
computer-to-plate, regional versioning, electronic digital imaging, facilities
management and speed to market become more important to our customers. This
enables us to provide more comprehensive solutions for our customers' premedia
and printing needs.

No single customer accounted for sales in excess of 10% of our consolidated
sales in Fiscal Year 2001. Our top ten customers accounted for approximately 45%
of consolidated sales in Fiscal Year 2001.

Distribution. We distribute our print products primarily by truck to customer
designated locations, primarily newspapers, customer retail stores and via mail.
Distribution costs are generally paid by the customer, and most shipping is by
common carrier. Our premedia services business generally distributes its
products via electronic transmission, overnight express, or other methods of
personal delivery.

Competition

Commercial printing in the United States is a large, highly fragmented,
capital-intensive industry and we compete with numerous national, regional and
local printers. A trend of industry consolidation in recent years can be
attributed to (1) customer preferences for larger printers with a greater range
of services, (2) capital requirements and (3) competitive pricing pressures. We
believe that competition in the print business is based primarily on quality and
service at a competitive price.

American Color competes with numerous premedia services firms on both a national
and regional basis. The industry is highly fragmented, primarily consisting of
smaller local and regional companies, with only a few national full-service
premedia companies such as American Color, none of which has a significant
nationwide market share. Many smaller premedia companies have left the industry
in recent years due to their inability to keep pace with the technological
advances required to service increasingly complex customer demands. We believe
that the premedia services sector will continue to be subject to high levels of
ongoing technological change and the need for capital expenditures to keep up
with such change.

                                       6
<PAGE>

Raw Materials

The primary raw materials used in our print business are paper and ink. In
Fiscal Year 1999, as most grades of paper became more plentiful, paper prices
declined. During Fiscal Year 2000, paper prices were on average at lower levels
than comparable periods in Fiscal Year 1999. Throughout Fiscal Year 2001, the
cost of paper increased. Management expects that, as a result of our strong
relationships with key suppliers, our material costs will remain competitive
within the industry. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. We purchase substantially all of our ink and related products under
long-term ink supply contracts. The primary inputs in premedia service processes
are film and proofing materials.

In both of our business segments, there is an adequate supply of the necessary
materials available from multiple vendors. We are not dependent on any single
supplier and have had no significant problems in the past obtaining necessary
raw materials.

Seasonality

Some of our print and premedia services business is seasonal in nature,
particularly those revenues derived from advertising inserts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - -
Seasonality" appearing elsewhere in this Report.

Backlog

Because our print and premedia services products are required to be delivered
soon after final customer orders are received, we do not experience any backlog
of unfilled customer orders.

Employees

As of April 30, 2001, we had a total of approximately 2,810 employees, of which
approximately 240 employees are represented by a collective bargaining agreement
that will expire on December 31, 2004. We consider our relations with our
employees to be excellent.

Governmental and Environmental Regulations

We are subject to regulation under various federal, state and local laws
relating to employee safety and health, and to the generation, storage,
transportation, disposal and emission into the environment of hazardous
substances. We believe that we are in material compliance with such laws and
regulations. Although compliance with such laws and regulations in the future is
likely to entail additional capital expenditures, we do not anticipate that such
expenditures will be material. See "Legal Proceedings - Environmental Matters"
appearing elsewhere in this Report.

ITEM 2.  PROPERTIES

We operate in 20 locations in 13 states and Canada. We own seven print plants in
the United States and one in Canada and lease two print plants, one in
California and one in Pennsylvania. Our American Color division has nine
production locations, all of which are leased. Our American Color division also
operates premedia services facilities on the premises of several of our
customers ("facilities management"). In addition, we maintain one small
executive office in Connecticut, a digital visual effects facility in California
and our headquarter facility in Brentwood, Tennessee, all of which are leased.
We believe that our plants and facilities are adequately equipped and maintained
for present and planned operations.

                                       7
<PAGE>

ITEM 3.         LEGAL PROCEEDINGS

We have been named as a defendant in several legal actions arising from our
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 our financial condition or results of operations.

Environmental Matters

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 our ultimate
liability is not precisely determinable, the PRPs have agreed that Graphics'
share of removal costs is approximately 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, we maintain a reserve of approximately $0.1 million in
connection with this liability on our consolidated balance sheet at March 31,
2001. We believe this amount is adequate to cover such liability.

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

None.

                                       8
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS

         Market Information

         There is no established public market for the common stock of either
         Holdings or Graphics.

         Holders

         As of May 31, 2001, there were approximately 98 record holders of
         Holdings' common stock. Holdings is the sole shareholder of Graphics'
         common stock.

         Dividends

         There have been no cash dividends declared on any class of common
         equity for the two most recent fiscal years. See restrictions on
         Holdings' ability to pay dividends and Graphics' ability to transfer
         funds to Holdings in note 1 to our consolidated financial statements
         appearing elsewhere in this Report.

         Recent Sales of Unregistered Securities

         During the first and third quarters of Fiscal Year 2000, certain
         officers exercised options to purchase an aggregate of 8,143 and 1,106
         shares of Holdings stock, respectively, for $.01/share. The securities
         that were sold were exempt from registration on the basis that all such
         officers are "accredited investors" as defined by the rules of the
         Securities Act of 1933, as amended.




ITEM 6.  SELECTED FINANCIAL DATA

Set forth below is selected financial data for and as of the fiscal years ended
March 31, 2001, 2000, 1999, 1998 and 1997. The balance sheet data as of March
31, 2001, 2000, 1999, 1998 and 1997 and the statement of operations data for the
fiscal years ended March 31, 2001, 2000, 1999, 1998 and 1997 are derived from
the audited consolidated financial statements for such periods and at such
dates. The selected financial data below, for the fiscal years ended March 31,
1998 and 1997, also reflects our discontinued wholly-owned subsidiary, Sullivan
Media Corporation ("SMC").

This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements appearing elsewhere in this Report.


                                       9
<PAGE>

                             Selected Financial Data
                               ACG Holdings, Inc.
<TABLE>
<CAPTION>

                                                                                Fiscal Year Ended March 31,
                                                   ---------------------------------------------------------------------------------
                                                       2001            2000             1999            1998               1997
                                                   ---------------------------------------------------------------------------------
                                                                                 (dollars in thousands)
<S>                                                <C>                  <C>            <C>             <C>            <C>
Statement of Operations Data:
Sales                                              $   587,389          546,710        520,343           533,335        524,551
Cost of Sales                                          489,538          456,445        439,091           461,407        459,880
                                                   ------------     ------------   ------------      -------------   ------------
    Gross Profit                                        97,851           90,265         81,252            71,928         64,671
Selling, general and administrative expenses (a)        44,232           44,181         46,333            54,227         51,418
Restructuring costs and other special charges (b)           --               --          5,464             5,598          2,881
                                                   ------------     ------------   ------------      -------------   ------------
    Operating income                                    53,619           46,084         29,455            12,103         10,372
Interest expense, net                                   32,929           33,798         36,077            38,813         36,132
Other expense                                            1,194              627          1,217               412            245
Income tax expense (benefit) (c)                        (4,927)           2,189            523             2,106          2,591
                                                   ------------     ------------   ------------      -------------   ------------
    Income (loss) from continuing operations
    before extraordinary items                          24,423            9,470         (8,362)          (29,228)       (28,596)
                                                   ------------     ------------   ------------      -------------   ------------
Discontinued operations: (d)
    Loss from operations, net of tax                        --               --             --                --         (1,557)
    Estimated loss on shut down, net of tax                 --               --             --              (667)        (1,550)
Extraordinary loss on early extinguishment of
  debt (e)                                                  --               --         (4,106)               --             --
                                                   ------------     ------------   ------------      -------------   ------------

Net income (loss)                                  $    24,423            9,470        (12,468)          (29,895)       (31,703)
                                                   ============     ============   ============      =============   ============
Balance Sheet Data (at end of period):
Working capital (deficit)                          $    15,288           (2,973)        (5,451)           11,610         (8,598)
Total assets                                       $   302,202          303,812        299,000           329,958        333,975
Long-term debt and capitalized leases, including
  current installments                             $   261,706          277,344        289,589           319,657        312,309
Stockholders' deficit                              $   (85,867)        (109,389)      (119,306)         (106,085)       (76,318)
Other Data:
Net cash provided by operating activities          $    40,913           38,774         48,137            18,257         24,313
Net cash used by investing activities              $   (19,006)         (24,145)       (10,364)          (10,100)       (10,997)
Net cash used by financing activities              $   (21,968)         (14,576)       (37,812)           (8,143)       (13,312)
Capital expenditures (including lease obligations
  entered into)                                    $    25,271           22,724         16,238            23,713         37,767
Ratio of earnings to fixed charges                        1.56x            1.32x          (f)               (f)            (f)
EBITDA (g)                                         $    88,305           80,007         64,286            52,367         46,972


</TABLE>

                                       10
<PAGE>


NOTES TO SELECTED FINANCIAL DATA

(a)      For the fiscal year ended March 31, 1998 ("Fiscal Year 1998") selling,
         general and administrative expense includes $1.5 million of
         non-recurring American Color charges associated with the relocation of
         American Color's corporate office and various severance related
         expenses and $0.6 million of non-cash charges associated with an
         employee benefit program.

         For the fiscal year ended March 31, 1997 ("Fiscal Year 1997") selling,
         general and administrative expense includes $2.5 million of
         non-recurring employee termination expenses.

(b)      In March 1999, we approved a restructuring plan for our American Color
         division, which was designed to consolidate certain facilities in order
         to improve asset utilization and operational efficiency, modify the
         organizational structure as a result of facility consolidation and
         other changes and reduce overhead and other costs. We recorded $4.6
         million of costs under this plan in Fiscal Year 1999.

         In January 1998, we approved a restructuring plan for our print
         division designed to improve responsiveness to customer requirements,
         increase asset utilization and reduce overhead costs. We recorded $3.9
         million of costs under this plan in Fiscal Year 1998.

         In April 1995, we implemented a restructuring plan for our American
         Color division, which was designed to improve productivity, increase
         customer service and responsiveness and provide increased growth in the
         business. We recorded $0.9 million of costs under this plan in Fiscal
         Year 1997.

         In addition, we recorded $0.9 million, $1.7 million and $1.9 million of
         other special charges related to asset write-offs and write-downs in
         our print and American Color divisions in Fiscal Year 1999, Fiscal Year
         1998 and Fiscal Year 1997, respectively. See note 13 to our
         consolidated financial statements appearing elsewhere in this Report
         for further support of Fiscal Year 1999.

(c)      In the fourth quarter of Fiscal Year 2001, the valuation allowance for
         deferred tax assets was reduced by $7.3 million, resulting in a
         corresponding credit to deferred income tax expense. This adjustment
         reflected a change in circumstances which resulted in a judgment that a
         corresponding amount of our deferred tax assets will be realized in
         future years. The valuation allowance decreased by $12.6 million
         (including the $7.3 million decrease discussed above) during Fiscal
         Year 2001 as a result of changes in the deferred tax items.

(d)      In February of Fiscal Year 1997, we made a strategic decision to shut
         down the operation of our wholly-owned subsidiary SMC. This resulted in
         an estimated net loss on shut down of approximately $1.5 million, which
         is net of zero income tax benefits. SMC's shut down has been accounted
         for as a discontinued operation, and accordingly, SMC's operations are
         segregated in our consolidated financial statements. Sales, costs of
         sales and selling, general and administrative expenses attributable to
         SMC for Fiscal Year 1997 have been reclassified to discontinued
         operations.

(e)      As part of a refinancing transaction entered into on May 8, 1998 (the
         "1998 Refinancing"), we recorded an extraordinary loss related to early
         extinguishment of debt of $4.1 million, net of zero taxes. This
         extraordinary loss primarily consisted of the write-off of deferred
         financing costs related to refinanced indebtedness in Fiscal Year 1999.

                                       11
<PAGE>

(f)      The deficiency in earnings required to cover fixed charges for the
         fiscal years ended March 31, 1999, 1998 and 1997 was $7,839, $27,122
         and $26,005, respectively. The deficiency in earnings to cover fixed
         charges is computed by subtracting earnings before fixed charges,
         income taxes, discontinued operations and extraordinary items from
         fixed charges. Fixed charges consist of interest expense and one-third
         of operating lease rental expenses, which is deemed to be
         representative of the interest factor. The deficiency in earnings
         required to cover fixed charges includes depreciation of property,
         plant and equipment and amortization of goodwill and other assets and
         non-cash charges which are reflected in cost of sales and selling,
         general and administrative expenses, in the following amounts (in
         thousands):


                                            Fiscal Year Ended March 31,
                                     -------------------------------------------
                                        1999             1998           1997
                                     ------------    ------------   ------------
            Depreciation             $  29,651       $   28,124      $  25,282
            Amortization                 4,025           10,413          9,374
            Non-cash charges               945            2,301          1,944
                                     ------------    -------------  ------------
                Total                $  34,621       $   40,838      $  36,600
                                     ============    =============  ============

(g)      EBITDA is included in the Selected Financial Data 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 non-cash expenses, other special charges related to asset
         write-offs and write-downs, other expense (income), discontinued
         operations and extraordinary items. 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 Indenture dated as of August 15,
         1995 and the bank credit agreement entered into in May 1998 (see
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations--Liquidity and Capital Resources") are based on
         EBITDA, subject to certain adjustments.

         EBITDA in Fiscal Year 2000 includes $0.5 million of non-recurring costs
         associated with the consolidation of certain production facilities at
         the American Color division.

         EBITDA in Fiscal Year 1999 includes $4.6 million in restructuring costs
         related to the American Color division, $0.6 million of non-recurring
         costs associated with the consolidation of certain production
         facilities at the American Color division, $0.3 million of
         non-recurring employee termination expenses and $0.2 million of
         non-cash charges associated with an employee benefit program.

         EBITDA in Fiscal Year 1998 includes $3.9 million in restructuring costs
         related to the print division, $1.5 million of non-recurring charges
         associated with the relocation of American Color's corporate office and
         various severance related expenses, and $0.7 million of certain charges
         associated with employee benefit programs.

         EBITDA in Fiscal Year 1997 includes $0.9 million of restructuring costs
         related to the American Color division and non-recurring employee
         termination expenses of $2.5 million.


                                       12
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Overview

Print. Commercial printing in the United States is highly competitive. The
significant capital required to keep pace with changing technology and
competitive pricing trends has led to a trend of industry consolidation in
recent years. In addition, customers' preferences for larger printers, such as
our company, with a wider variety of services, greater distribution
capabilities, critical scale and more flexibility have also contributed to
consolidation within the industry. The industry is expected to remain
competitive in the near future and our sales will continue to be subject to
changes in retailers' demands for printed products.

The cost of paper is a principal factor in our overall pricing to our customers.
The level of paper costs also has a significant impact on our reported sales. In
Fiscal Year 1999, as most grades of paper became more plentiful, paper prices
declined. During Fiscal Year 2000, paper prices were on average at lower levels
than comparable periods in Fiscal Year 1999. Throughout Fiscal Year 2001, the
cost of paper increased. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers.

In recent years, comprehensive quality improvement and cost reduction programs
have been implemented for all our printing processes. As a result of these
measures, we have been successful in lowering our manufacturing costs within the
print sector, while improving product quality. Furthermore, management believes
that continued strong demand for the retail advertising insert product has
resulted in less excess industry capacity and therefore an improved
supply/demand position within the marketplace. This dynamic has resulted in a
greater stabilization of printing prices that in conjunction with our cost
reduction programs and increased unit volume has had a favorable impact on print
gross profit levels.



American Color (Premedia Services). The premedia services industry has
experienced significant technological advances as electronic digital premedia
systems have replaced the more manual and photography-based methods utilized in
the past. This shift in technology, which improved process efficiencies and
reduced processing costs, produced increased unit growth for American Color as
the demand for color pages increased. Selling price levels per page, however,
have declined because of greater efficiencies resulting from technological
advancements. Revenue from traditional services is being supplemented by
additional revenue sources including digital asset management, facilities
management, computer-to-plate services, creative services, conventional and
digital photography, consulting and training services, multimedia and internet
services, and software and data-base management.


In March 1999, we approved a plan for our premedia services business, which was
designed to consolidate certain facilities in order to improve asset utilization
and operational efficiency, modify the organizational structure as a result of
facility consolidation and other changes, and reduce overhead and other costs.
The cost of this plan has been accounted for in accordance with the guidelines
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") (see
"Restructuring Costs and Other Special Charges" below).


                                       13
<PAGE>


The following table summarizes our historical results of continuing operations
for Fiscal Years 2001, 2000 and 1999:

<TABLE>
<CAPTION>


                                                    Fiscal Year Ended March 31,
                                       -----------------------------------------------------
                                          2001                  2000                 1999
                                       ----------            ----------           ----------
                                                       (dollars in thousands)
<S>                                    <C>                      <C>                  <C>
Sales
   Print                               $  501,311               462,886              431,936

   American Color                          80,060                80,240               83,816

    Other (a)                               6,018                 3,584                4,591
                                       ----------            ----------           ----------

      Total                            $  587,389               546,710              520,343
                                       ==========            ==========           ==========


Gross Profit

   Print                               $   74,745                73,572               62,025

   American Color                          22,856                17,971               19,128

    Other (a)                                 250                (1,278)                  99
                                       ----------            ----------           ----------

      Total                            $   97,851                90,265               81,252
                                       ==========            ==========           ==========


Gross Margin

   Print                                     14.9%                 15.9%                14.4%

   American Color                            28.6%                 22.4%                22.8%

      Total                                  16.7%                 16.5%                15.6%


Operating Income (Loss)

   Print                               $   49,918                49,446               38,994

   American Color (b)                      11,409                 4,883               (2,542)

   Other (a) (c) (d)                       (7,708)               (8,245)              (6,997)
                                       ----------            ----------           ----------

      Total                            $   53,619                46,084               29,455
                                       ==========            ==========           ==========

</TABLE>

(a)      Other operations primarily include revenues and expenses associated
         with our digital visual effects business ("Digiscope").


(b)      American Color's operating loss includes the impact of restructuring
         costs of $4.6 million, and other special charges related to asset
         write-offs and write-downs of $0.9 million in Fiscal Year 1999. See
         "Restructuring Costs and Other Special Charges" below. American Color's
         operating income (loss) also includes $0.6 million and $0.9 million of
         non-recurring charges in Fiscal Year 2000 and Fiscal Year 1999,
         respectively, associated with the consolidation of certain production
         facilities.


(c)      Also includes corporate general and administrative expenses, and
         amortization expense.

(d)      Other operations also reflects the impact of $0.3 million of
         non-recurring employee termination expenses and $0.2 million of
         non-cash charges associated with an employee benefit program in Fiscal
         Year 1999.


                                       14
<PAGE>

Historical Results of Operations

                      Fiscal Year 2001 vs. Fiscal Year 2000

Total sales increased 7.4% to $587.4 million in Fiscal Year 2001 from $546.7
million in Fiscal Year 2000. This increase is primarily attributable to an
increase in print sales of $38.4 million, or 8.3%. Total gross profit increased
to $97.9 million, or 16.7% of sales, in Fiscal Year 2001 from $90.3 million, or
16.5% of sales, in Fiscal Year 2000. Total operating income increased to $53.6
million, or 9.1% of sales, in Fiscal Year 2001 from $46.1 million, or 8.4% of
sales, in Fiscal Year 2000. See the discussion of these changes by segment
below.


Print

Sales. Print sales increased $38.4 million to $501.3 million in Fiscal Year 2001
from $462.9 million in Fiscal Year 2000. The increase in Fiscal Year 2001
primarily includes the impact of increased paper prices and a slight increase in
production volume.

Gross Profit. Print gross profit increased $1.1 million to $74.7 million in
Fiscal Year 2001 from $73.6 million in Fiscal Year 2000. Print gross margin
decreased to 14.9% in Fiscal Year 2001 from 15.9% in Fiscal Year 2000. The
increase in gross profit includes the impact of reduced manufacturing costs and
increased production volume. The decrease in gross margin is attributable to the
impact of increased paper prices reflected in sales.

Selling, General and Administrative Expenses. Print selling, general and
administrative expenses increased to $24.8 million, or 5.0% of print sales, in
Fiscal Year 2001 from $24.1 million, or 5.2% of print sales, in Fiscal Year
2000. This increase includes increases in certain selling and employee related
expenses, offset in part by a reduction in pension costs.

Operating Income. As a result of the above factors, operating income from the
print business increased to $49.9 million in Fiscal Year 2001 from $49.4 million
in Fiscal Year 2000.


American Color (Premedia Services)


Sales. American Color's sales of $80.1 million in Fiscal Year 2001 approximated
sales of $80.2 million in Fiscal Year 2000.


Gross Profit. American Color's gross profit increased $4.9 million to $22.9
million in Fiscal Year 2001 from $18.0 million in Fiscal Year 2000. American
Color's gross margin increased to 28.6% in Fiscal Year 2001 from 22.4% in Fiscal
Year 2000. These increases are primarily the result of reduced manufacturing
costs related to various cost containment programs and the consolidation of
certain production sites. Fiscal Year 2000 included $0.6 million of
non-recurring costs associated with the consolidation of certain production
sites.

Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses decreased to $11.4 million, or 14.3% of American
Color's sales in Fiscal Year 2001 from $13.1 million, or 16.3% of American
Color's sales in Fiscal Year 2000. These decreases include the impact of various
cost containment programs implemented during Fiscal Year 2000.

Operating Income. As a result of the above factors, operating income at American
Color increased $6.5 million to $11.4 million in Fiscal Year 2001 from $4.9
million in Fiscal Year 2000.

                                       15
<PAGE>

Historical Results of Operations

                      Fiscal Year 2000 vs. Fiscal Year 1999

Total sales increased 5.1% to $546.7 million in Fiscal Year 2000 from $520.3
million in Fiscal Year 1999. This increase includes an increase in print sales
of $31.0 million, or 7.2%, offset in part by a decrease in American Color sales
of $3.6 million, or 4.3%. Total gross profit increased to $90.3 million, or
16.5% of sales, in Fiscal Year 2000 from $81.3 million, or 15.6% of sales, in
Fiscal Year 1999. Total operating income increased to $46.1 million, or 8.4% of
sales, in Fiscal Year 2000 from $29.5 million, or 5.7% of sales, in Fiscal Year
1999. See the discussion of these changes by segment below.


Print

Sales. Print sales increased $31.0 million to $462.9 million in Fiscal Year 2000
from $431.9 million in Fiscal Year 1999. The increase in Fiscal Year 2000
includes the impact of an approximate 5% increase in production volume,
favorable changes in customer and product mix and an increase in paper sales to
customers. These increases were offset in part by declining paper prices.

Gross Profit. Print gross profit increased $11.6 million to $73.6 million in
Fiscal Year 2000 from $62.0 million in Fiscal Year 1999. Print gross margin
increased to 15.9% in Fiscal Year 2000 from 14.4% in Fiscal Year 1999. The
increase in gross profit was primarily the result of increased production
volume, reduced manufacturing costs and favorable changes in customer and
product mix. The increase in gross margin includes the above mentioned factors
and declining paper prices, offset in part by an increase in paper sales to
customers.

Selling, General and Administrative Expenses. Print selling, general and
administrative expenses increased to $24.1 million, or 5.2% of print sales, in
Fiscal Year 2000 from $23.0 million, or 5.3% of print sales, in Fiscal Year
1999. This increase includes increases in employee related expenses, offset in
part by decreases in certain selling expenses.

Operating Income. As a result of the above factors, operating income from the
print business increased to $49.4 million in Fiscal Year 2000 from $39.0 million
in Fiscal Year 1999.


American Color (Premedia Services)

Sales. American Color's sales decreased $3.6 million, or 4.3%, to $80.2 million
in Fiscal Year 2000 from $83.8 million in Fiscal Year 1999. The decrease in
Fiscal Year 2000 was primarily the result of reduced premedia production volume.

Gross Profit. American Color's gross profit decreased $1.1 million to $18.0
million in Fiscal Year 2000 from $19.1 million in Fiscal Year 1999. American
Color's gross margin decreased to 22.4% in Fiscal Year 2000 from 22.8% in Fiscal
Year 1999. These decreases are primarily the result of reduced sales volume and
related margins, offset in part by material and payroll savings associated with
various cost containment measures implemented during Fiscal Year 2000. Fiscal
Year 2000 and Fiscal Year 1999 included $0.6 million and $0.9 million,
respectively, of non-recurring costs associated with the consolidation of
certain production sites.

Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses decreased to $13.1 million, or 16.3% of American
Color's sales in Fiscal Year 2000 from $16.2 million, or 19.3% of American
Color's sales in Fiscal Year 1999. This decrease is attributable to various cost
containment measures implemented during Fiscal Year 2000.

Operating Income (Loss). As a result of the above factors and the incurrence of
restructuring costs associated with the American Color restructuring plan of
$4.6 million in Fiscal Year 1999 and other special charges related to asset
write-offs and write-downs of $0.9 million in Fiscal Year 1999 (see
"Restructuring Costs and Other Special Charges" below), operating income (loss)
at American Color increased to income of $4.9 million in Fiscal Year 2000 from a
loss of $2.5 million in Fiscal Year 1999.



                                       16
<PAGE>

Other Operations (Fiscal Year 2001 vs. Fiscal Year 2000 and Fiscal Year 2000 vs.
Fiscal Year 1999)

Other operations consist primarily of revenues and expenses associated with
Digiscope, corporate general, administrative and other expenses, including
amortization expense.

Operating losses from other operations improved to a loss of $7.7 million in
Fiscal Year 2001 from a loss of $8.2 million in Fiscal Year 2000. This change
includes a $1.4 million decrease in operating losses at Digiscope due primarily
to higher digital visual effects production volume, offset in part by increases
in certain corporate general and administrative expenses and increased
amortization expense.

Operating losses from other operations increased to a loss of $8.2 million in
Fiscal Year 2000 from a loss of $7.0 million in Fiscal Year 1999. This change
includes $0.9 million of increased operating losses at Digiscope due primarily
to lower digital visual effects sales volume in Fiscal Year 2000.


Non-cash amortization expenses (which primarily includes goodwill amortization)
within other operations, were $3.2 million, $2.8 million and $2.6 million in
Fiscal Years 2001, 2000 and 1999, respectively.


Restructuring Costs and Other Special Charges

Restructuring Costs

In March 1999, we approved a plan for our American Color division, which was
designed to consolidate certain facilities in order to improve asset utilization
and operational efficiency, modify the organizational structure as a result of
facility consolidation and other changes and reduce overhead and other costs.
The cost of this plan has been accounted for in accordance with the guidance set
forth in EITF 94-3. The pretax costs of $4.6 million, which were incurred as a
direct result of this plan (excluding other special charges related to asset
write-offs and write-downs - see below) included $2.5 million of employee
termination costs, $1.2 million of lease settlement costs and $0.9 million of
other transition and restructuring expenses. This restructuring charge was
recorded in the quarter ended March 31, 1999. The majority of these costs were
paid or settled before March 31, 2000. During Fiscal Year 2001, $1.1 million of
these costs were paid. The remaining $0.4 million balance in the restructuring
reserve at March 31, 2001 includes remaining payouts of involuntary employee
termination and lease commitment costs.

Other Special Charges

During the quarter ended March 31, 1999, we recorded special charges totaling
$0.9 million to adjust the carrying values of idle, disposed and
under-performing assets of the American Color division to estimated fair values.
The provision was based on a review of our long-lived assets in accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). Fair value was based on our estimate of held and used and idle
assets based on current market conditions using the best information available.

These special charges are classified within restructuring costs and other
special charges in the consolidated statements of operations.

Interest Expense

Interest expense decreased 2.7% to $33.0 million in Fiscal Year 2001 from $34.0
million in Fiscal Year 2000. This decrease reflects lower levels of
indebtedness, offset in part by increased borrowing costs. See note 5 to our
consolidated financial statements appearing elsewhere in this Report.

Interest expense decreased 6.3% to $34.0 million in Fiscal Year 2000 from $36.2
million in Fiscal Year 1999. This decrease includes the impact of both lower
levels of indebtedness and lower weighted average interest rates.

                                       17
<PAGE>

Other, Net

Other, net increased to an expense of $1.2 million in Fiscal Year 2001 from an
expense of $0.6 million in Fiscal Year 2000. Included in Fiscal Year 2001 is a
$0.4 million non-cash write-off of certain fixed assets. Other, net decreased to
an expense of $0.6 million in Fiscal Year 2000 from an expense of $1.2 million
in Fiscal Year 1999. Other, net in Fiscal Year 1999 includes various
non-recurring legal settlements and related fees of approximately $0.8 million.

Income Taxes

Our effective tax rates for Fiscal Years 2001 and 2000 were less than the
federal statutory rate due primarily to decreases in the valuation allowance,
partially offset by amortization of nondeductible goodwill and foreign tax
expense. In the fourth quarter of Fiscal Year 2001, the valuation allowance for
deferred tax assets was reduced by $7.3 million, resulting in a corresponding
credit to deferred income tax expense. This adjustment reflected a change in
circumstances which resulted in a judgment that a corresponding amount of our
deferred tax assets will be realized in future years. The valuation allowance
decreased by $12.6 million (including the $7.3 million decrease discussed above)
during Fiscal Year 2001 as a result of changes in the deferred tax items. Our
effective tax rate for Fiscal Year 1999 exceeded the federal statutory rate due
primarily to increases in the valuation allowance, amortization of nondeductible
goodwill, and foreign tax expense.

Extraordinary Loss on Early Extinguishment of Debt

As part of the 1998 Refinancing, which was completed in Fiscal Year 1999, we
recorded an extraordinary loss related to early extinguishment of debt of $4.1
million, net of zero taxes. This extraordinary loss primarily consisted of the
write-off of deferred financing costs related to refinanced indebtedness.

Net Income (Loss)

As a result of the factors discussed above, our net income increased to $24.4
million in Fiscal Year 2001 from $9.5 million in Fiscal Year 2000. Our net
income (loss) improved to income of $9.5 million in Fiscal Year 2000 from a loss
of $12.5 million in Fiscal Year 1999. The Fiscal Year 1999 net loss includes the
$4.1 million extraordinary loss related to early extinguishment of debt, $4.6
million of restructuring costs and $0.9 million of other special charges related
to asset write-offs and write-downs associated with our American Color division.

Liquidity and Capital Resources

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

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

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

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

At March 31, 2001, we had total borrowings and letters of credit outstanding
under the Revolving Credit Facility of approximately $27.4 million, and,
therefore, additional borrowing availability of approximately $42.6 million.

On November 21, 2000, we repurchased, in the open market, an aggregate principal
amount of $5.0 million of our 12 3/4 % Senior Subordinated Notes Due 2005 (the
"Notes") for $4.9 million.


During Fiscal Year 2000, we voluntarily prepaid $15 million of our bank
indebtedness, reducing the A Term Loan Facility by $10.9 million and the B Term
Loan Facility by $4.1 million. At March 31, 2001, $9.6 million of the A Term
Loan Facility and $39.6 million of the B Term Loan Facility remained
outstanding. As a result of the voluntary prepayments, we have no scheduled
maturities due under either the A Term Loan Facility or B Term Loan Facility
until March 31, 2002. The scheduled A Term Loan and B Term Loan payments due on
March 31, 2002 will be approximately $0.2 million in total. Scheduled repayments
of existing capital lease obligations and other senior indebtedness during the
fiscal year ending March 31, 2002 ("Fiscal Year 2002") will approximate $6.8
million and $0.8 million, respectively.


                                       18
<PAGE>

In Fiscal Year 2001, net cash provided by operating activities of $40.9 million
(see consolidated statements of cash flows appearing elsewhere in this Report)
and proceeds from the sale of property, plant and equipment of $0.2 million were
primarily used to fund the following expenditures:

          (1)  $8.8 million in net revolver repayments,

          (2)  $13.1 million in principal repayments of indebtedness and
               financing costs (including capital lease obligations of $7.0
               million and repurchase of the Notes for $4.9 million), and

          (3)  $19.2 million in cash capital expenditures.

We plan to continue our program of upgrading our print and premedia equipment
and currently anticipate that Fiscal Year 2002 cash capital expenditures will
approximate $12.4 million and equipment acquired under capital leases will
approximate $8.9 million. Our cash on hand of approximately $8.7 million is
presented net of outstanding checks within trade accounts payable at March 31,
2001. Accordingly, cash is presented at a balance of $0 in the March 31, 2001
balance sheet.

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

At March 31, 2001, we had total indebtedness outstanding of $261.7 million,
including capital lease obligations, as compared to $277.3 million at March 31,
2000, representing a net reduction in total indebtedness during Fiscal Year 2001
of $15.6 million. Of the total debt outstanding at March 31, 2001, $49.3 million
(excluding letters of credit) was outstanding under the Bank Credit Agreement at
a weighted-average interest rate of 6.8%. Indebtedness under the Bank Credit
Agreement bears interest at floating rates. At March 31, 2001, we had
indebtedness other than obligations under the Bank Credit Agreement of $212.4
million (including $180 million of the Notes). We are currently in compliance
with all financial covenants set forth in the Bank Credit Agreement. See note 5
to our consolidated financial statements appearing elsewhere in this Report.

A significant portion of Graphics' long-term obligations, including indebtedness
under the Bank Credit Agreement and the Notes, has been fully and
unconditionally guaranteed by Holdings. Holdings is subject to certain
restrictions under its guarantee of indebtedness under the Bank Credit
Agreement, including among other things, restrictions on mergers, acquisitions,
incurrence of additional debt and payment of cash dividends. See note 1 to our
consolidated financial statements appearing elsewhere in this Report.


                                       19
<PAGE>

<TABLE>
<CAPTION>


EBITDA

                                                           Fiscal Year Ended March 31,
                              --------------------------------------------------------------------------------------
                                     2001                             2000                               1999
                              -------------------              ------------------                 ------------------

                                                            (dollars in thousands)


<S>                           <C>                                      <C>                                <C>
EBITDA

   Print                      $      74,298                            72,543                             61,627

   American Color (a)                17,075                            11,003                              5,283

   Other (b) (c)                     (3,068)                           (3,539)                            (2,624)
                              -------------------              ------------------                 ------------------

      Total                   $      88,305                            80,007                             64,286
                              ===================              ==================                 ==================

EBITDA Margin

    Print                              14.8%                             15.7%                               14.3%

    American Color                     21.3%                             13.7%                                6.3%

       Total                           15.0%                             14.6%                               12.4%


</TABLE>

(a)      American Color EBITDA for Fiscal Year 1999 includes the impact of
         restructuring costs of $4.6 million. See "Restructuring Costs and Other
         Special Charges" above. American Color EBITDA also includes $0.5
         million and $0.6 million of non-recurring charges in Fiscal Year 2000
         and Fiscal Year 1999, respectively, associated with the consolidation
         of certain production facilities.

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

(c)      Other operations also reflects the impact of $0.3 million of
         non-recurring employee termination expenses and $0.2 million of
         non-cash charges associated with an employee benefit program in Fiscal
         Year 1999.


EBITDA is presented and discussed because we believe 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 non-cash expenses, other special charges related to asset write-offs and
write-downs, other expense (income) 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 Indenture and the Bank Credit Agreement are based on EBITDA, subject to
certain adjustments.

Print. As a result of the reasons previously described under "--Print,"
(excluding changes in depreciation and amortization expense), print EBITDA
increased $1.8 million to $74.3 million in Fiscal Year 2001 from $72.5 million
in Fiscal Year 2000. Print EBITDA increased $10.9 million to $72.5 million in
Fiscal Year 2000 from $61.6 million in Fiscal Year 1999. Print EBITDA Margin
decreased to 14.8% in Fiscal Year 2001 from 15.7% in Fiscal Year 2000. Print
EBITDA Margin increased to 15.7% in Fiscal Year 2000 from 14.3% in Fiscal Year
1999. The decrease in EBITDA Margin in Fiscal Year 2001 is attributable to the
impact of increased paper prices reflected in sales.

                                       20
<PAGE>

American Color (Premedia Services). As a result of the reasons previously
described under "--American Color," (excluding changes in depreciation,
amortization, other non-cash expenses and other special charges related to asset
write-offs and write-downs), American Color EBITDA increased $6.1 million to
$17.1 million in Fiscal Year 2001 from $11.0 million in Fiscal Year 2000.
American Color EBITDA increased $5.7 million to $11.0 million in Fiscal Year
2000 from $5.3 million in Fiscal Year 1999. American Color EBITDA Margin
increased to 21.3% in Fiscal Year 2001 from 13.7% in Fiscal Year 2000. American
Color EBITDA Margin increased to 13.7% in Fiscal Year 2000 from 6.3% in Fiscal
Year 1999. Included in the Fiscal Year 2000 and Fiscal Year 1999 EBITDA and
EBITDA Margin is the impact of $0.5 million and $0.6 million of non-recurring
charges associated with the consolidation of certain production facilities,
respectively, and $4.6 million of restructuring costs in Fiscal Year 1999 (see
discussion above).

Other Operations. As a result of the reasons previously described under "--Other
Operations," (excluding changes in depreciation and amortization expense), other
operations negative EBITDA decreased to negative EBITDA of $3.1 million in
Fiscal Year 2001 from negative EBITDA of $3.5 million in Fiscal Year 2000. Other
operations negative EBITDA increased to negative EBITDA of $3.5 million in
Fiscal Year 2000 from negative EBITDA of $2.6 million in Fiscal Year 1999. Other
operations negative EBITDA for Fiscal Year 1999 includes the impact of $0.3
million of non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program.

Amortization of Goodwill

Our goodwill is amortized on a straight-line basis by business segment. Goodwill
amortization expense will be approximately $3.0 million in Fiscal Year 2002.

Impact of Inflation

In accordance with industry practice, we generally pass through increases in our
costs (primarily paper and ink) to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. In Fiscal Year 1999, as most grades of paper became more plentiful,
paper prices declined. During Fiscal Year 2000, paper prices were on average at
lower levels than comparable periods in Fiscal Year 1999. Throughout Fiscal Year
2001, the cost of paper increased. Management expects that, as a result of our
strong relationship with key suppliers, our material costs will remain
competitive within the industry.

Seasonality

Some of our print and premedia services business is seasonal in nature,
particularly those revenues derived from advertising inserts. Generally, our
sales from advertising inserts are highest during periods prior to the following
advertising periods: Spring advertising season (March - May); Back-to-School
(July - August); and Thanksgiving/Christmas (October - December). Sales of
newspaper Sunday comics are not subject to significant seasonal fluctuations.
Our strategy has been and will continue to include the mitigation of the
seasonality of our print business by increasing our sales to customers whose own
sales are less seasonal (i.e., food and drug companies) and who utilize
advertising inserts on a higher frequency basis.

Environmental

Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
period revenue generation are expensed. Environmental liabilities are recorded
when assessments and/or remedial efforts are probable and the related costs can
be reasonably estimated. We believe that environmental liabilities, currently
and in the prior periods discussed herein, are not material. We maintain a
reserve of approximately $0.1 million in connection with a Superfund site in our
consolidated statement of financial position at March 31, 2001, which we believe
to be adequate. See "Legal Proceedings - Environmental Matters" appearing
elsewhere in this Report. We do not anticipate receiving insurance proceeds
related to this potential settlement. Management does not expect that any
identified matters, individually or in the aggregate, will have a material
adverse effect on our consolidated financial position or results of operations.

Accounting

There are no pending accounting pronouncements that, when adopted, are expected
to have a material effect on our results of operations or financial position.

                                       21
<PAGE>


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, future contracts,
options and swap agreements.

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

Foreign Currency Exchange Rate Risk is minimal as we have only one print
facility outside the United States (in Canada) and any fluctuations in net asset
values as a result of changes in foreign currency exchange rates associated with
activity at this one facility would be immaterial to the company as a whole.

Quantitative Information. At March 31, 2001 and March 31, 2000, we had both
fixed rate and variable rate debt. The carrying value of our total variable rate
debt approximated the fair value of such debt at March 31, 2001 and March 31,
2000. At our March 31, 2001 and March 31, 2000 borrowing levels, a hypothetical
10% adverse change in interest rates on the variable rate debt would have been
immaterial. Approximately 79% and 76% of our long-term debt (excluding
capitalized lease obligations) was fixed rate at March 31, 2001 and March 31,
2000, respectively.

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.

                                       22
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                        Page No.
                                                                        --------

The following consolidated financial statements of ACG Holdings, Inc.
are included in this Report:

Report of Independent Auditors................................................24
Consolidated balance sheets - March 31, 2001 and 2000.........................25
For the Years Ended March 31, 2001, 2000 and 1999:
                Consolidated statements of operations.........................27
                Consolidated statements of stockholders' deficit..............28
                Consolidated statements of cash flows.........................29
Notes to Consolidated Financial Statements....................................31


The following consolidated financial statement schedules of ACG Holdings, Inc.
are included in Part IV, Item 14:

          I.      Condensed Financial Information:
                  Condensed Consolidated Financial Statements (parent company
                  only) for the years ended March 31, 2001, 2000 and 1999, and
                  as of March 31, 2001 and 2000

         II.      Valuation and qualifying accounts

All other schedules specified under Regulation S-X for ACG Holdings, Inc. have
been omitted because they are either not applicable, not required, or because
the information required is included in the financial statements or notes
thereto.

                                       23
<PAGE>


                         Report of Independent Auditors



Board of Directors
ACG Holdings, Inc.

We have audited the accompanying consolidated balance sheets of ACG Holdings,
Inc. as of March 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for each of the three fiscal
years in the period ended March 31, 2001. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACG
Holdings, Inc. at March 31, 2001 and 2000, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.


/s/ Ernst & Young LLP
Nashville, Tennessee
May 25, 2001

                                       24
<PAGE>

<TABLE>
<CAPTION>


                                                       ACG HOLDINGS, INC.
                                                   Consolidated Balance Sheets
                                                     (Dollars in thousands)


                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
<S>                                                                                     <C>                        <C>
Assets
------

Current assets:

   Cash                                                                                 $       0                  $       0

   Receivables:

     Trade accounts, less allowance for
       doubtful accounts of $3,905 and $2,945
       at March 31, 2001 and 2000, respectively                                            62,585                     65,432

     Other                                                                                  2,049                      2,447
                                                                                        -------------              -------------
                  Total receivables                                                        64,634                     67,879

  Inventories                                                                              12,864                     11,062

  Deferred income taxes                                                                     9,817                         --

  Prepaid expenses and other current assets                                                 3,740                      3,329
                                                                                        -------------              -------------
                  Total current assets                                                     91,055                     82,270

Property, plant and equipment:

   Land and improvements                                                                    2,926                      2,923

   Buildings and improvements                                                              20,333                     19,464

   Machinery and equipment                                                                200,770                    191,378

   Furniture and fixtures                                                                  10,533                      9,265

   Leased assets under capital leases                                                      52,762                     53,640

   Equipment installations in process                                                       9,598                      5,815
                                                                                        -------------              -------------
                                                                                          296,922                    282,485

   Less accumulated depreciation                                                         (167,014)                  (145,993)
                                                                                        -------------              -------------
                  Net property, plant and equipment                                       129,908                    136,492


Excess of cost over net assets acquired, less
   accumulated amortization of $50,262 and $47,206
   at March 31, 2001 and 2000, respectively                                                69,560                     72,781

Other assets                                                                               11,679                     12,269
                                                                                        -------------              -------------

                  Total assets                                                          $ 302,202                    303,812
                                                                                        =============              =============


</TABLE>

See accompanying notes to consolidated financial statements.



                                       25
<PAGE>


                               ACG HOLDINGS, INC.
                           Consolidated Balance Sheets
                    (Dollars in thousands, except par values)
<TABLE>
<CAPTION>



                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
<S>                                                                                     <C>                        <C>
Liabilities and Stockholders' Deficit
-------------------------------------

Current liabilities:

   Current installments of long-term debt and capitalized leases                        $   7,809                      7,727

   Trade accounts payable                                                                  36,310                     45,802

   Accrued expenses                                                                        31,474                     31,658

   Income taxes                                                                               174                         56
                                                                                        -------------              -------------
       Total current liabilities                                                           75,767                     85,243

Long-term debt and capitalized leases, excluding current installments                     253,897                    269,617

Deferred income taxes                                                                      10,546                      8,031

Other liabilities                                                                          47,859                     50,310
                                                                                        -------------              -------------
       Total liabilities                                                                  388,069                    413,201

Stockholders' deficit:

   Common stock, voting, $.01 par value, 5,852,223 shares authorized,
      143,399 shares issued and outstanding                                                     1                          1

  Preferred stock, $.01 par value, 15,823 shares authorized, 3,617 shares Series
      AA convertible preferred stock issued and outstanding, $39,442,551
      liquidation preference, and 1,606 shares Series BB convertible preferred
      stock issued and outstanding, $17,500,000 liquidation preference                         --                         --

   Additional paid-in capital                                                              58,370                     58,303

   Accumulated deficit                                                                   (141,062)                  (165,485)

   Other accumulated comprehensive loss, net of tax                                        (3,176)                    (2,208)
                                                                                        -------------              -------------
       Total stockholders' deficit                                                        (85,867)                  (109,389)
                                                                                        -------------              -------------
   Commitments and contingencies

       Total liabilities and stockholders' deficit                                      $ 302,202                    303,812
                                                                                        =============              =============
</TABLE>






See accompanying notes to consolidated financial statements.



                                       26
<PAGE>

<TABLE>
<CAPTION>


                               ACG HOLDINGS, INC.
                      Consolidated Statements of Operations
                                 (In thousands)


                                                                                        Year ended March 31,
                                                                       ------------------------------------------------------
                                                                            2001                 2000                 1999
                                                                       ------------         ------------         ------------
<S>                                                                   <C>                      <C>                  <C>
Sales                                                                 $   587,389              546,710              520,343

Cost of sales                                                             489,538              456,445              439,091
                                                                       ------------         ------------         ------------
     Gross profit                                                          97,851               90,265               81,252

Selling, general and administrative expenses                               41,176               41,562               43,806

Amortization of goodwill                                                    3,056                2,619                2,527

Restructuring costs and other special charges                                  --                   --                5,464
                                                                       ------------         ------------         ------------
     Operating income                                                      53,619               46,084               29,455
                                                                       ------------         ------------         ------------

Other expense (income):

   Interest expense                                                        33,042               33,963               36,242

   Interest income                                                           (113)                (165)                (165)

   Other, net                                                               1,194                  627                1,217
                                                                       ------------         ------------         ------------
         Total other expense                                               34,123               34,425               37,294
                                                                       ------------         ------------         ------------

    Income (loss) before income taxes and
        extraordinary item                                                 19,496               11,659               (7,839)

Income tax expense (benefit)                                               (4,927)               2,189                  523
                                                                       ------------         ------------         ------------
   Income (loss) before extraordinary item                                 24,423                9,470               (8,362)

Extraordinary loss on early extinguishment of debt                             --                   --               (4,106)
                                                                       ------------         ------------         ------------
         Net income (loss)                                             $   24,423                9,470              (12,468)
                                                                       ============         ============         ============

</TABLE>






See accompanying notes to consolidated financial statements.



                                       27
<PAGE>

<TABLE>
<CAPTION>


                               ACG HOLDINGS, INC.
                Consolidated Statements of Stockholders' Deficit
                                 (In thousands)

                                                 Series AA
                                                  and BB                                               Other
                                   Voting       convertible       Additional                         accumulated
                                   common        preferred         paid-in        Accumulated       comprehensive
                                   stock           stock           capital           deficit         income (loss)          Total
                                  ----------    ------------     ------------    --------------    -----------------    ------------
<S>                               <C>               <C>              <C>            <C>                 <C>              <C>
Balances, March 31, 1998          $      1           --              58,249         (162,250)           (2,085)          $(106,085)
                                                                                                                        ------------
Net loss                                --           --                  --          (12,468)               --             (12,468)

  Other comprehensive loss,
    net of tax:

     Change in cumulative
     translation adjustment             --           --                  --               --              (504)               (504)

     Unfunded pension liability                      --                  --               --               (99)                (99)
                                                                                                                        ------------

Comprehensive loss                                                                                                         (13,071)

Treasury stock                          --           --                  --             (187)               --                (187)

Executive stock compensation            --           --                  37               --                --                  37
                                  ----------    ------------     ------------    --------------    -----------------    ------------
Balances, March 31, 1999          $      1           --              58,286         (174,905)           (2,688)         $ (119,306)
                                                                                                                        ------------

Net income                              --           --                  --            9,470                --               9,470

  Other comprehensive income, net of tax:

     Change in cumulative
     translation adjustment             --           --                  --               --               296                 296

     Unfunded pension liability         --           --                  --               --               184                 184
                                                                                                                        ------------

Comprehensive income                                                                                                         9,950

Treasury stock                          --           --                  --              (50)               --                 (50)

Executive stock compensation            --           --                  17               --                --                  17
                                  ----------    ------------     ------------    --------------    -----------------    ------------
Balances, March 31, 2000          $      1           --              58,303         (165,485)           (2,208)         $ (109,389)
                                                                                                                        ------------

Net income                              --           --                  --           24,423                                24,423

  Other comprehensive income
   (loss), net of tax:

     Change in cumulative
     translation adjustment             --           --                  --               --              (968)               (968)
                                                                                                                        ------------

Comprehensive income                                                                                                        23,455

Executive stock compensation            --           --                  67               --                --                  67
                                  ----------    ------------     ------------    --------------    -----------------    ------------
Balances, March 31, 2001          $      1           --              58,370         (141,062)           (3,176)         $  (85,867)
                                  ==========    ============     ============    ==============    =================    ============

</TABLE>




See accompanying notes to consolidated financial statements.



                                       28
<PAGE>

<TABLE>
<CAPTION>


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



                                                                                        Year ended March 31,
                                                                       ------------------------------------------------------
                                                                            2001                 2000                 1999
                                                                       ------------         ------------         ------------
<S>                                                                   <C>                      <C>                  <C>
Cash flows from operating activities:

   Net income (loss)                                                  $    24,423                9,470              (12,468)

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

Extraordinary item - non-cash                                                  --                   --                4,106

Other special charges - non-cash                                               --                   --                  908

Depreciation                                                               30,579               30,067               29,651

Amortization of goodwill                                                    3,056                2,619                2,527

Amortization of other assets                                                1,051                1,100                1,498

Amortization of deferred financing costs                                    1,389                1,326                1,412

Loss on disposals of property, plant and equipment                            403                  286                  501

Deferred income tax expense (benefit)                                      (7,302)                 115               (1,303)

Changes in assets and liabilities, net of effects of
  acquisition of business:

Decrease (increase) in receivables                                          3,118               (7,832)               4,108

Decrease (increase) in inventories                                         (1,920)              (2,676)               2,388

Increase (decrease) in trade accounts payable                              (9,246)               8,611                9,846

Decrease in accrued expenses                                                 (122)                (178)                (753)

Increase (decrease) in current income taxes payable                           118               (1,140)                 694

Increase (decrease) in other liabilities                                   (2,451)              (1,459)               4,133

Other                                                                      (2,183)              (1,535)                 889
                                                                       ------------         ------------         ------------
                        Total adjustments                                  16,490               29,304               60,605
                                                                       ------------         ------------         ------------
Net cash provided by operating activities                                  40,913               38,774               48,137
                                                                       ------------         ------------         ------------


</TABLE>




                                       29
<PAGE>

                               ACG HOLDINGS, INC.
                Consolidated Statements of Cash Flows - Continued
                                 (In thousands)
<TABLE>
<CAPTION>



                                                                                        Year ended March 31,
                                                                       ------------------------------------------------------
                                                                            2001                 2000                 1999
                                                                       ------------         ------------         ------------
<S>                                                                   <C>                      <C>                  <C>
Cash flows from investing activities:

Purchases of property, plant and equipment                                (19,161)             (21,462)             (11,143)

Acquisition of business                                                        --               (2,829)                  --

Proceeds from sales of property, plant and equipment                          180                  169                  765

Other                                                                         (25)                 (23)                  14
                                                                       ------------         ------------         ------------
             Net cash used by investing activities                        (19,006)             (24,145)             (10,364)
                                                                       ------------         ------------         ------------


Cash flows from financing activities:

    Debt:

      Proceeds                                                                 --                9,215               75,000

      Payments                                                            (14,787)             (15,893)            (103,185)

      Increase in deferred financing costs                                   (198)                (371)              (2,608)

      Repayment of capital lease obligations                               (6,961)              (7,504)              (6,938)

      Other                                                                  (22)                  (23)                 (81)
                                                                       ------------         ------------         ------------
             Net cash used by financing activities                        (21,968)             (14,576)             (37,812)
                                                                       ------------         ------------         ------------


Effect of exchange rates on cash                                               61                  (53)                  39
                                                                       ------------         ------------         ------------

Change in cash                                                                  0                    0                    0

Cash:

   Beginning of period                                                          0                    0                    0
                                                                       ------------         ------------         ------------
   End of period                                                       $        0                    0                    0
                                                                       ============         ============         ============

Supplemental disclosure of cash flow information:

Cash paid for:

   Interest                                                            $   31,873               32,639               35,546

   Income taxes, net of refunds                                        $    2,418                3,111                1,201

Exchange rate adjustment to long-term debt                             $      (22)                 (23)                 (81)

Non-cash investing activities:

   Lease obligations                                                   $    6,110                1,262                5,095

</TABLE>




See accompanying notes to consolidated financial statements.



                                       30
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(1)  Summary of Significant Accounting Policies
     ------------------------------------------


     ACG Holdings, Inc. ("Holdings") has no operations or significant assets
     other than its investment in American Color Graphics, Inc. ("Graphics").
     Holdings and Graphics are collectively referred to as (the "Company").
     Holdings is dependent upon distributions from Graphics to fund its
     obligations. Under the terms of its debt agreements at March 31, 2001,
     Graphics' ability to pay dividends or lend to Holdings was either
     restricted or prohibited, except that Graphics may pay specified amounts to
     Holdings (i) to pay the repurchase price payable to any officer or employee
     (or their estates) of Holdings, Graphics or any of their respective
     subsidiaries in respect of their stock or options to purchase stock in
     Holdings 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 Bank Credit Agreement, as
     defined below, and provided the aggregate amount of all such repurchases
     does not exceed $2 million) and (ii) to fund the payment of Holdings'
     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 Holdings'
     obligations pursuant to a tax sharing agreement with Graphics. A
     significant portion of Graphics' long-term obligations has been fully and
     unconditionally guaranteed by Holdings.


     The two business segments of the commercial printing industry in which the
     Company operates are (i) print and (ii) premedia services conducted by its
     American Color division.

     Significant accounting policies are as follows:

     (a)  Basis of Presentation

          The consolidated financial statements include the accounts of Holdings
          and all greater than 50% - owned subsidiaries, which are consolidated
          under accounting principles generally accepted in the United States.

          All significant intercompany transactions and balances have been
          eliminated in consolidation.

          Earnings-per-share data has not been provided since Holdings' common
          stock is closely held.

     (b)  Revenue Recognition

          Print revenues are recognized upon the completion of production.
          Shipment of printed material generally occurs upon completion of this
          production process. Materials are printed to unique customer
          specifications and are not returnable. Credits relating to
          specification variances and other customer adjustments are not
          significant.

     (c)  Inventories

          Inventories are valued at the lower of first-in, first-out ("FIFO")
          cost or market (net realizable value).

     (d)  Property, Plant and Equipment

          Property, plant and equipment is stated at cost. Depreciation, which
          includes amortization of assets under capital leases, is based on the
          straight-line method over the estimated useful lives of the assets or
          the remaining terms of the leases. Estimated useful lives used in
          computing depreciation and amortization expense are 3 to 15 years for
          furniture and fixtures and machinery and equipment, and 15 to 40 years
          for buildings and improvements.


                                       31
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     (e)  Excess of Cost Over Net Assets Acquired

          The excess of cost over net assets acquired (or "goodwill") is
          amortized on a straight-line basis over a range of 5 to 40 years for
          each of its principal business segments. The carrying value of
          goodwill is reviewed if facts and circumstances suggest that it may be
          impaired. If this review indicates that goodwill will not be
          recoverable, as determined based on the estimated undiscounted future
          cash flows of the assets acquired, the Company's carrying amount of
          the goodwill is reduced by the estimated shortfall of such discounted
          cash flows or other measures of fair value.

     (f)  Impairment of Long-Lived Assets

          The Company evaluates the recoverability of its long-lived assets in
          accordance with Statement of Financial Accounting Standards No. 121,
          "Accounting for the Impairment of Long-Lived Assets and Long-Lived
          Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires periodic
          assessment of certain long-lived assets for possible impairment when
          events or circumstances indicate that the carrying amounts may not be
          recoverable. Long-lived assets are grouped and evaluated for
          impairment at the lowest level for which there are identifiable cash
          flows that are independent of the cash flows of other groups of
          assets. If it is determined that the carrying amounts of such
          long-lived assets are not recoverable, the assets are written down to
          their fair value.

     (g)  Other Assets

          Financing costs related to the Bank Credit Agreement (as defined
          herein) are deferred and amortized over the term of the agreement.
          Costs related to the Notes (as defined herein) are deferred and
          amortized over the ten-year term of the Notes.

          Covenants not to compete are amortized over the terms of the
          underlying agreements, which are generally 5 years.

     (h)  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").

     (i)  Foreign Currency Translation

          The assets and liabilities of the Company's Canadian facility, which
          include interdivisional balances, are translated at year-end rates of
          exchange while revenue and expense items are translated at average
          rates for the year.

          Translation adjustments are recorded as a separate component of
          stockholders' deficit. Since the transactions of the Canadian facility
          are denominated in its functional currency and the interdivisional
          accounts are of a long-term investment nature, no transaction
          adjustments are included in operations.

     (j)  Environmental

          Environmental expenditures that relate to current operations are
          expensed or capitalized as appropriate. Expenditures that relate to an
          existing condition caused by past operations, and which do not
          contribute to current or future period revenue generation, are
          expensed. Environmental liabilities are provided when assessments
          and/or remedial efforts are probable and the related amounts can be
          reasonably estimated.



                                       32
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     (k)  Fair Value of Financial Instruments

          The Company discloses the estimated fair values of its financial
          instruments together with the related carrying amount. The Company is
          not a party to any financial instruments with material
          off-balance-sheet risk.

     (l)  Concentration of Credit Risk

          Financial instruments, which subject the Company to credit risk,
          consist primarily of trade accounts receivable. Concentration of
          credit risk with respect to trade accounts receivable are generally
          diversified due to the large number of entities comprising the
          Company's customer base and their geographic dispersion. The Company
          performs ongoing credit evaluations of its customers and maintains an
          allowance for potential credit losses.

     (m)  Use of Estimates

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

     (n)  Stock-Based Compensation

          The Company has elected to follow Statement of Financial Accounting
          Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
          123") in accounting for its stock-based compensation plan. The Company
          believes that including the fair value of compensation plans in
          determining net income is consistent with accounting for the cost of
          all other forms of compensation.

     (o)  Impact of Recently Issued Accounting Standards

          In June 1999, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standard No. 137 "Accounting for
          Derivative Instruments and Hedging Activities - Deferral of the
          Effective Date of FASB No. 133" ("SFAS 137"). SFAS 137 defers for one
          year the implementation date of Statement of Financial Accounting
          Standard No. 133 ("SFAS 133") which addressed a comprehensive and
          consistent standard for the recognition and measurement of derivatives
          and hedging activities. As amended, SFAS 133 is effective for all
          quarters of all fiscal years beginning after June 15, 2000. Earlier
          adoption is permitted. Management does not anticipate that the
          adoption of SFAS 137 will have a material effect on the Company's
          results of operations or financial position.

     (p)  Shipping and Handling Costs

          The Company's shipping and handling costs are reflected within Cost of
          Sales in the Consolidated Statements of Operations.


                                       33
<PAGE>

<TABLE>
<CAPTION>

                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

    (2)      Inventories
             -----------

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

                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
<S>                                                                                     <C>                        <C>
                      Paper                                                             $  10,805                         9,025

                      Ink                                                                     234                            275

                      Supplies and other                                                    1,825                          1,762
                                                                                        -------------              -------------
                               Total                                                    %  12,864                         11,062
                                                                                        =============              =============


 (3)         Other Assets
             ------------

             The components of other assets are as follows (in thousands):

                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
                      Deferred financing costs, less accumulated
                        amortization of $5,851 in 2001 and $4,462
                        in 2000                                                         $   5,048                          6,239

                      Spare parts inventory, net of valuation allowance
                        of $100 in 2001 and 2000                                            4,434                          3,664

                      Other                                                                 2,197                          2,366
                                                                                        -------------              -------------
                              Total                                                     $  11,679                         12,269
                                                                                        =============              =============

    (4)      Accrued Expenses
             ----------------

             The components of accrued expenses are as follows (in thousands):

                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
                      Compensation and related taxes                                    $  13,132                         12,078

                      Employee benefits                                                     9,527                          9,347

                      Interest                                                              4,033                          4,262

                      Other                                                                 4,782                          5,971
                                                                                        -------------              -------------
                             Total                                                      $  31,474                         31,658
                                                                                        =============              =============



</TABLE>

                                       34
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

    (5)      Notes Payable, Long-Term Debt and Capitalized Leases
             ----------------------------------------------------

             Long-term debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
<S>                                                                                     <C>                        <C>
                      Bank Credit Agreement:

                              Series A Term Loan                                        $   9,642                          9,642

                              Series B Term Loan                                           39,643                         39,643

                              Revolving Credit Facility Borrowings                             --                          8,764
                                                                                        -------------              -------------
                                                                                           49,285                         58,049


                      12 3/4% Senior Subordinated Notes Due 2005                          180,000                        185,000

                      Capitalized leases                                                   29,882                         30,733

                      Other loans with varying maturities and
                          interest rates                                                    2,539                          3,562
                                                                                        -------------              -------------
                             Total long-term debt                                         261,706                        277,344

                      Less current installments                                             7,809                          7,727
                                                                                        -------------              -------------

                             Long-term debt and capitalized leases,
                                 excluding current installments                         $ 253,897                        269,617
                                                                                        =============              =============
</TABLE>


          The Company has a $145 million credit facility with a syndicate of
          lenders (the "Bank Credit Agreement"), providing for a $70 million
          revolving credit facility which is not subject to a borrowing base
          limitation (the "Revolving Credit Facility") maturing on March 31,
          2004, a $25 million amortizing term loan facility maturing on March
          31, 2004 (the "A Term Loan Facility") and a $50 million amortizing
          term loan facility maturing on March 31, 2005 (the "B Term Loan
          Facility"). In addition, the Company recorded an extraordinary loss
          related to early extinguishment of debt of $4.1 million, net of zero
          taxes, associated with the write-off of deferred financing costs
          related to refinanced indebtedness in the fiscal year ended March 31,
          1999.

          As noted above, the Revolving Credit Facility provides for a maximum
          of $70 million borrowing availability, subject to certain customary
          conditions. This availability includes a provision for up to $40
          million of letters of credit. At March 31, 2001, the Company had total
          borrowings and letters of credit outstanding under the Revolving
          Credit Facility of approximately $27.4 million, and therefore,
          additional borrowing availability of approximately $42.6 million.

          Interest under the Bank Credit Agreement is floating based upon
          existing market rates plus agreed upon margin levels. In addition, the
          Company is obligated to pay commitment and letter of credit fees. Such
          margin levels and fees reduce over the term of the agreement subject
          to the achievement of certain Leverage Ratio measures. The
          weighted-average rate on outstanding indebtedness under the Bank
          Credit Agreement at March 31, 2001 was 6.8%.



                                       35
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

          The Senior Subordinated Notes (the "Notes") bear interest at 12 3/4%
          and mature August 1, 2005. Interest on the Notes is payable
          semi-annually on February 1 and August 1. The Notes are redeemable at
          the option of Graphics in whole or in part after August 1, 2000 at
          106.375% of the principal amount, declining to 100% of the principal
          amount, plus accrued interest, on or after August 1, 2002. Upon the
          occurrence of a change of control triggering event, as defined, each
          holder of a Note will have the right to require Graphics to repurchase
          all or any portion of such holder's Note at 101% of the principal
          amount thereof, plus accrued interest. The Notes are subordinate to
          all existing and future senior indebtedness, as defined, of Graphics,
          and are guaranteed on a senior subordinated basis by Holdings.

          Borrowings under the Bank Credit Agreement are secured by
          substantially all of the Company's assets. In addition, Holdings has
          fully and unconditionally guaranteed the indebtedness under the Bank
          Credit Agreement, which guarantee is secured by a pledge of all of
          Graphics' and its subsidiaries' stock. The agreement (1) requires
          satisfaction of certain financial covenants including Minimum
          Consolidated EBITDA, Consolidated Interest Coverage Ratio and Leverage
          Ratio requirements, (2) requires prepayments in certain circumstances
          including excess cash flows, proceeds from asset dispositions in
          excess of prescribed levels and certain capital structure transactions
          and (3) contains various restrictions and limitations on the following
          items: (a) the level of capital spending, (b) the incurrence of
          additional indebtedness, (c) mergers, acquisitions, investments and
          similar transactions and (d) dividends and other distributions. In
          addition, the agreement includes various other customary affirmative
          and negative covenants. The Senior Subordinated Notes Indenture's
          negative covenants are similar to, but in certain respects are less
          restrictive than, covenants under the Bank Credit Agreement. Graphics'
          ability to pay dividends or lend funds to Holdings is restricted (see
          note 1 for a discussion of those restrictions).

          The amortization for total long-term debt and capitalized leases at
          March 31, 2001 is shown below (in thousands):


                                            Long-Term            Capitalized
       Fiscal year                             Debt                 Leases
       -----------------                 ----------------      -----------------

       2002                                $       993           $       9,266

       2003                                      6,857                   8,388

       2004                                     24,365                   7,517

       2005                                     19,609                   5,079

       2006                                    180,000                   2,904

       Thereafter                                   --                   4,162
                                         ----------------      -----------------

           Total                           $   231,824                  37,316
                                         ================

       Imputed interest                                                 (7,434)
                                                               -----------------
          Present value of minimum lease payments                $      29,882
                                                               =================



          Capital leases have varying maturity dates and implicit interest rates
          which generally approximate 7%-10%. The Company estimates that the
          carrying amounts of the Company's debt and other financial instruments
          approximate their fair values at March 31, 2001 and 2000.



                                       36
<PAGE>

                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(6)  Income Taxes

     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.
     Significant components of the Company's deferred tax liabilities and assets
     as of March 31, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                                        March 31,
                                                                                        ----------------------------------------
                                                                                             2001                       2000
                                                                                        -------------              -------------
<S>                                                                                     <C>                        <C>
                      Deferred tax liabilities:

                        Book over tax basis in fixed assets                             $  22,508                         25,294

                        Foreign taxes                                                       3,626                          3,069

                        Accumulated amortization                                            1,758                          1,712

                        Other, net                                                          3,315                          4,233
                                                                                        -------------              -------------
                        Total deferred tax liabilities                                     31,207                         34,308

                     Deferred tax assets:

                        Bad debts                                                           1,545                          1,174

                        Accrued expenses and other liabilities                             23,468                         24,474

                        Net operating loss carryforwards                                   25,766                         34,314

                        AMT credit carryforwards                                            1,922                          1,500

                        Cumulative translation adjustment                                   1,246                            896
                                                                                        -------------              -------------
                        Total deferred tax assets                                          53,947                         62,358

                        Valuation allowance for deferred tax assets                        23,469                         36,081
                                                                                        -------------              -------------
                        Net deferred tax assets                                            30,478                         26,277
                                                                                        -------------              -------------
                     Net deferred tax liabilities                                       $     729                          8,031
                                                                                        =============              =============

</TABLE>


     Management has evaluated the need for a valuation allowance for deferred
     tax assets and believes that certain deferred tax assets will more likely
     than not be realized through the future reversal of existing taxable
     temporary differences and future earnings of the Company. In the fourth
     quarter of fiscal 2001, the valuation allowance was reduced by $7.3
     million, resulting in a corresponding credit to deferred income tax
     expense. This adjustment reflected a change in circumstances which resulted
     in a judgment that a corresponding amount of the Company's deferred tax
     assets will be realized in future years. The valuation allowance decreased
     by $12.6 million (including the $7.3 million decrease discussed above)
     during fiscal 2001 as a result of changes in the deferred tax items.



                                       37
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

Income tax expense (benefit) attributable to income (loss) from continuing
operations consists of (in thousands):
<TABLE>
<CAPTION>

                                                                                        Year ended March 31,
                                                                       ------------------------------------------------------
                                                                            2001                 2000                 1999
                                                                       ------------         ------------         ------------
<S>                                                                   <C>                      <C>                  <C>
           Current

              Federal                                                  $      457                  169                   --

              State                                                           343                  251                  237

              Foreign                                                       1,575                1,654                1,589
                                                                       ------------         ------------         ------------
                Total current                                               2,375                2,074                1,826
                                                                       ------------         ------------         ------------


           Deferred


              Federal                                                      (6,344)                (133)                (132)

              State                                                        (1,515)                 (15)                (102)

              Foreign                                                         557                  263               (1,069)
                                                                       ------------         ------------         ------------
                Total deferred                                            (7,302)                  115               (1,303)
                                                                       ------------         ------------         ------------

           Provision (benefit) for income taxes                        $   (4,927)               2,189                  523
                                                                       ============         ============         ============



</TABLE>



                                       38
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

       The effective tax rates for the fiscal years ending March 31, 2001, 2000
       and 1999 were (25.3%), 18.8% and (6.7%), respectively. The difference
       between these effective tax rates relating to continuing operations and
       the statutory federal income tax rate is composed of the following items:
<TABLE>
<CAPTION>

                                                                                        Year ended March 31,
                                                                       ------------------------------------------------------
                                                                            2001                 2000                 1999
                                                                       ------------         ------------         ------------
<S>                                                                   <C>                      <C>                  <C>
               Statutory tax rate                                            35.0%                35.0%                35.0%

               State income taxes, less
                  federal tax impact                                         (3.9)                 1.3                 (1.1)

               Foreign taxes, less federal
                  tax impact                                                  7.1                 10.9                 (4.4)

               Amortization                                                   3.2                  5.1                 (6.2)

               Change in valuation
                  allowance                                                 (59.1)               (37.7)               (34.4)

               Other, net                                                    (7.6)                 4.2                  4.4
                                                                       ------------         ------------         ------------
               Effective income tax rate                                    (25.3%)               18.8%               (6.7%)
                                                                       ============         ============         ============

</TABLE>

       As of March 31, 2001, the Company had available net operating loss
       carryforwards ("NOL's") for state purposes of $37.4 million, which can be
       used to offset future state taxable income. If these NOL's are not
       utilized, they will begin to expire in 2002 and will be totally expired
       in 2019.

       As of March 31, 2001, the Company had available NOL's for federal
       purposes of $69.0 million, which can be used to offset future federal
       taxable income. If these NOL's are not utilized, they will begin to
       expire in 2011 and will be totally expired in 2019.

       The Company also had available an alternative minimum tax credit
       carryforward of $1.9 million, which can be used to offset future taxes in
       years in which the alternative minimum tax does not apply. This credit
       can be carried forward indefinitely.

       The Company has alternative minimum tax NOL's in the amount of $57.8
       million, which will begin to expire in 2011 and will be completely
       expired in 2019.


                                       39
<PAGE>

                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(7)    Employee Benefit Plans

       Defined Benefit Pension Plans

       Pension Plans
       The Company sponsors defined benefit pension plans covering full-time
       employees of the Company who had at least one year of service at December
       31, 1994. Benefits under these plans generally are based upon the
       employee's years of service and, in the case of salaried employees,
       compensation during the years immediately preceding retirement. The
       Company's general funding policy is to contribute amounts within the
       annually calculated actuarial range allowable as a deduction for federal
       income tax purposes. The plans' assets are maintained by trustees in
       separately managed portfolios consisting primarily of equity securities
       and fixed income securities. In October 1994, the Board of Directors
       approved an amendment to the Company's defined benefit pension plans,
       which resulted in the freezing of additional defined benefits for future
       services under the plans effective January 1, 1995.

       Supplemental Executive Retirement Plan
       In October 1994, the Board of Directors approved a new Supplemental
       Executive Retirement Plan ("SERP"), which is a defined benefit plan, for
       certain key executives. Such benefits will be paid from the Company's
       assets. The aggregate accumulated projected benefit obligation under this
       plan was approximately $2.8 million and $2.6 million at March 31, 2001
       and March 31, 2000, respectively.

       Defined Benefit Postretirement Plans

       Postretirement Benefits
       The Company provides certain other postretirement benefits for employees,
       primarily life and health insurance. Full-time employees who have
       attained age 55 and have at least five years of service are entitled to
       postretirement health care and life insurance coverage. Postretirement
       life insurance coverage is provided at no cost to eligible retirees.
       Special cost sharing arrangements for health care coverage are available
       to employees whose age plus years of service at the date of retirement
       equals or exceeds 85 ("Rule of 85"). Any eligible retiree not meeting the
       Rule of 85 must pay 100% of the required health care insurance premium.

       Effective January 1, 1995, the Company amended the health care plan
       changing the health care benefit for all employees retiring on or after
       January 1, 2000. This amendment had the effect of reducing the
       accumulated postretirement benefit obligation by approximately $3
       million. This reduction is reflected as unrecognized prior service cost
       and is being amortized on a straight line basis over 15.6 years, the
       average remaining years of service to full eligibility of active plan
       participants at the date of the amendment.

      401(k) Defined Contribution Plan

       Effective January 1, 1995, the Company amended its 401(k) defined
       contribution plan. Eligible participants may contribute up to 15% of
       their annual compensation subject to maximum amounts established by the
       Internal Revenue Service and receive a matching employer contribution on
       amounts contributed. The employer matching contribution is made bi-weekly
       and equals 2% of annual compensation for all plan participants plus 50%
       of the first 6% of annual compensation contributed to the plan by each
       employee, subject to maximum amounts established by the Internal Revenue
       Service. The Company's contribution under this Plan amounted to $4.2
       million during the fiscal year ended March 31, 2001, $4.1 million during
       the fiscal year ended March 31, 2000 and $3.8 million during the fiscal
       year ended March 31, 1999.


                                       40
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

The following table provides a reconciliation of the changes in the defined
benefit plans' benefit obligations and fair value of plan assets for the fiscal
years ended March 31, 2001 and 2000 and a statement of the funded status of such
plans as of March 31, 2001 and 2000:

<TABLE>
<CAPTION>


                                                               Defined Benefit                          Defined Benefit
                                                                Pension Plans                         Postretirement Plan
                                                       ------------------------------           ------------------------------
                                                         2001                 2000                 2001                2000
                                                       ---------            ---------           ---------            ---------
<S>                                                    <C>                     <C>                  <C>                 <C>
Change in Benefit Obligation

  Benefit obligation at beginning of year              $  53,198               58,332               2,617               2,646

  Service cost                                               438                  425                  14                  26

  Interest cost                                            4,102                3,945                 196                 178

  Plan participants' contributions                            --                   --                 222                 186

  Actuarial loss (gain)                                    1,106               (6,516)                272                  79

  Expected benefit payments                               (3,481)              (2,868)               (582)               (498)

  Curtailment gain                                            (2)                 (56)                 --                  --

  Settlement gain                                            (34)                 (64)                 --                  --
                                                       ---------            ---------           ---------            ---------
  Benefit obligation at end of year                    $  55,327               53,198               2,739                2,617
                                                       =========            =========           =========            =========


Change in Plan Assets

  Fair value of plan assets at beginning of year       $  56,098               49,483                  --                   --

  Actual return on plan assets                            (4,681)               9,313                  --                   --

  Employer contributions                                     639                  544                 360                  313

  Plan participants' contributions                            --                   --                 222                  186

  Benefits paid                                           (3,385)              (3,242)               (582)                (499)
                                                       ---------            ---------           ---------            ---------
  Fair value of plan assets at end of year             $  48,671               56,098                  --                   --
                                                       =========            =========           =========            =========


Funded Status                                          $  (6,656)               2,900              (2,739)              (2,617)

  Unrecognized net actuarial gain                         (1,285)             (13,220)               (954)              (1,348)

  Unrecognized prior service cost (gain)                    (102)                (290)             (2,078)              (2,299)
                                                       ---------            ---------           ---------            ---------
  Accrued benefit liability                            $  (8,043)             (10,610)             (5,771)              (6,264)
                                                       =========            =========           =========            =========



</TABLE>


                                       41
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

                                                               Defined Benefit                          Defined Benefit
                                                                Pension Plans                         Postretirement Plan
                                                       ------------------------------           ------------------------------
                                                         2001                 2000                 2001                2000
                                                       ---------            ---------           ---------            ---------
<S>                                                    <C>                     <C>                  <C>                 <C>

    Weighted - Average Assumptions

       Discount rate - benefit obligation                   7.75%                7.75%               7.75%                7.75%

       Expected return on plan assets                      10.00%               10.00%                 N/A                  N/A

       Rate of compensation increase                         N/A                  N/A                  N/A                  N/A
</TABLE>


     For measurement purposes under the defined benefit postretirement plan, a
     6.5 percent annual rate of increase in the per capita cost of covered
     health care benefits, excluding prescription drugs, was assumed for March
     31, 2001. This rate was assumed to decrease gradually to 5 percent through
     fiscal year 2004 and remain at that level thereafter. A 12 percent annual
     rate of increase in the per capita cost of covered prescription drugs was
     assumed for March 31, 2001. This rate was assumed to decrease gradually to
     5 percent through fiscal year 2008 and remain at that level thereafter.

<TABLE>
<CAPTION>

                                                               Defined Benefit                          Defined Benefit
                                                                Pension Plans                         Postretirement Plan
                                                       ------------------------------           ------------------------------
                                                         2001        2000      1999                2001       2000      1999
                                                       ---------  --------- ---------           ---------  --------- ---------
<S>                                                    <C>        <C>        <C>                 <C>       <C>       <C>

     Components of Net Periodic Benefit Cost

            Service cost                               $     438        425       680                  14         26        30

            Interest cost                                  4,102      3,945     3,876                 196        178       181

            Expected return on plan assets                (5,468)    (4,815)   (4,410)                 --         --        --

            Amortization of prior service cost              (112)       (89)       55                (222)      (222)     (315)

            Recognized net actuarial gain                   (885)        (5)       --                (123)      (110)     (142)
                                                       ---------  --------- ---------           ---------  --------- ---------

            Net periodic benefit (income) cost         $  (1,925)      (539)      201                (135)      (128)     (246)
                                                       =========  ========= =========           =========  ========= =========

</TABLE>


     Assumed health care cost trend rates have a significant effect on the
     amounts reported for the medical component of the defined benefit
     postretirement plan. A one-percentage point change in the assumed health
     care cost trend rates would have the following effects:
<TABLE>
<CAPTION>

                                                                   1% Point                      1% Point
                                                                   Increase                      Decrease
                                                                  --------------               --------------
                 <S>                                                 <C>                           <C>
                 Effect on total of service and interest
                 cost components of expense                          $   6                          (5)

                 Effect on postretirement benefit obligation         $  82                         (75)



</TABLE>


                                       42
<PAGE>


                            ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(8)  Capital Stock

     At March 31, 2001, capital stock consists of Holdings' common stock
     ("Common Stock") and Series AA and Series BB convertible preferred stock
     collectively, ("Preferred Stock"). Each share of Common Stock is entitled
     to one vote on each matter common shareholders are entitled to vote on. The
     Preferred Stock has no voting rights. Dividends on the Common Stock and
     Preferred Stock are discretionary by the Board of Directors. Upon the
     occurrence of a Liquidation Event (as defined in the amended and restated
     Certificate of Incorporation), all amounts available for payment or
     distribution shall first be paid to holders of Series BB preferred stock,
     then holders of Series AA preferred stock and then to holders of Common
     Stock. Each share of the Preferred Stock may be converted, at the option of
     the holder, into shares of Common Stock using conversion ratios and subject
     to conditions set forth in the Company's Certificate of Incorporation.

(9)  Stock Option Plans

     Common Stock Option Plan

     In 1993, the Company established the ACG Holdings, Inc. Common Stock Option
     Plan. This plan, as amended, (the "1993 Common Stock Option Plan") is
     administered by a committee of the Board of Directors (the "Committee") and
     currently provides for granting up to 17,322 shares of Common Stock. On
     January 16, 1998, the Company established another common stock option plan
     (the "1998 Common Stock Option Plan"). This plan is administered by the
     Committee and provides for granting up to 36,939 shares of Common Stock.
     The 1993 Common Stock Option Plan and the 1998 Common Stock Option Plan are
     collectively referred to as the "Common Stock Option Plans". Stock options
     may be granted under the Common Stock Option Plans to officers and other
     key employees of the Company at the exercise price per share of Common
     Stock, as determined at the time of grant by the Committee in its sole
     discretion. All options are 25% exercisable on the first anniversary date
     of a grant and vest in additional 25% increments on each of the next three
     anniversary dates of each grant. All options expire 10 years from date of
     grant.

     A summary of activity under the Common Stock Option Plans is as follows:

<TABLE>
<CAPTION>

                                                                                Weighted-
                                                                                Average
                                                                                Exercise        Exercisable
                                                         Options                Price ($)       Options (b)
                                                         ----------            ------------     -----------
         <S>                                              <C>                   <C>                 <C>
         Outstanding at March 31, 1998                      37,207                1.42 (a)          1,147

            Granted                                          4,283               97.45

            Exercised                                           --                 --

            Forfeited                                       (4,309)              12.23
                                                         ----------

         Outstanding at March 31, 1999                      37,181               11.23              9,698

            Granted                                          2,665               18.02

            Exercised                                       (9,249)                .01

            Forfeited                                         (757)              88.72
                                                         ----------

         Outstanding at March 31, 2000                      29,840               13.35              9,536

            Granted                                             --                 --

            Exercised                                           --                 --

            Forfeited                                           --                 --
                                                         ----------

         Outstanding at March 31, 2001                      29,840               13.35             19,087
                                                         ==========


</TABLE>


(a)  Reflects Fiscal Year 1998 option repricing discussed below.

(b)  365 and 780 of the exercisable options at March 31, 2000 and March 31,
     2001, respectively, have a $240/option exercise price, all other
     exercisable options, in all periods, have a $.01/option exercise price.


                                       43
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     No options were granted in the fiscal year ended March 31, 2001. The
     weighted-average grant-date fair value of options granted was $0 for fiscal
     years ending March 31, 1999 and 1998. In the fiscal year ended March 31,
     2000, 1,970 options were granted with weighted-average grant-date fair
     value of approximately $.01/option and 495 options were granted with
     weighted-average grant-date fair value of $539/option. These options were
     granted with a weighted-average exercise price of $.01/option. Also, in the
     fiscal year ended March 31, 2000, 200 options were granted with a
     weighted-average grant-date fair value of approximately $.01/option and a
     weighted-average exercise price of $240/option. The fair value for all
     options was estimated at the date of grant using a Black-Scholes option
     pricing model with the following weighted-average assumptions for the
     fiscal years ended March 31, 2000 and 1999: risk-free interest rates of 5.3
     - 6.4% and 4.5 - 5.6%, respectively; no annual dividend yield; volatility
     factors of 0; and an expected option life of 5 years. The weighted-average
     remaining contractual life of the options outstanding at March 31, 2001 was
     6.3 years. During the fiscal year ended March 31, 1998, certain common
     stock option agreements were modified to reprice options previously granted
     with a $50 exercise price to a $.01 exercise price. A total of 7,281 shares
     (including 362 previously exercised options that were subsequently
     cancelled) of Holdings Common Stock were reserved for issuance, but not
     granted under the Common Stock Option Plans at March 31, 2001.

     As a result of the SFAS 123 requirements, the Company recognized related
     stock compensation expense of less than $0.1 million in the fiscal year
     ended March 31, 2001 and the fiscal year ended March 31, 2000, and no
     compensation expense in the fiscal year ended March 31, 1999.

     Preferred Stock Option Plan

     In the fiscal year ended March 31, 1998, the Company established the ACG
     Holdings, Inc. Preferred Stock Option Plan (the "Preferred Stock Option
     Plan"). This plan is administered by the Committee and provides for
     granting up to 583 shares of Preferred Stock. Stock options may be granted
     under this Preferred Stock Option Plan to officers and other key employees
     of the Company at the exercise price per share of Preferred Stock, as
     determined at the time of grant by the Committee in its sole discretion.
     All options are fully vested and are 100% exercisable at the date of grant.
     All options expire 10 years from date of grant.

     A summary of the Preferred Stock Option Plan is as follows:

                                                                    Options
                                                                  -----------

                  Outstanding at March 31, 1998                       526

                     Granted                                           29

                     Exercised                                         --

                     Forfeited                                         --
                                                                  -----------

                  Outstanding at March 31, 1999                       555

                     Granted                                           --

                     Exercised                                         --

                     Forfeited                                         --
                                                                  -----------

                  Outstanding at March 31, 2000                       555

                     Granted                                           --

                     Exercised                                         --

                     Forfeited                                         --
                                                                  -----------

                  Outstanding at March 31, 2001                       555
                                                                  ===========


                                       44
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     All options were granted with a $1,909 exercise price. The weighted-average
     grant-date fair value of options granted was $1,288 and $1,091 for the
     fiscal year ended March 31, 1999 and for the fiscal year ended March 31,
     1998, respectively. The weighted-average remaining contractual life of the
     options outstanding at March 31, 2001 was 6.8 years. The fair value for
     these options was estimated at the date of grant using a Black-Scholes
     option pricing model. The following weighted-average assumptions were used
     for the fiscal year ended March 31, 1999 and the fiscal year ended March
     31, 1998: risk free interest rate of 5.6% and 5.5%, respectively; no annual
     dividend yield; volatility factors of 0; and an expected option life of 2
     years. All of the options outstanding were exercisable at March 31, 2001. A
     total of 28 shares of Holdings Preferred Stock was reserved for issuance,
     but not granted under the Preferred Stock Option Plan at March 31, 2001.

     As a result of the SFAS 123 requirements, the Company recognized related
     stock compensation expense of less than $0.1 million in the fiscal year
     ended March 31, 1999. No grants of preferred options in the fiscal years
     ended March 31, 2000 and March 31, 2001 resulted in zero stock compensation
     expense for those years.

(10) Commitments and Contingencies

     The Company incurred rent expense for the fiscal years ended March 31,
     2001, 2000 and 1999 of $5.9 million, $6.0 million and $6.9 million,
     respectively, under various operating leases. Future minimum rental
     commitments under existing operating lease arrangements at March 31, 2001
     are as follows (in thousands):


                  Fiscal Year
                  -----------

                  2002                              $  4,431

                  2003                                 3,530

                  2004                                 2,285

                  2005                                 1,657

                  2006                                 1,424

                  Thereafter                           3,764
                                                    ---------
                     Total                          $ 17,091
                                                    =========

     The Company has employment agreements with two of its principal officers
     and five other employees. Such agreements provide for minimum salary levels
     as well as for incentive bonuses, which are payable if specified management
     goals are attained. In addition, the Company has consulting agreements with
     two former employees. The aggregate commitment for future salaries at March
     31, 2001, excluding bonuses, was approximately $3.2 million.

     On December 21, 1989, Graphics sold to CPS Corp. ("CPS"), its ink
     manufacturing operations and facilities. Concurrent with the sale of its
     ink manufacturing facility, Graphics entered into a long-term ink supply
     contract with CPS. The supply contract requires Graphics to purchase a
     significant portion of its ink requirements, within certain limitations and
     minimums, from CPS. Graphics believes that prices for products under this
     contract approximate market prices at the time of purchase of such
     products.

     In the quarter ended December 31, 1997, the Company entered into multi-year
     contracts to purchase a portion of the Company's raw materials to be used
     in its normal operations. In connection with such purchase agreements,
     pricing for a portion of the Company's raw materials is adjusted for
     certain movements in market prices, changes in raw material costs and other
     specific price increases. The Company is deferring certain contractual
     provisions over the life of the contracts, which are being recognized as
     the purchase commitments are achieved. The amount deferred at March 31,
     2001 is $27.3 million and is included within Other liabilities in the
     Company's consolidated balance sheet.



                                       45
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     Graphics, together with over 300 other persons, has been designated by the
     U.S. Environmental Protection Agency as a potentially responsible party (a
     "PRP") under the Comprehensive Environmental Response Compensation and
     Liability Act ("CERCLA", also known as "Superfund") at one Superfund site.
     Although liability under CERCLA may be imposed on a joint and several basis
     and the Company's ultimate liability is not precisely determinable, the
     PRPs have agreed that Graphics' share of removal costs is 0.46% and
     therefore Graphics believes that its share of the anticipated remediation
     costs at such site will not be material to its business or financial
     condition. Based upon an analysis of Graphics' volumetric share of waste
     contributed to the site and the agreement among the PRPs, the Company
     maintains a reserve of approximately $0.1 million in connection with this
     liability on its consolidated balance sheet at March 31, 2001. The Company
     believes this amount is adequate to cover such liability.

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

(11) Significant Customers

     No single customer represented 10% or more of total sales in the fiscal
     years ended March 31, 2001, 2000, and 1999.

(12) Interim Financial Information (Unaudited)

     Quarterly financial information follows (in thousands):
<TABLE>
<CAPTION>

                                                                      Gross           Net Income
                                                    Net Sales         Profit            (Loss)
                                                  -------------    -------------    -------------
                  <S>                             <C>                 <C>                <C>

                  Fiscal Year 2001

                      Quarter Ended
                         June 30                  $   141,527           24,915            6,936
                         September 30                 138,844           24,280            4,547
                         December 31                  162,871           27,999            7,699
                         March 31                     144,147           20,657            5,241
                                                  -------------    -------------    -------------
                               Total              $   587,389           97,851           24,423
                                                  =============    =============    =============

                  Fiscal Year 2000

                      Quarter Ended
                         June 30                  $   123,608           21,263            4,266
                         September 30                 134,211           22,297            1,964
                         December 31                  152,213           25,808            5,286
                         March 31                     136,678           20,897           (2,046)
                                                  -------------    -------------    -------------
                               Total              $   546,710           90,265            9,470
                                                  =============    =============    =============

</TABLE>


                                       46
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(13) Restructuring Costs and Other Special Charges

     Restructuring Costs

     In March 1999, the Company approved a plan for its American Color division
     which was designed to consolidate certain facilities in order to improve
     asset utilization and operational efficiency, modify the organizational
     structure as a result of facility consolidation and other changes and
     reduce overhead and other costs. The cost of this plan has been 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 pretax costs of $4.6 million, which were
     incurred as a direct result of this plan (excluding other special charges
     related to asset write-offs and write-downs - see below) included $2.5
     million of employee termination costs, $1.2 million of lease settlement
     costs and $0.9 million of other transition and restructuring expenses. This
     restructuring charge was recorded in the quarter ended March 31, 1999. The
     majority of these costs were paid or settled before March 31, 2000. During
     the fiscal year ended March 31, 2001, $1.1 million of these costs were
     paid. The remaining $0.4 million balance in the restructuring reserve at
     March 31, 2001 includes remaining payouts of involuntary employee
     termination and lease commitment costs.

     Other Special Charges

     During the quarter ended March 31, 1999, the Company recorded special
     charges totaling $0.9 million to adjust the carrying values of idle,
     disposed and under-performing assets of the American Color division to
     estimated fair values. The provision was based on a review of the Company's
     long-lived assets in accordance with SFAS 121. Fair value was based on the
     Company's estimate of held and used and idle assets based on current market
     conditions using the best information available.

     These special charges are classified within restructuring costs and other
     special charges in the consolidated statements of operations.


(14) Parent Guarantee of Subsidiary Debt

     Graphics, the issuer of the Notes, is a wholly-owned subsidiary of
     Holdings. Holdings has no other subsidiaries. Holdings has fully and
     unconditionally guaranteed the payment of principal and interest on the
     Notes on an unsecured senior subordinated basis. The guaranty by Holdings
     ranks junior to all existing and future senior indebtedness of Holdings,
     including its full and unconditional guaranty of Graphics obligations under
     the Bank Credit Agreement. Holdings conducts no business other than as the
     sole shareholder of Graphics and has no significant assets other than the
     capital stock of Graphics, all of which is pledged to secure Holdings'
     obligations under the Bank Credit Agreement. Holdings is dependent upon
     distributions from Graphics to fund its obligations. Graphics' ability to
     pay dividends or lend funds to Holdings is restricted (see note 1 for a
     discussion of those restrictions).


                                       47
<PAGE>




                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(15) Industry Segment Information

     Effective March 31, 1999, the Company adopted the provisions of Financial
     Accounting Standards Board Statement of Financial Accounting Standard No.
     131 "Disclosures about Segments of an Enterprise and Related Information"
     ("SFAS 131"). The Company has significant operations principally in two
     industry segments: (1) print and (2) premedia services. All of the
     Company's print business and assets are attributed to the print division
     and all of the Company's premedia services business and assets are
     attributed to the American Color division ("American Color"). The Company's
     digital visual effects operations and corporate expenses have been
     segregated and do not constitute a reportable segment of the Company as
     contemplated by SFAS 131.

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

     The accounting policies of the segments are the same as those described in
     the summary of significant accounting policies. The Company evaluates
     performance based on segment EBITDA which is defined as earnings before net
     interest expense, income tax expense (benefit), depreciation, amortization,
     other non-cash expenses, other special charges related to asset write-offs
     and write-downs, other expense (income) and extraordinary items. 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.
<TABLE>
<CAPTION>

                                                                                                        Corporate
     (In Thousands of Dollars)                                    Print                Premedia          and Other       Total
     ------------------------------------------               --------------        --------------   --------------   --------------
         <S>                                                  <C>                       <C>               <C>            <C>
         2001
         Segment revenues                                     $      501,311            80,060            6,018          587,389

         EBITDA                                               $       74,298            17,075           (3,068)          88,305
         Depreciation and amortization                                24,380             5,666            4,640           34,686
         Interest expense                                                 --                --           33,042           33,042
         Interest income                                                  --                --             (113)            (113)
         Other, net                                                      (33)              856              371            1,194
                                                              --------------        --------------   --------------   --------------
              Income (loss) before income taxes               $       49,951            10,553          (41,008)          19,496

         Total assets                                         $      256,786            28,457           16,959          302,202

         Total capital expenditures                           $       19,492             5,539              240           25,271

</TABLE>



                                       48
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                                      Corporate
     (In Thousands of Dollars)                                   Print                 Premedia         and Other          Total
     ------------------------------------------               --------------        --------------   --------------   --------------
         <S>                                                  <C>                       <C>               <C>            <C>
        2000
     Segment revenues                                         $      462,886            80,240            3,584          546,710

     EBITDA                                                   $       72,543            11,003           (3,539)          80,007
     Depreciation and amortization                                    23,097             5,983            4,706           33,786
     Interest expense                                                     --                --           33,963           33,963
     Interest income                                                      --                --             (165)            (165)
     Other charges, net                                                   --               137               --              137
     Other, net                                                           98               208              321              627
                                                              --------------        --------------   --------------   --------------
          Income (loss) before income taxes                   $       49,348             4,675           (42,364)         11,659

     Total assets                                             $      262,761            31,333            9,718          303,812

     Total capital expenditures                               $       17,977             4,419              328           22,724

     -------------------------------------------------------------------------------------------------------------------------------

     1999
     Segment revenues                                         $      431,936            83,816            4,591          520,343

     EBITDA                                                   $       61,627             5,283           (2,624)          64,286
     Depreciation and amortization                                    22,633             6,670            4,373           33,676
     Interest expense                                                     --                --           36,242           36,242
     Interest income                                                      --                --             (165)            (165)
     Other charges,net                                                    --             1,155               --            1,155
     Other, net                                                           24               819              374            1,217
                                                              --------------        --------------   --------------   --------------
          Income (loss) before income taxes
            and extraordinary items                           $       38,970            (3,361)         (43,448)          (7,839)

     Total assets                                             $      256,641            30,451           11,908          299,000

     Total capital expenditures                               $        9,369             6,051              818           16,238


</TABLE>


                                       49
<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.






                                       50
<PAGE>


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS

The following table provides certain information about each of the current
directors and executive officers of Holdings and Graphics (ages as of March 31,
2001). All directors hold office until their successors are duly elected and
qualified.

<TABLE>
<CAPTION>

         Name                       Age    Position with Graphics and Holdings
         ----                       ---    -----------------------------------
         <S>                        <C>    <C>
         Stephen M. Dyott            49    Chairman, President of Holdings, Chief Executive Officer and Director
         James S. Hoch               41    Director
         Eric T. Fry                 34    Director
         Joseph M. Milano            48    Executive Vice President and Chief Financial Officer
         Malcolm J. Anderson         62    President of Graphics
         Timothy M. Davis            46    Senior Vice President/Administration, Secretary and General Counsel
         Stuart R. Reeve             37    Executive Vice President, Operations of Graphics
         Larry R. Williams           60    Executive Vice President, Purchasing of Graphics
         Patrick W. Kellick          43    Senior Vice President/Corporate Controller and Assistant Secretary
</TABLE>

Stephen M. Dyott - Chairman and Chief Executive Officer of Graphics and Holdings
since September 1996; President of Holdings since February 1995; Director of
Graphics and Holdings since September 1994; Chief Operating Officer of Holdings
from February 1995 to September 1996 and Chief Operating Officer of Graphics
from 1991 to September 1996; President of Graphics from 1991 to 1999; Vice
President and General Manager - Flexible Packaging, American National Can
Company ("ANCC") from 1988 to 1991; Vice President and General Manager - Tube
Packaging, ANCC from 1985 to 1987.


James S. Hoch - Director of Graphics and Holdings since February of 2001;
Managing Director of Morgan Stanley & Co. ("MS&Co.") and the general partner of
Morgan Stanley Capital Partners III, L.P. ("MSCP III") and Morgan Stanley
Leveraged Equity Fund II, L.P. ("MSLEF II"); joined MS&Co. in 1982; Currently a
Director of Silgan Holdings, Choice One Communications, Netscalibur Ltd of the
UK, Primacom AG of Germany, and Xtempus of the UK.

Eric T. Fry - Director of Graphics and Holdings since March 1996; Principal of
MS&Co. and the general partner of MSCP III and MSLEF II; joined MS&Co. in 1989;
Director of EnerSys Inc., Direct Response Corporation, Homesite Group, LifeTrust
America, Vanguard Health Systems and The Underwriter Holdings Company Limited.


Joseph M. Milano - Executive Vice President and Chief Financial Officer of
Holdings and Graphics since 1997; Senior Vice President and Chief Financial
Officer of Holdings and Graphics from 1994 to 1997; Vice President - Finance of
Holdings and Graphics from 1992 to 1994; Vice President and Chief Financial
Officer, Farrel Corporation, 1989 to 1992; Vice President and Chief Financial
Officer, Electronic Mail Corporation of America from 1984 to 1988.

Malcolm J. Anderson - President of Graphics since 1999; Executive Vice
President, Operations of Graphics from 1996 to 1999; Senior Vice President,
Operations of Graphics from 1993 to 1996; President, Plastic Products Division
of Kerr Group, Inc. from 1989 to 1993; Vice President Manufacturing - Flexible
Packaging, American National Can Company from 1982 to 1989; Vice President,
Eastern Division General Manager of Sinclair and Valentine Ink Company from 1980
to 1982.

Timothy M. Davis - Senior Vice President/Administration, Secretary and General
Counsel of Holdings and Graphics since 1989; Assistant General Counsel of
MacMillan, Inc. and counsel to affiliates of Maxwell Communication Corporation
North America, January 1989 to June 1989; Attorney in private practice from 1981
to 1989.


                                       51
<PAGE>


Stuart R. Reeve - Executive Vice President, Operations of Graphics since 1999;
Executive Vice President Sales and Marketing of Graphics from 1997 to 1999;
Senior Vice President Commercial Sales of Graphics 1995 to 1997; Vice President
Sales - Midwest of Graphics 1994 to 1995; Vice President Sales - West of
Graphics 1991 to 1994; Sales Executive of Graphics 1989 to 1991.

Larry R. Williams - Executive Vice President, Purchasing of Graphics since 1997;
Senior Vice President - Purchasing, Marketing and Newspaper Sales of Graphics
from 1996 to 1997; Senior Vice President of Purchasing / Transportation of
Graphics from 1993 to 1996; Independent Management Consultant from 1992 to 1993
and Senior Vice President, Operations Support for Ryder Systems from 1990 to
1992.

Patrick W. Kellick - Senior Vice President/Corporate Controller of Holdings and
Graphics since 1997; Vice President/Corporate Controller of Holdings and
Graphics from 1989 to 1997; Corporate Controller of Graphics since 1987, and
Assistant Secretary of Holdings and Graphics since 1995; various financial
positions with Williams Precious Metals (a division of Brush Wellman, Inc.) from
1984 to 1987, including CFO from 1986 to 1987; Auditor with KPMG from 1979 to
1984.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents information concerning compensation for services to
Holdings and Graphics during the fiscal years ended March 31, 2001, 2000 and
1999 to the Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") of Holdings and/or Graphics.

<TABLE>
<CAPTION>


                                                       Summary Compensation Table


                                                                                            Long-Term Compensation
                                                                                      ------------------------------------
                                                               Annual Compensation             Awards             Payouts
                                                ------------------------------------  -------------------------  ---------

                                                                                                   Securities
                                                                              Other                   Under-                  All
                                                                             Annual    Restricted     lying                  Other
   Name and Principal                                                       Compen-     Stock        Options/       LTIP    Compen-
        Position                  Period           Salary        Bonus      sation     Award(s)      SAR's (#)     Payouts  sation
-------------------------   ------------------  ------------ ------------- ---------  -------------- ------------ --------- --------
<S>                           <C>                <C>          <C>             <C>          <C>           <C>          <C>      <C>
Stephen M. Dyott              Fiscal Year 2001   $ 575,000    $1,425,000      --           --             --          --        --
Chairman, President of        Fiscal Year 2000   $ 575,000    $1,000,000      --           --             --          --        --
Holdings and Chief            Fiscal Year 1999   $ 517,311    $  800,000      --           --             --          --        --
Executive Officer & Director

Joseph M. Milano              Fiscal Year 2001   $ 330,000    $  425,000      --           --             --          --        --
Executive Vice President      Fiscal Year 2000   $ 309,231    $  375,000      --           --             --          --        --
& Chief Financial Officer     Fiscal Year 1999   $ 287,981    $  325,000      --           --             29          --        --

Malcolm J. Anderson           Fiscal Year 2001   $ 350,000    $  325,000      --           --             --          --        --
President of Graphics         Fiscal Year 2000   $ 319,231    $  325,000      --           --            691          --        --
                              Fiscal Year 1999   $ 240,385    $  225,000      --           --             --          --        --

Timothy M. Davis              Fiscal Year 2001   $ 295,000    $  325,000      --           --             --          --        --
Senior VicePresident/         Fiscal Year 2000   $ 277,692    $  275,000      --           --             --          --        --
Administration,               Fiscal Year 1999   $ 252,308    $  225,000      --           --             --          --        --
Secretary & General Counsel

Stuart R. Reeve               Fiscal Year 2001   $ 300,000    $  260,000      --           --             --          --        --
Executive Vice President,     Fiscal Year 2000   $ 284,616    $  260,000      --           --            441          --        --
Operations of Graphics        Fiscal Year 1999   $ 234,134    $  225,000      --           --             --          --        --

</TABLE>


                                       52
<PAGE>


The following table presents information concerning the options granted to the
Named Executive Officers during the last fiscal year.

<TABLE>
<CAPTION>


                                                Option/SAR Grants in Last Fiscal Year


                                                                                                                    Alternative
                                                                                                                  To (f) and (g)
                                                                                                                    Grant Date
                                           Individual Grants                                                           Value
    -----------------------------------------------------------------------------------------------------    -----------------------
                                                      % of Total
                                                        Options/
                                  Number of              SAR's
                                  Securities          Granted to                                                      Grant
                                  Underlying           Employees         Exercise or                                  Date
                                Options/SAR's          in Fiscal          Base Price        Expiration               Present
            Name                 Granted (#)           Year 2001            ($/sh)             Date                 Value ($)
    ----------------------     -----------------     --------------     ---------------    --------------    -----------------------
    <S>                         <C>                   <C>                <C>                <C>              <C>



</TABLE>


Common Stock Option Plans
     None

Preferred Stock Option Plan
    None


The following table presents information concerning the fiscal year-end value of
unexercised stock options held by the Named Executive Officers.

               Aggregated Option/SAR Exercises in Last Fiscal Year
                      and Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>


                                                                     Number of Securities              Value of Unexercised
                                                                    Underlying Unexercised             In-the-Money Options/
                               Shares Acquired         Value       Options/SAR's at 3/31/01              SAR's at 3/31/01
                               on Exercise (#)      Realized($)    Exercisable/Unexercisable(#)    Exercisable/Unexercisable ($)
                               ----------------    --------------  ----------------------------    -----------------------------
<S>                                  <C>                 <C>          <C>                            <C>
Common Stock Option Plans (a)
     Stephen M. Dyott                 --                 --           5,025.25 / 2,292.50            6,122,564 / 2,793,090 (a)
     Joseph M. Milano                 --                 --           2,725.50 / 1,267.75            3,320,640 / 1,544,576 (a)
     Malcolm J. Anderson              --                 --             814.25 / 807.75                992,050 / 984,130   (a)
     Timothy M. Davis                 --                 --           1,341.50 / 634.50              1,634,430 / 773,049   (a)
     Stuart R. Reeve                  --                 --             769.75 / 620.25                937,833 / 755,688   (a)

Preferred  Stock  Option
Plan (b)
     Stephen M. Dyott                 --                 --                 292 / 0                  2,326,037 / 0         (b)
     Joseph M. Milano                 --                 --                 175 / 0                  1,394,029 / 0         (b)
     Timothy M. Davis                 --                 --                  88 / 0                    700,997 / 0         (b)

</TABLE>


(a)  Holdings' common stock has not been registered or publicly traded and,
     therefore a public market price of the stock is not available. The values
     set forth in the table are based on our estimate of the fair market value
     of the common stock at March 31, 2001.

(b)  Holdings' preferred stock has not been registered or publicly traded and,
     therefore a public market price of the stock is not available. The values
     set forth in the table are based on our estimate of the fair market value
     of the preferred stock at March 31, 2001.


                                       53
<PAGE>

Pension Plan

Graphics sponsors the American Color Graphics, Inc. Salaried Employees' Pension
Plan (the "Pension Plan"), a defined benefit pension plan covering full-time
salaried employees of Graphics who had at least one year of service as of
December 31, 1994.

In October 1994, the Board of Directors approved an amendment to the Pension
Plan that resulted in the freezing of additional defined benefits for future
services under such plan effective January 1, 1995 (see note 7 to our
consolidated financial statements appearing elsewhere in this Report).

At March 31, 2001, all of the Named Executive Officers had vested in the Pension
Plan. At March 31, 2001, the Named Executive Officers had the following amounts
of credited service (original hire date through January 1, 1995) and annual
benefit payable upon retirement at age 65 under the Pension Plan: Stephen M.
Dyott (3 years, 3 months; $8,220), Joseph M. Milano (2 years, 7 months; $5,820),
Malcolm J. Anderson (1 year, 3 months; $2,820), Timothy M. Davis (5 years, 5
months; $11,700) and Stuart R. Reeve (5 years, 4 months; $9,185).

The basic benefit payable under the Pension Plan is a five-year certain single
life annuity equivalent to (a) 1% of a participant's "final average monthly
compensation" plus (b) 0.6% of a participant's "final average monthly
compensation" in excess of 40% of the monthly maximum Social Security wage base
in the year of retirement multiplied by years of credited service (not to exceed
30 years of service). For purposes of the Pension Plan, "final average
compensation" (which, for the Named Executive Officers, is reflected in the
salary and bonus columns of the Summary Compensation Table) means the average of
a participant's five highest consecutive calendar years of total earnings (which
includes bonuses) from the last 10 years of service. The maximum monthly benefit
payable from the Pension Plan is $5,000.

The basic benefit under the Pension Plan is payable upon completion of five
years of vesting service and retirement on or after attaining age 65.
Participants may elect early retirement under the Pension Plan upon completion
of five years of vesting service and the attainment of age 55, and receive the
basic benefit reduced by 0.4167% for each month that the benefit commencement
date precedes the attainment of age 65. A deferred vested benefit is available
to those participants who separate from service before retirement provided the
participant has at least five years of vesting service.

Supplemental Executive Retirement Plan

In October 1994, the Board of Directors approved a new SERP, which is a defined
benefit plan, for the Named Executive Officers, five other current executives
and one former executive. The plan provides for a basic annual benefit payable
upon completion of five years vesting service (April 1, 1994 through March 31,
1999 for Messrs. Dyott, Milano, Anderson, and Davis and July 1, 1997 through
June 30, 2002 for Messr. Reeve) and retirement on or after attaining age 65, or
the present value of such benefit at an earlier date under certain
circumstances. The Named Executive Officers have the following basic annual
benefit payable under this plan at age 65:

                   Stephen M. Dyott                          $100,000
                   Joseph M. Milano                          $100,000
                   Malcolm J. Anderson                       $ 50,000
                   Timothy M. Davis                          $ 75,000
                   Stuart R. Reeve                           $ 50,000

Such benefits will be paid from our assets (see note 7 to our consolidated
financial statements appearing elsewhere in this Report).

Compensation of Directors

Directors of Holdings and Graphics do not receive a salary or an annual retainer
for their services but are reimbursed for expenses incurred with respect to such
services.

Employment Agreements

On October 19, 1998, Graphics entered into an employment agreement with Stephen
M. Dyott (the "Dyott Employment Agreement"), which replaced the agreement
entered into by Graphics and Mr. Dyott on April 3, 1993.



                                       54
<PAGE>


The Dyott Employment Agreement has an initial term of three years. The term
under the Dyott Employment Agreement is automatically extended for one-year
periods absent at least one year's written notice of an intent by either party
not to renew. The Dyott Employment Agreement provides for the payment of an
annual salary, annual bonus and all other employee benefits and perquisites made
available to Graphics' senior executives generally.

Under the Dyott Employment Agreement, if the employee's employment is terminated
by Graphics "without cause" ("cause", as defined in the Dyott Employment
Agreement, means a material breach by the employee of his obligations under the
Dyott Employment Agreement; continued failure or refusal of the employee to
substantially perform his duties to Graphics; a willful and material violation
of Federal or state law applicable to Graphics or the employee's conviction of a
felony or perpetration of a common law fraud; or other willful misconduct that
is injurious to Graphics) or by the employee for "good reason" (which, as
defined in the Dyott Employment Agreement, means a decrease in base pay or a
failure by Graphics to pay material compensation due and payable; a material
diminution of the employee's responsibilities or title; a material change in the
employee's principal employment location; or a material breach by Graphics of a
material term of the Dyott Employment Agreement), the employee will be entitled
to a pro rata portion of the bonus for the year employment was terminated
payable at the time bonuses are generally paid and salary continuation payments
(and certain other benefits) for a period of three years beginning on the date
of termination. The Dyott Employment Agreement contains confidentiality
obligations that survive indefinitely, non-solicitation obligations that end on
the second anniversary of the date employment has ceased and non-competition
obligations that end on the third anniversary of the date employment has ceased.

On July 15, 1998, Graphics entered into severance agreements with Joseph M.
Milano and Timothy M. Davis which provide that in the event the employee's
employment is terminated by Graphics without "cause", as defined above (but also
including as "cause" competition with Graphics), or by the employee for "good
reason", as defined above, the employee will be entitled to a pro rata portion
of the bonus for the year employment was terminated payable at the time bonuses
are generally paid and salary and benefit continuation for three years following
termination. The severance agreements contain confidentiality obligations that
survive indefinitely and non-solicitation and non-competition obligations that
end on the third anniversary of the date employment has ceased.

Graphics is also party to an employment agreement with Malcolm J. Anderson,
which provides for an annual salary, annual bonus and all other employee
benefits and perquisites made available to Graphics' senior executives
generally. The term of Mr. Anderson's agreement shall terminate on the earlier
of (i) March 31, 2002 or (ii) termination of his employment pursuant to the
employment agreement. Such agreement also provides that in the event the
employee's employment is terminated by Graphics without "cause", as defined
above, or by the employee for "good reason", as defined above, the employee will
be entitled to a pro rata portion of the bonus for the year employment was
terminated payable at the time bonuses are generally paid and salary
continuation payments (and certain other benefits) for a period of two years
beginning on the date of termination. The employment agreement contains
confidentiality obligations that survive indefinitely and non-solicitation and
non-competition obligations that end on the second anniversary of the date
employment has ceased. Effective April 1, 2002, Mr. Anderson will be engaged as
a consultant to the Company. Under the terms of Mr. Anderson's consulting
agreement, he will be paid an annual fee of $125,000 for a two year period.

On August 1, 1999, Graphics also entered into a severance agreement with Stuart
Reeve which provides that in the event the employee's employment is terminated
by Graphics without "cause", as defined above (but also including as "cause"
competition with Graphics), or by the employee for "good reason", as defined
above, the employee will be entitled to a pro rata portion of the bonus for the
year employment was terminated payable at the time bonuses are generally paid
and salary and benefit continuation for two years following termination. Such
base salary payments will be reduced, after the first twelve months from the
date of termination, to the extent the employee receives compensation from
another employer. The severance agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
that end on the second anniversary of the date employment has ceased.

Compensation Committee Interlocks and Insider Participation

We have not maintained a formal compensation committee since the 1993
Acquisition. Mr. Dyott sets compensation in conjunction with the Board of
Directors.


                                       55
<PAGE>


Repriced Options

During Fiscal Year 1998, certain common stock option agreements were modified to
reprice options previously granted with a $50 exercise price to a $.01 exercise
price. Based upon the Board of Directors determination, the new exercise price
was not less than the fair market value of such options. See note 9 to our
consolidated financial statements appearing elsewhere in this Report. The
following table presents information concerning all repricing of options and
SARs held by any executive officer during the last ten completed fiscal years.

                        Ten Year Option / SAR Repricings

<TABLE>
<CAPTION>
                                               Number of
                                               Securities       Market Price       Exercise                         Length of
                                               Underlying       of Stock at        Price at        New           Original Option
                                              Options/SARs        Time of           Time of      Exercise       Term Remaining at
                                 Repricing     Repriced or      Repricing or       Repricing       Price        Date of Repricing
            Name                    Date       Amended (#)       Amendment ($)        ($)           ($)            or Amendment
------------------------------   -----------  --------------   ---------------    ------------   -----------    -------------------

<S>                              <C>               <C>               <C>                <C>         <C>            <C>
Stephen M. Dyott                 01/16/98          1,761             --                 50          .01            8 yrs. 6 mo.
Chairman, President of           01/16/98            380             --                 50          .01            7 yrs. 6 mo.
Holdings, Chief Executive        01/16/98            859             --                 50          .01            6 yrs. 5 mo.
Officer and Director             01/16/98          2,300             --                 50          .01            5 yrs. 0 mo.

Joseph M. Milano                 01/16/98            760             --                 50          .01            8 yrs. 6 mo.
Executive Vice President and     01/16/98            614             --                 50          .01            7 yrs. 6 mo.
Chief Financial Officer          01/16/98            688             --                 50          .01            6 yrs. 5 mo.
                                 01/16/98            102             --                 50          .01            5 yrs. 0 mo.

Malcolm J. Anderson              01/16/98            125             --                 50          .01            8 yrs. 6 mo.
President of Graphics            01/16/98            526             --                 50          .01            6 yrs. 5 mo.

Timothy M. Davis                 01/16/98            290             --                 50          .01            8 yrs. 6 mo.
Senior Vice President/           01/16/98            535             --                 50          .01            6 yrs. 5 mo.
Administration, Secretary        01/16/98            255             --                 50          .01            5 yrs. 0 mo.
and General Counsel

Stuart R. Reeve                  01/16/98             91             --                 50          .01            8 yrs. 6 mo.
Executive Vice President,        01/16/98            140             --                 50          .01            7 yrs. 6 mo.
Operations of Graphics           01/16/98            420             --                 50          .01            6 yrs. 5 mo.

Larry R. Williams                01/16/98            125             --                 50          .01            8 yrs. 6 mo.
Executive Vice President,        01/16/98            526             --                 50          .01            6 yrs. 5 mo.
Purchasing of Graphics

Patrick W. Kellick               01/16/98            257             --                 50          .01            8 yrs. 6 mo.
Senior Vice President/           01/16/98            105             --                 50          .01            6 yrs. 5 mo.
Corporate Controller and
Assistant Secretary

</TABLE>


                                       56
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 31, 2001, concerning the
persons having beneficial ownership of more than five percent of the capital
stock of Holdings and the beneficial ownership thereof by each director and
Named Executive Officer of Holdings and by all directors and executive officers
of Holdings as a group. Each holder below has sole voting power and sole
investment power over the shares designated below.
<TABLE>
<CAPTION>

                                        Shares of Holdings         Percent        Shares of Holdings       Percent
Name                                       Common Stock           of Class         Preferred Stock        of Class
----                                    ------------------        --------        ------------------      --------
<S>                                            <C>                  <C>                   <C>               <C>
The Morgan Stanley Leveraged Equity
Fund II, L.P.
1221 Ave. of the Americas
New York, NY 10020                             59,450               41.5                  2,727             52.2

MSCP III Entities (a)
1221 Ave. of the Americas
New York, NY 10020                             23,333               16.3                  1,070             20.5

First Plaza Group Trust
c/o Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, PA 15258                           17,000               11.9                    780             14.9

Ell & Co.
c/o The Northern Trust Company
40 Broad Street
New York, NY  10004                             6,537                4.6                    300              5.7

Directors and Named Executive Officers:

     Stephen M. Dyott (b)                      12,678                8.5                    315              5.7

     Joseph M. Milano (c)                       5,967                4.1                    175              3.2

     Malcolm J. Anderson (d)                    1,692                1.2                     --               --

     Timothy M. Davis (e)                       2,984                2.1                     88              1.7

     Stuart R. Reeve (f)                        1,630                1.1                     --               --

     James S. Hoch                                 --                 --                     --               --

     Eric T. Fry                                   --                 --                     --               --

All current directors and executive officers
as a group (g)                                 27,917               18.0                    578             10.0



(a)      Includes Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital Investors, L.P. and MSCP III
         892 Investors, L.P.
(b)      Includes 5,025 common stock options and 292 preferred stock options exercisable within 60 days.
(c)      Includes 2,726 common stock options and 175 preferred stock options exercisable within 60 days.
(d)      Includes 814 common stock options exercisable within 60 days.
(e)      Includes 1,342 common stock options and 88 preferred stock options exercisable within 60 days.
(f)      Includes 770 common stock options exercisable within 60 days.
(g)      Includes 12,106 common stock options and 555 preferred stock options exercisable within 60 days.
</TABLE>


                                       57
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The 1993 Acquisition

On April 8, 1993 (the "Acquisition Date"), pursuant to an Agreement and Plan of
Merger dated 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 "1993 Acquisition").
Acquisition Corp. was formed by The Morgan Stanley Leveraged Equity Fund II,
L.P. ("MSLEF II"), certain institutional investors, and certain members of
management (the "Purchasing Group") 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 1993 Acquisition, Communications continued as the surviving
corporation and the separate corporate existence of Acquisition Corp. was
terminated.

Pursuant to the Merger Agreement, (i) MSLEF II and the Purchasing Group made a
$40 million equity investment in Holdings and acquired (a) 90% of the
outstanding Holdings' common stock and (b) all the outstanding shares of the
preferred stock of Holdings, with a total preference of $40 million and which,
under certain circumstances, is convertible into shares of Holdings' common
stock; and (ii) Golder, Thoma, & Cressey, an Illinois limited partnership
("GTC") and its affiliates received 4,987 shares of Holdings' common stock.

MSLEF II is an investment fund affiliated with Morgan Stanley Dean Witter and
Co. ("MSDW"). MSDW is a preeminent global financial services firm. In addition,
two of the current directors of Holdings are employees of Morgan Stanley & Co.
Incorporated, an affiliate of MSLEF II and also a subsidiary of MSDW. As a
result of these relationships, MSDW may be deemed to control the management and
policies of Graphics and Holdings. In addition, MSDW may be deemed to control
matters requiring shareholders' approval, including the election of all
directors, the adoption of amendments to the Certificates of Incorporation of
Holdings and Graphics and the approval of mergers and sales of all or
substantially all of Graphics' and Holdings' assets.

Stockholders' Agreement. In connection with the Shakopee Merger, Holdings, MSLEF
II, other entities affiliated with MSDW and the other stockholders of Holdings
entered into an amended and restated stockholders' agreement, dated as of August
14, 1995. The stockholders' agreement includes provisions requiring the delivery
of certain shares of Holdings' common stock from the "Purchasers", as defined in
the stockholders' agreement, which includes MSLEF II, certain institutional
investors and members of management, to Holdings, depending upon the return
realized by the Purchasers on their investment, and thereafter from Holdings to
the "Existing Holders", as defined in the stockholders' agreement, which
includes the stockholders' of Holdings immediately prior to the 1993
Acquisition. Depending upon the returns realized by the Purchasers on their
investment, their interest in the Holdings' common stock could be reduced and
the interest of the Existing Holders could be increased. The stockholders'
agreement gives the Existing Holders, the right to designate a director of
Holdings and the entities affiliated with MSDW also the right to designate a
director. The stockholders' agreement contains rights of first refusal with
regard to the issuance by Holdings of equity securities and sales by the
stockholders of equity securities of Holdings owned by them, specified tag along
and drag along provisions and registration rights. The stockholders' agreement
also restricts our ability to enter into affiliate transactions unless the
transaction is fair and reasonable, with terms no less favorable to us than if
the transaction was completed on an arm's length basis.

Tax Sharing Agreement

Holdings and Graphics are parties to a tax sharing agreement effective July 27,
1989. Under the terms of the agreement, Graphics (whose income is consolidated
with that of Holdings for federal income tax purposes) is liable to Holdings for
amounts representing federal income taxes calculated on a "stand-alone basis".
Each year Graphics pays to Holdings the lesser of (i) Graphics' federal tax
liability computed on a stand-alone basis and (ii) its allocable share of the
federal tax liability of the consolidated group. Accordingly, Holdings is not
currently reimbursed for the separate tax liability of Graphics to the extent
Holdings' losses reduce consolidated tax liability. Reimbursement for the use of
such Holdings' losses will occur when the losses may be used to offset Holdings'
income computed on a stand-alone basis. Graphics has also agreed to reimburse
Holdings in the event of any adjustment (including interest or penalties) to
consolidated income tax returns based upon Graphics' obligations with respect
thereto. No reimbursement obligation currently exists between Graphics and
Holdings. Also under the terms of the tax sharing agreement, Holdings has agreed
to reimburse Graphics for refundable federal income tax equal to an amount which
would be refundable to Graphics had Graphics filed separate federal income tax
returns for all years under the agreement. Graphics and Holdings have also
agreed to treat foreign, state and local income and franchise taxes for which
there is consolidated or combined reporting in a manner consistent with the
treatment of federal income taxes as described above.


                                       58
<PAGE>


Other

MS&Co. acted as placement agent in connection with the original private
placement of the Notes and received a placement fee of $5.6 million in
connection therewith. MS&Co. is affiliated with entities that beneficially own a
substantial majority of the outstanding shares of capital stock of Holdings.
MS&Co. had a $5 million participation in the old term loan facility and received
fees of approximately $0.3 million in connection therewith. In addition, Morgan
Stanley Senior Funding, Inc. originally had a participation of approximately $35
million in the Bank Credit Agreement and received gross fees of approximately
$0.5 million in connection therewith. On June 8, 1998, Morgan Stanley Senior
Funding, Inc. reduced its participation in such credit facility to $11.5
million. Currently, Morgan Stanley Senior Funding, Inc. has a $9.6 million
participation in such credit facility.


                                       59
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as a part of this Report:

          Reports of Independent Auditors

          1 and 2.  Financial Statements: The following Consolidated Financial
                    Statements of Holdings are included in Part II, Item 8:

                    Consolidated balance sheets - March 31, 2001 and 2000

                    For the Years Ended March 31, 2001, 2000 and 1999:

                          Consolidated statements of operations
                          Consolidated statements of stockholders' deficit
                          Consolidated statements of cash flows

                          Notes to Consolidated Financial Statements

                    Financial Statement Schedules: The following financial
                    statement schedules of Holdings are filed as a part of this
                    Report.

         Schedules                                                      Page No.
         ---------                                                      --------

     I.  Condensed Financial Information of Registrant:
         Condensed Financial Statements (parent company only)
         for the years ended March 31, 2001, 2000 and 1999
         and as of March 31, 2001 and 2000 ...................................62

     II. Valuation and qualifying accounts....................................67

     Schedules not listed above have been omitted because they are not
     applicable or are not required, or the information required to be
     set-forth therein is included in the Consolidated Financial Statements
     or notes thereto.

     3.  Exhibits:  The exhibits listed on the accompanying Index to Exhibits
         immediately following the financial statement schedules are filed as
         part of, or incorporated by reference into, this Report.

Exhibit No.     Description

     3.1        Certificate of Incorporation of Graphics, as amended to date*

     3.2        By-laws of Graphics, as amended to date*

     3.3        Restated Certificate of Incorporation of Holdings, as amended to
                date

     3.4        By-laws of Holdings, as amended to date*

     4.1        Indenture (including the form of Note), dated as of August 15,
                1995, among Graphics, Holdings and NationsBank of Georgia,
                National Association, as Trustee**

     10.1       Credit Agreement, dated as of August 15, 1995 and Amended and
                Restated as of May 8, 1998, among Holdings, Graphics, GE Capital
                Corporation as Documentation Agent, Morgan Stanley Senior
                Funding, Inc. as Syndication Agent, Bankers Trust Company as
                Administrative Agent and the parties signatory thereto++++

     10.1(a)    June 8, 1998, First Amendment to Amended and Restated Credit
                Agreement dated as of May 8, 1998, among Holdings, Graphics, GE
                Capital Corporation as Documentation Agent, Morgan Stanley
                Senior Funding, Inc. as Syndication Agent, Bankers Trust
                Company as Administrative Agent and the parties signatory
                thereto++++

     10.1(b)    February 3, 1999, Second Amendment to Amended and Restated
                Credit Agreement dated as of May 8, 1998, among Holdings,
                Graphics, GE Capital Corporation as Documentation Agent,
                Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                Bankers Trust Company as Administrative Agent and the parties
                signatory thereto****


                                       60
<PAGE>


     10.1(c)    November 9, 1999, Third Amendment to Amended and Restated Credit
                Agreement dated as of May 8, 1998, among Holdings, Graphics, GE
                Capital Corporation as Documentation Agent, Morgan Stanley
                Senior Funding, Inc. as Syndication Agent, Bankers Trust
                Company as Administrative Agent and the parties signatory
                thereto+++

     10.1 (d)   January 26, 2001, Fourth Amendment of Amended and Restated
                Credit Agreement dated as of May 8, 1998, among Holdings,
                Graphics, GE Capital Corporation as Documentation Agent, Morgan
                Stanley Senior Funding, Inc. as Syndication Agent, Bankers Trust
                Company as Administrative Agent and the parties signatory
                thereto+++++

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

     10.3       Employment Agreement, dated as of October 19, 1998, between
                Graphics and Stephen M. Dyott******

     10.4       Severance Letter, dated August 1, 1999, between Graphics and
                Stuart Reeve******

     10.5       Severance Letter, dated July 15, 1998, between Graphics and
                Joseph M. Milano+

     10.6       Severance Letter, dated July 15, 1998, between Graphics and
                Timothy M. Davis+

     10.7       Employment Agreement, dated as of August 1, 1999, between
                Graphics and M. J. Anderson*****

     10.8       Amended and Restated Stockholders' Agreement, dated as of August
                14, 1995, among Holdings, the Morgan Stanley Leveraged Equity
                Fund II, L.P., Morgan Stanley Capital Partners III, L.P. and the
                additional parties named therein**

     10.8(a)    Amendment No. 1, dated January 16, 1998, to Amended and Restated
                Stockholders' Agreement dated as of August 14, 1995, among
                Holdings, the Morgan Stanley Leveraged Equity Fund II, L.P.,
                Morgan Stanley Capital Partners III, L.P., and the additional
                parties named herein++++

     10.9       Stock Option Plan of Holdings++

     10.10      Term Loan Agreement, dated as of June 30, 1997, among Holdings,
                Graphics, BT Commercial Corporation, as Agent, Bankers Trust
                Company, as Issuing Bank, and the parties signatory thereto++++

     10.11      Holdings Common Stock Option Plan++++

     10.12      Holdings Preferred Stock Option Plan++++

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

     21.1       List of Subsidiaries

----------

*        Incorporated by reference from Amendment No. 2 to Form S-1 filed on
         October 4, 1993 - Registration number 33-65702.

+        Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1999 - Commission file number 33-97090.

**       Incorporated by reference from Form S-4 filed on September 19, 1995 -
         Registration number 33-97090.

++       Incorporated by reference from Amendment No. 2 to Form S-4 filed on
         November 22, 1995 - Registration number 33-97090.

***      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1996 - Commission file number 33-97090.

+++      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1999 - Commission file number 33-97090.

****     Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1998 - Commission file number 33-97090.

++++     Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1998 - Commission file number 33-97090.

*****    Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1999 - Commission file number 33-97090.

+++++    Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 2000 - Commission file number 33-97090.

******   Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 2000 - Commission file number 33-97090.

(b)  Reports on Form 8-K:

     The following report on Form 8-K was filed during the fourth quarter of
Fiscal Year 2001:

     1.   Form 8-K filed with the Securities and Exchange Commission on February
          2, 2001 under Item 5 to announce ACG's financial results for the
          twelve month period ended December 31, 2000.

     ACG did not file any other reports on Form 8-K during the three months
ended March 31, 2001.


                                       61
<PAGE>

<TABLE>
<CAPTION>


                            SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                                          ACG HOLDINGS, INC.
                                                          Parent Company Only
                                                       Condensed Balance Sheets
                                                        (Dollars in thousands)


                                                                                           March 31,
                                                                           ----------------------------------------
                                                                                 2001                     2000
                                                                           -------------              -------------
    <S>                                                                     <C>                             <C>

    Assets
    ------

    Current assets:

         Receivable from subsidiary                                         $      466                      377

         Income taxes receivable                                                    41                       63
                                                                           -------------              -------------

             Total assets                                                   $      507                      440
                                                                           =============              =============


    Liabilities and Stockholders' Deficit
    -------------------------------------

    Liabilities of subsidiary in excess of assets                           $   86,374                  109,829
                                                                           -------------              -------------
             Total liabilities                                                  86,374                  109,829

    Stockholders' deficit:

       Common stock, voting, $.01 par value, 5,852,223
         shares authorized, 143,399 shares issued and outstanding                    1                        1

       Preferred stock, $.01 par value, 15,823 shares authorized,
         3,617 shares Series AA convertible preferred stock issued
         and outstanding, $39,442,551 liquidation preference, and
         1,606 shares Series BB convertible preferred stock issued
         and outstanding, $17,500,000 liquidation preference                        --                       --

       Additional paid-in capital                                               58,370                   58,303

       Accumulated deficit                                                    (141,062)                (165,485)

       Other accumulated comprehensive loss, net of tax                         (3,176)                  (2,208)
                                                                           -------------              -------------
             Total stockholders' deficit                                       (85,867)                (109,389)
                                                                           -------------              -------------

    Commitments and contingencies

             Total liabilities and stockholders' deficit                    $      507                      440
                                                                           =============              =============

</TABLE>




See accompanying notes to condensed financial statements.


                                       62
<PAGE>


<TABLE>
<CAPTION>


                                      SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                                          ACG HOLDINGS, INC.
                                                          Parent Company Only
                                                  Condensed Statements of Operations
                                                        (Dollars in thousands)



                                                                                          Year ended March 31,
                                                                     ----------------------------------------------------------
                                                                          2001                   2000                  1999
                                                                     ------------           ------------           ------------
    <S>                                                              <C>                        <C>                 <C>
    Equity in income (loss) of subsidiary                            $  24,423                  9,470               (12,468)
                                                                     ------------           ------------           ------------

             Net income (loss)                                       $  24,423                  9,470               (12,468)
                                                                     ============           ============           ============

</TABLE>



























See accompanying notes to condensed financial statements.


                                       63
<PAGE>


<TABLE>
<CAPTION>

                                     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                                         ACG HOLDINGS, INC.
                                                         Parent Company Only
                                                 Condensed Statements of Cash Flows
                                                       (Dollars in thousands)



                                                                                          Year ended March 31,
                                                                     ----------------------------------------------------------
                                                                          2001                   2000                  1999
                                                                     ------------           ------------           ------------
    <S>                                                              <C>                        <C>                 <C>
        Cash flows from operating activities                                --                     --                    --

        Cash flows from investing activities                                --                     --                    --

        Cash flows from financing activities                                --                     --                    --
                                                                     ------------           ------------           ------------
                          Net change in cash                                --                     --                    --
                                                                     ============           ============           ============


</TABLE>





























See accompanying notes to condensed financial statements.


                                       64
<PAGE>


           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               ACG HOLDINGS, INC.
                               Parent Company Only
                     Notes to Condensed Financial Statements

Description of ACG Holdings, Inc.

Our 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. Effective July
1997, Sullivan Communications, Inc. changed its name to ACG Holdings, Inc.
("Holdings") and Sullivan Graphics, Inc. changed its name to American Color
Graphics, Inc. ("Graphics").

Holdings has no operations or significant assets other than its investment in
Graphics. Holdings is dependent upon distributions from Graphics to fund its
obligations. Under the terms of its debt agreements at March 31, 2001, Graphics'
ability to pay dividends or lend to Holdings is either restricted or prohibited,
except that Graphics may pay specified amounts to Holdings to fund the payment
of Holdings' obligations pursuant to a tax sharing agreement (see note 4).

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
Holdings and SGI Acquisition Corp. ("Acquisition Corp."), Acquisition Corp. was
merged with and into Holdings (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 "Purchasing Group") for the
purpose of acquiring a majority interest in Holdings. Acquisition Corp. acquired
a substantial and controlling majority interest in Holdings in exchange for $40
million in cash. In the Acquisition, Holdings continued as the surviving
corporation and the separate corporate existence of Acquisition Corp. was
terminated.

In connection with the Acquisition, the existing consulting agreement with the
managing general partner of Holdings' majority stockholder was terminated and
the related liabilities of Holdings were canceled. The agreement required
Holdings to make minimum annual payments of $1 million for management advisory
services subject to limitations in Graphics' debt agreements. No amounts were
paid during the periods presented in these condensed financial statements.

     1.  Basis of Presentation

         The accompanying condensed financial statements (parent company only)
         include the accounts of Holdings and its investments in Graphics
         accounted for in accordance with the equity method, and do not present
         the financial statements of Holdings and its subsidiary on a
         consolidated basis. These parent company only financial statements
         should be read in conjunction with ACG's consolidated financial
         statements. The Acquisition was accounted for under the purchase method
         of accounting applying the provisions of Accounting Principles Board
         Opinion No. 16 ("APB 16").

     2.  Guarantees

         As set forth in ACG's consolidated financial statements, a substantial
         portion of Graphics' long-term obligations has been guaranteed by
         Holdings.

         Holdings has guaranteed Graphics' indebtedness under the Bank Credit
         Agreement, which guarantee is secured by a pledge of all of Graphics'
         stock. Borrowings under the Bank Credit Agreement are secured by
         substantially all assets of Graphics. Holdings is restricted under its
         guarantee of the Bank Credit Agreement from, among other things,
         entering into mergers, acquisitions, incurring additional debt, or
         paying cash dividends.


                                       65
<PAGE>


           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               ACG HOLDINGS, INC.
                               Parent Company Only
                     Notes to Condensed Financial Statements

         On August 15, 1995, Graphics issued $185 million of Senior Subordinated
         Notes (the "Notes") bearing interest at 12 3/4% and maturing August 1,
         2005. The Notes are guaranteed on a senior subordinated basis by
         Holdings and are subordinate to all existing and future senior
         indebtedness, as defined, of Graphics.

     3.  Dividends from Subsidiaries and Investees

         No cash dividends were paid to Holdings from any consolidated
         subsidiaries, unconsolidated subsidiaries or investees accounted for by
         the equity method during the periods reflected in these condensed
         financial statements.

     4.  Tax Sharing Agreement

         Holdings and Graphics are parties to a tax sharing agreement effective
         July 27, 1989. Under the terms of the agreement, Graphics (whose income
         is consolidated with that of Holdings for federal income tax purposes)
         is liable to Holdings for amounts representing federal income taxes
         calculated on a "stand-alone basis". Each year Graphics pays to
         Holdings the lesser of (i) Graphics' federal tax liability computed on
         a stand-alone basis and (ii) its allocable share of the federal tax
         liability of the consolidated group. Accordingly, Holdings is not
         currently reimbursed for the separate tax liability of Graphics to the
         extent Holdings' losses reduce consolidated tax liability.
         Reimbursement for the use of such Holdings' losses will occur when the
         losses may be used to offset Holdings' income computed on a stand-alone
         basis. Graphics has also agreed to reimburse Holdings in the event of
         any adjustment (including interest or penalties) to consolidated income
         tax returns based upon Graphics' obligations with respect thereto.
         Also, under the terms of the tax sharing agreement, Holdings has agreed
         to reimburse Graphics for refundable federal income taxes equal to an
         amount which would be refundable to Graphics had Graphics filed
         separate federal income tax returns for all years under the agreement.
         Graphics and Holdings have also agreed to treat foreign, state and
         local income and franchise taxes for which there is consolidated or
         combined reporting in a manner consistent with the treatment of federal
         income taxes as described above.

     5.  Refinancing Transaction

         ACG has a $145 million credit facility with a syndicate of lenders (the
         "Bank Credit Agreement"), providing for a $70 million revolving credit
         facility which is not subject to a borrowing base limitation (the
         "Revolving Credit Facility") maturing on March 31, 2004, a $25 million
         amortizing term loan facility maturing on March 31, 2004 (the "A Term
         Loan Facility") and a $50 million amortizing term loan facility
         maturing on March 31, 2005 (the "B Term Loan Facility"). In addition,
         ACG recorded an extraordinary loss related to early extinguishment of
         debt of $4.1 million, net of zero taxes, associated with the write-off
         of deferred financing costs related to refinanced indebtedness in the
         fiscal year ended March 31, 1999.

         Interest under the Bank Credit Agreement is floating based upon
         existing market rates plus agreed upon margin levels. In addition, ACG
         is obligated to pay specific commitment and letter of credit fees. Such
         margin levels and fees reduce over the term of the agreement subject to
         the achievement of certain Leverage Ratio measures.

         Borrowings under the Bank Credit Agreement are secured by substantially
         all of ACG's assets. In addition, Holdings has guaranteed the
         indebtedness under the Bank Credit Agreement, which guarantee is
         secured by a pledge of all of Graphics' and its subsidiaries' stock.
         The new agreement (1) requires satisfaction of certain financial
         covenants including Minimum Consolidated EBITDA, Consolidated Interest
         Coverage Ratio and Leverage Ratio requirements, (2) requires
         prepayments in certain circumstances including excess cash flows,
         proceeds from asset dispositions in excess of prescribed levels and
         certain capital structure transactions and (3) contains various
         restrictions and limitations on the following items: (a) the level of
         capital spending, (b) the incurrence of additional indebtedness, (c)
         mergers, acquisitions, investments and similar transactions and (d)
         dividends and other distributions. In addition, the agreement includes
         various other customary affirmative and negative covenants. Graphics'
         ability to pay dividends or lend funds to Holdings is restricted.


                                       66
<PAGE>


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ACG HOLDINGS, INC.

<TABLE>
<CAPTION>

                                                 Balance at         Additions                                              Balance
                                                 Beginning          Charged to                               Other         at End of
                                                 of Period           Expense          Write-offs          Adjustments       Period
                                             ----------------     -------------    ----------------    ----------------- -----------
                                                                            (in thousands)
<S>                                           <C>                     <C>                <C>               <C>            <C>
Fiscal Year ended March 31, 2001

   Allowance for doubtful accounts            $     2,945             1,452              (492)                  --        $   3,905

   Reserve for inventory obsolescence         $       489               189              (193)                  --        $     485

   Income tax valuation allowance             $    36,081                --                --           (a)(12,612)       $  23,469


Fiscal Year ended March 31, 2000

   Allowance for doubtful accounts            $     2,860               783              (698)                  --        $   2,945

   Reserve for inventory obsolescence         $       588               (99)               --                   --        $     489

   Income tax valuation allowance             $    41,460                --                --           (b) (5,379)       $  36,081


Fiscal Year ended March 31, 1999

   Allowance for doubtful accounts            $     2,112             2,510            (1,762)                  --        $   2,860

   Reserve for inventory obsolescence         $       265               374               (51)                  --        $     588

   Income tax valuation allowance             $    37,222                --                --           (c)  4,238        $  41,460

</TABLE>


(a)  The decrease in the valuation allowance primarily relates to current year
     income for which no tax expense has been recorded and to projected future
     use of net operating loss carryforwards.

(b)  The decrease in the valuation allowance primarily relates to current year
     income for which no tax expense has been recorded.

(c)  The increase in the valuation allowance primarily relates to current year
     losses for which no tax benefit has been recorded.


                                       67
<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this Report to be signed on their
behalf by the undersigned thereunto duly authorized.

                               ACG Holdings, Inc.

                          American Color Graphics, Inc.


                                                                    Date
                                                                    ----



             /s/      Stephen M. Dyott                          June 26, 2001
            -------------------------------------               -------------
                      Stephen M. Dyott
              Chairman, President and Chief Executive Officer
                        ACG Holdings, Inc.
            Chairman and Chief Executive Officer
                  American Color Graphics, Inc.
        Director of ACG Holdings, Inc. and American Color Graphics, Inc.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

             Signature                                     Title                                                 Date
             ---------                                     -----                                                 ----
<S>                                                  <C>                                                    <C>



 /s/  Joseph M. Milano                               Executive Vice President                               June 26, 2001
-------------------------------------                Chief Financial Officer                                -------------
    (Joseph M. Milano)




 /s/  Patrick W. Kellick                               Senior Vice President/                               June 26, 2001
-------------------------------------                  Corporate Controller                                 -------------
    (Patrick W. Kellick)                                Assistant Secretary
                                                   (Principal Accounting Officer)




 /s/  James S. Hoch                                          Director                                       June 26, 2001
-------------------------------------                                                                       -------------
     (James S. Hoch)


 /s/  Eric T. Fry                                            Director                                       June 26, 2001
-------------------------------------                                                                       -------------
    (Eric T. Fry)


</TABLE>


                                       68
<PAGE>


                               ACG HOLDINGS, INC.
                           Annual Report on Form 10-K
                        Fiscal Year Ended March 31, 2001

                                Index to Exhibits



    Exhibit No.    Description
    -----------    ----------

         3.1      Certificate of Incorporation of Graphics, as amended to date*

         3.2      By-laws of Graphics, as amended to date*

         3.3      Restated Certificate of Incorporation of Holdings, as amended
                  to date

         3.4      By-laws of Holdings, as amended to date*

         4.1      Indenture (including the form of Note), dated as of August 15,
                  1995, among Graphics, Holdings and NationsBank of Georgia,
                  National Association, as Trustee**

         10.1     Credit Agreement, dated as of August 15, 1995 and Amended and
                  Restated as of May 8, 1998, among Holdings, Graphics, GE
                  Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties signatory
                  thereto++++

         10.1(a)  June 8, 1998, First Amendment to Amended and Restated Credit
                  Agreement dated as of May 8, 1998, among Holdings, Graphics,
                  GE Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties signatory
                  thereto++++

         10.1(b)  February 3, 1999, Second Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  signatory thereto****

         10.1(c)  November 9, 1999, Third Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  signatory thereto+++

         10.1(d)  January 26, 2001, Fourth Amendment of Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  signatory thereto+++++

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

         10.3     Employment Agreement, dated as of October 19, 1998, between
                  Graphics and Stephen M. Dyott******

         10.4     Severance Letter, dated August 1, 1999, between Graphics and
                  Stuart Reeve******

         10.5     Severance Letter, dated July 15, 1998, between Graphics and
                  Joseph M. Milano+

         10.6     Severance Letter, dated July 15, 1998, between Graphics and
                  Timothy M. Davis+

         10.7     Employment Agreement, dated as of August 1, 1999, between
                  Graphics and M. J. Anderson*****

         10.8     Amended and Restated Stockholders' Agreement, dated as of
                  August 14, 1995, among Holdings, the Morgan Stanley Leveraged
                  Equity Fund II, L.P., Morgan Stanley Capital Partners III,
                  L.P. and the additional parties named therein**

         10.8(a)  Amendment No. 1, dated January 16, 1998, to Amended and
                  Restated Stockholders' Agreement dated as of August 14, 1995,
                  among Holdings, the Morgan Stanley Leveraged Equity Fund II,
                  L.P., Morgan Stanley Capital Partners III, L.P., and the
                  additional parties named herein++++

         10.9     Stock Option Plan of Holdings++

         10.10    Term Loan Agreement, dated as of June 30, 1997, among
                  Holdings, Graphics, BT Commercial Corporation, as Agent,
                  Bankers Trust Company, as Issuing Bank, and the parties
                  signatory thereto++++

         10.11    Holdings Common Stock Option Plan++++

         10.12    Holdings Preferred Stock Option Plan++++

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

         21.1     List of Subsidiaries


                                       69
<PAGE>


-----------

*        Incorporated by reference from Amendment No. 2 to Form S-1 filed on
         October 4, 1993 - Registration number 33-65702.

+        Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1999 - Commission file number 33-97090.

**       Incorporated by reference from Form S-4 filed on September 19, 1995 -
         Registration number 33-97090.

++       Incorporated by reference from Amendment No. 2 to Form S-4 filed on
         November 22, 1995 - Registration number 33-97090.

***      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1996 - Commission file number 33-97090.

+++      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1999 - Commission file number 33-97090.

****     Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1998 - Commission file number 33-97090.

++++     Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1998 - Commission file number 33-97090.

*****    Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1999 - Commission file number 33-97090.

+++++    Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 2000 - Commission file number 33-97090.

******   Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 2000 - Commission file number 33-97090.



                                       70
<PAGE>