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, 1998

                                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 of               (I.R.S. employer
     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 of               (I.R.S. employer
     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 134,812 shares outstanding of its Common Stock, $.01
Par Value, as of June 11, 1998 (all of which are privately owned and not
traded on a public market).

                    DOCUMENTS INCORPORATED BY REFERENCE
                                   None


                                   INDEX



                                                                       Page
                                                                    Referenced
                                                                    Form 10-K
                                                                    ----------

                                  PART I


Item 1.   Business....................................................  2
Item 2.   Properties..................................................  8
Item 3.   Legal proceedings...........................................  8
Item 4.   Submission of matters to a vote of security holders.........  9



                                  PART II

Item 5.   Market for registrant's common equity and related stockholder
          matters..................................................... 10
Item 6.   Selected financial data..................................... 11
Item 7.   Management's discussion and analysis of financial condition
          and results of operations................................... 15
Item 8.   Financial statements and supplementary data................. 28
Item 9.   Changes in and disagreements with accountants on accounting
          and financial disclosure.................................... 60



                                 PART III

Item 10.  Directors and executive officers............................ 61
Item 11.  Executive compensation...................................... 62
Item 12.  Security ownership of certain beneficial owners and
          management...................................................67
Item 13.  Certain relationships and related transactions.............. 68



                                  PART IV

Item 14.  Exhibits, financial statement schedules and reports on
          Form 8-K.................................................... 70



          Signatures.................................................. 81


                                  PART I

Special Note Regarding Forward Looking Statements

         This Annual Report on Form 10-K (the "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 and 7 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. Such 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") formerly Sullivan Communications, Inc. ("Communications"), together
with its wholly-owned subsidiary, American Color Graphics, Inc. ("Graphics")
formerly Sullivan Graphics, Inc., (collectively the "Company"), including
fluctuations in the cost of paper and other raw materials used by the Company,
changes in the advertising and printing markets, actions by the Company's
competitors particularly with respect to pricing, the financial condition of the
Company's customers, the financial condition and liquidity of the Company, the
general condition of the United States economy, demand for the Company's
products and services and the matters set forth in this Report generally.
Consequently, such forward-looking statements should be regarded solely as the
Company's current plans, estimates and beliefs.  The Company does not
undertake and specifically declines 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

The Company is a successor to a business that commenced operations in 1926, and
is one of the largest national diversified commercial printers in North America
with ten printing plants in eight states and Canada and fifteen prepress
facilities located throughout the United States. The Company operates primarily
in two business sectors of the commercial printing industry: printing (which
accounted for approximately 84% of total sales during the fiscal year ended
March 31, 1998 ("Fiscal Year 1998")) and digital imaging and prepress services
conducted through its American Color division (which accounted for approximately
16% of total sales in Fiscal Year 1998). The Company's printing business and
American Color division are both headquartered in Nashville, Tennessee.
Partnerships affiliated with Morgan Stanley Dean Witter & Co. currently own
61.4% of the outstanding common stock and 72.5% of the outstanding preferred
stock of Holdings.

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.

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

On March 11, 1996, Graphics sold its 51% interest in National Inserting
Systems, Inc. ("NIS").  The proceeds from the sale were used to repay
indebtedness under the Bank Credit Agreement (as defined below).

On March 12, 1996, Graphics acquired the assets of Gowe, Inc., a Medina,
Ohio regional printer of newspapers, T.V. books and retail advertising
inserts and catalogs (the "Medina Facility") for cash and assumption of
certain liabilities of Gowe, Inc.  (the "Medina Acquisition").

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

In February of the fiscal year ended March 31, 1997 ("Fiscal Year 1997"),
the Company made a strategic decision to shut down the operations of its
wholly-owned subsidiary Sullivan Media Corporation ("SMC").  SMC's shut
down was accounted for as a discontinued operation, and accordingly, SMC's
operations are segregated in the Company's consolidated financial
statements.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Discontinued Operations" and note 5 of
the Company's consolidated financial statements.

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

Printing

The Company's printing business, which accounted for approximately 84%, 86%
and 85% of the Company's sales in Fiscal Year 1998, Fiscal Year 1997 and
the fiscal year ending March 31, 1996 ("Fiscal Year 1996"), respectively,
produces retail advertising inserts, comics (newspaper Sunday comics, comic
insert advertising and comic books), and other publications.

Retail Advertising Inserts (80% of printing sales in Fiscal Year 1998 and
Fiscal Year 1997 and 75% in Fiscal Year 1996).  The Company believes that
it is one of the largest printers of retail advertising inserts in the
United States.  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.  The Company prints advertising inserts for
approximately 300 retailers.

Comics (14% of printing sales in Fiscal Year 1998 and Fiscal Year 1997 and
16% in Fiscal Year 1996, include newspaper Sunday comics, comic insert
advertising and comic books).  The Company believes that it is one of the
largest printers of comics in the United States.  The Company prints Sunday
comics for over 300 newspapers in the United States and Canada and prints a
significant share of the annual comic book requirements of Marvel
Entertainment Group, Inc.  ("Marvel").

Other Publications (6% of printing sales in Fiscal Year 1998 and Fiscal
Year 1997 and 9% in Fiscal Year 1996).  The Company prints local
newspapers, T.V. guide listings and other publications.

In January 1998, the Company approved a plan for its printing division
which was designed to improve responsiveness to customer requirements,
increase asset utilization and reduce overhead costs.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Restructuring Costs and Other Special Charges" and note 19 to the Company's
consolidated financial statements.

Printing Production

The Company's network of ten printing plants in the United States and
Canada is strategically positioned to service major metropolitan centers
and provide the Company with distribution efficiencies and shorter
turnaround times; two factors instrumental in continuing the Company's
success in servicing large national and regional accounts.  There are three
printing processes used to produce advertising insert and newspaper
supplements: offset lithography (heatset and cold), rotogravure and
flexography.  The Company principally uses heatset offset and flexographic
web printing equipment in its printing operations.  The Company owns a
substantial majority of its printing equipment, which currently consists of
36 heatset offset presses, 5 coldset offset presses and 11 flexographic
presses.  Most of the Company's advertising inserts and all of its other
publications and comic books are printed using the heatset offset process,
while some advertising inserts and substantially all of the Company's
newspaper Sunday comics and comic advertising inserts are printed using the
flexographic process.

In the offset process, images are distinguished chemically from non-image
areas of a metal plate and transferred from the plate to a rubber blanket
and then to the paper surface.  The printed web goes through an oven which
dries the solvents from the ink, thereby setting the ink on the paper.  In
the cold offset process, the ink solvents are absorbed into the paper.
Because heatset offset presses can print on a wide variety of papers and
produce sharper reproductions, the heatset offset process provides a more
colorful and attractive product than cold offset presses.

The flexographic process differs from offset printing in that it utilizes
flexible plates and rapid-drying, water-based (as opposed to solvent-based)
inks.  The flexographic image area results from a raised surface on a
polymer plate which is transferred directly to the paper surface.
Flexography is used extensively in printing high quality consumer goods
packaging.  The Company's flexographic printing generally provides vibrant
color reproduction at lower cost than heatset offset printing.  The
strengths of flexography compared with the rotogravure and offset processes
are faster press set up times, brighter colors, reduced paper waste,
reduced energy use and maintenance costs, and environmental advantages due
to the use of water-based inks.  Faster set up times make the process
suited to commercial customers with shorter runs and extensive regional
versioning.

In addition to advertising insert capacity, certain equipment parameters
are critical to competing in the advertising insert market, including cut-
off length, folding capabilities and in-line finishing.  Cut-off length is
one of the determinants of the size of the printed page.  Folding
capabilities for advertising inserts must include a wide variety of page
sizes, page counts and special paper folding effects.  Finally, many
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 and
pricing required by many customers.  The Company believes that its mix and
configuration of presses and press services allows for efficient tailoring
of printing services to customers' product needs.

Digital Imaging and Prepress Services

The Company's digital imaging and prepress services business is conducted
by its American Color division ("American Color") which accounted for
approximately 16%, 14% and 13% of the Company's Fiscal Year 1998, Fiscal
Year 1997 and Fiscal Year 1996 sales, respectively.  The Company believes
American Color is one of the largest full-service providers of digital
imaging, prepress and color separation services in the United States and a
technological leader in its industry.  American Color commenced operations
in 1975 and maintains 15 full service locations nationwide.

American Color assists its customers in the capture, manipulation,
transmission and distribution of images.  The majority of its work leads to
the production of four-color separations in a format appropriate for use by
printers.  In recent years, technological advances have made it possible to
replace largely manual and photography-based production methods with
computer-based, electronic means for producing four-color films faster and
at lower costs.  American Color makes page changes, including typesetting,
and combines 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 output are
produced for each advertising or editorial page.  The final four-color
films or digital output enable printers to prepare plates for each color
resulting in the appearance of full color in the printed page.

American Color's revenue from these traditional services is being
supplemented by new revenue sources from electronic prepress services such
as digital image storage, facilities management (operating digital imaging
and prepress service facilities at a customer location), computer-to-plate
services, creative services, consulting and training services and software
and data management.  American Color has been a leader in implementing
these new technologies, enabling it to reduce unit costs and effectively
service the increasingly complex demands of its customers more quickly than
many of its competitors.  American Color has also been one of the leaders
in the integration of electronic page make-up, microcomputer-based design
and layout, and digital cameras into prepress production.

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

In April 1995, the Company implemented a plan for its American Color
division designed to improve productivity, increase customer service and
responsiveness, and provide increased growth in this business.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Restructuring Costs and Other Special Charges" and note 19 to
the Company's consolidated financial statements.

Competitive Advantages and Strategy

Competitive Advantages.  The Company believes that it has the following
competitive advantages in its printing and digital imaging and prepress
services businesses:

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

         Strong Customer Base.  The Company provides printing services to a
diverse base of customers, including approximately 300 retailers and over
300 newspapers in the United States and Canada.  The customer base includes
a significant number of the major national retailers and larger newspaper
chains as well as numerous smaller regional retailers.  The Company's
consistent focus on providing high quality printing products and strong
customer service at competitive prices has resulted in long-term
relationships with many of these customers.  American Color's customer base
includes large and medium-sized customers in the retail, publishing and
catalog businesses, many of whom also have long-term relationships with the
Company.  Although the digital imaging and prepress services business has
generally been on a spot bid basis in the past, the Company has been
successful in continuing to increase the proportion of its business under
long-term contracts.

         Competitive Cost Structure.  The Company has reduced the variable
and fixed costs of production at its printing facilities over the past
several years and believes it is well positioned to maintain its
competitive cost structure in the future due to economies of scale.  The
Company has also reduced both labor and material costs (the principal
variable production costs) in its digital imaging and prepress services
business primarily through the adoption of new digital prepress production
methodologies.

         Strong Management Team.  Since the 1993 Acquisition, the Company
has strengthened its printing management group by hiring experienced
managers with a clear focus on growth and continued cost reduction,
resulting in an improved cost structure and a well-defined strategy for
future expansion.  The Company also has strengthened its management group
in its digital imaging and prepress services business, filling a number of
senior, regional and plant management positions with individuals who the
Company believes will manage the digital imaging and prepress services
business for growth and profitability and will continue to upgrade its
capabilities.

         National Presence.  The Company's nine printing plants in the
United States and one plant in Canada provide the Company with distribution
efficiencies, strong customer service, flexibility and short turnaround
times, all of which are instrumental in the Company's continued success in
servicing its large national and regional retail accounts.  The Company's
expanded sales and marketing groups provide greater customer coverage and
enable it to more successfully penetrate regional markets.  The Company
believes that its 15 digital imaging and prepress facilities provide it
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.  The Company's objective is to increase shareholder value by
growing its revenues, increasing its market share and reducing costs.  The
Company's strategy to achieve this objective is as follows:

         Grow Unit Volume.  Management believes that the Company's level of
national sales coverage, when coupled with its significant industry
experience and customer-focused sales force, will result in unit growth.
In an effort to stimulate unit volume growth, the Company has strengthened
its printing sales group.  Unit volume growth is also expected to result
from continued capital expansion and selective printing acquisitions.  In
addition, in its digital imaging and prepress services business, the
Company has expanded its sales force, strengthened training, more closely
focused its marketing efforts on new, larger customers and implemented a
revised incentive compensation program.

         Continue to Improve Product Mix.  The Company intends to increase
its share of the retail advertising insert market.  In addition, the
Company expects to continue to adjust the mix of its customers and products
within the retail advertising insert market to those that are more
profitable and less seasonable and to maximize the use of the Company's
equipment.  The Company is also continuing expansion of its printing
facilities' capabilities for in-plant prepress and postpress services.  The
Company's digital imaging and prepress 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 the Company has to offer.  Additionally, the Company will
continue to pursue large 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.  The
Company intends to further reduce its production costs at its printing
facilities through its Total Quality Management Process, an ongoing cost
reduction and continuous quality improvement process.  Additionally, the
Company plans to continue to maximize scale advantages in the purchasing,
technology and engineering areas.  The Company also intends to continue to
gain variable cost efficiencies in its digital imaging and prepress
services business by using its technical resources to improve digital
prepress workflows at its various facilities.  The Company also believes it
will be able to reduce its per unit technical, sales and management costs
as its sales volumes increase in this business.

         Continue to Make Opportunistic Acquisitions.  An integral part of
the Company's long-term growth strategy includes a plan to selectively
assess and acquire other printing and digital imaging and prepress services
companies that the Company believes will enhance its leadership position in
these industries.

Customers and Distribution

Customers.  The Company sells its printing 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.  The
Company performs a portion of its printing work, primarily the printing of
Sunday comics and comic books, under long-term contracts with its
customers.  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 its printing work, the
Company obtains varying time commitments from its customers ranging from
job to job to annual allocations.  Printing prices are generally fixed
during such commitments; however, the Company's standard terms of trade
call for the pass-through of changes in the cost of raw materials,
primarily paper and ink.

American Color's customers consist of retailers, magazine publishers,
newspaper publishers, printers, catalog sales organizations, consumer
products companies, advertising agencies and direct mail advertisers.  Its
customers typically have a need for high levels of technical expertise,
short turnaround times and responsive customer service.  In addition to its
historical regional customer base, American Color 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 results in an increasing amount of contractual
business related to facilities management arrangements with customers.  The
Company's contracts typically extend from three to five years in length.

The printing and American Color divisions have historically had certain
common customers and their 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
their customers.  This enables the Company to provide more comprehensive
solutions to customers' digital imaging and prepress and printing needs

No single customer accounted for sales in excess of 10% of the Company's
consolidated sales in Fiscal Year 1998.  The Company's top ten customers
accounted for approximately 34% of consolidated sales in Fiscal Year 1998.

Distribution.  The Company distributes its printing products primarily by
truck to customer designated locations, primarily newspapers.  Costs of
distribution are generally paid by the customers, and most shipping is by
common carrier.  American Color generally distributes its products via
electronic transmission, overnight express, or other methods of personal
delivery or by courier.

Competition

Commercial printing in the United States is a large, highly fragmented,
capital-intensive industry and the Company competes 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.

The Company believes that competition in the printing business is based
primarily on quality and service at a competitive price.  The advertising
insert business is a large, fragmented industry in which the Company
competes for national accounts with several large national printers,
several of whom are larger and better capitalized than the Company.  In
addition, the Company also competes with numerous regional printers for the
printing of advertising inserts.  Although the Company faces competition
principally from one other company (Big Flower Press Holdings, Inc.) in the
printing of Sunday newspaper comics in the United States, there are
numerous newspapers that print their own Sunday comics.  The Company's
other publication business competes with many large national and regional
commercial printers.

American Color competes with numerous digital imaging and prepress service
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 digital imaging and prepress
companies such as American Color, none of which has a significant
nationwide market share.  Many smaller digital imaging and prepress
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.  The Company believes that the digital imaging
and prepress 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.

Raw Materials

The primary raw materials used in the Company's printing business are paper
and ink.  The Company purchases substantially all of its ink and related
products under long-term ink supply contracts.  Throughout the fiscal year
ended March 31, 1995 ("Fiscal Year 1995") and the majority of Fiscal Year
1996, the printing industry experienced substantial increases in the cost
of paper.  In late Fiscal Year 1996 and throughout Fiscal Year 1997,
however, the overall cost of paper declined.  During Fiscal Year 1998,
paper prices remained relatively stable.  Management expects that, as a
result of the Company's strong relationships with key suppliers, its
material costs will remain competitive within the industry.  In accordance
with industry practice, the Company generally passes through changes in the
cost of paper to its customers.  The primary inputs in prepress services
processes are film and proofing materials.

In both of the Company's business sectors, there is an adequate supply of
the necessary materials available from multiple vendors.  The Company is
not dependent on any single supplier and has had no significant problems in
the past obtaining necessary materials.

Seasonality

Some of the Company's printing and digital imaging and prepress 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."

Backlog

Because the Company's printing, digital imaging and prepress services
products are required to be delivered soon after final customer orders are
received, the Company does not experience any backlog of unfilled customer
orders.

Employees

As of May 31, 1998, the Company had a total of approximately 2,800
employees, of which approximately 200 employees are represented by a
collective bargaining agreement that will expire on December 31, 2001.  The
Company considers its relations with its employees to be excellent.

Governmental and Environmental Regulations

The Company is 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.  The Company believes that it is 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, the Company does not anticipate that such expenditures will
be material.  See "Legal Proceedings - Environmental Matters."

ITEM 2.   PROPERTIES

The Company operates in 25 locations in 16 states and Canada.  The Company
owns seven printing plants in the United States and one in Canada and
leases two printing plants, one in California and one in Pennsylvania.  The
American Color division of the Company has 15 production locations, all of
which are leased by American Color.  The American Color division also
operates digital imaging and prepress facilities on the premises of several
of its customers ("facilities management").  In addition, the Company
maintains one small executive office and its Nashville headquarter
facility, both of which are leased.  The Company believes that its plants
and facilities are adequately equipped and maintained for present and
planned operations.

ITEM 3.   LEGAL PROCEEDINGS

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

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 the Company's 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, the
Company has a reserve of approximately $0.1 million in connection with this
liability on its consolidated balance sheet at March 31, 1998.  The Company
believes this amount is adequate to cover such liability.

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

On January 16, 1998, a majority of the shareholders of Holdings approved a
recapitalization plan for Holdings (see note 14 to the Company's
consolidated financial statements) pursuant to Section 228 of the General
Corporation Law of the State of Delaware and the By-laws of Holdings.  All
other shareholders were notified of the recapitalization plan.


                                  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 June 11, 1998, there were approximately 96 shareholders 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 the Company's consolidated
         financial statements.

         Recent Sales of Unregistered Securities

         During the fourth quarter of Fiscal Year 1998, certain officers of
         the Company exercised options to purchase Holdings' Common Stock
         for $0.01/share.  The sold securities were exempt from
         registration on the basis that all such officers are "accredited
         investors" within the meaning of the Securities Act of 1933.


ITEM 6.   SELECTED FINANCIAL DATA

Set forth below is selected financial data for and as of the fiscal years
ended March 31, 1994, 1995, 1996, 1997 and 1998.  The balance sheet data as
of March 31, 1994, 1995, 1996, 1997 and 1998 and the statement of
operations data for the fiscal years ended March 31, 1994, 1995, 1996, 1997
and 1998 are derived from the audited consolidated financial statements for
such periods and at such dates.  The selected financial data below also
reflects the Company's discontinued wholly-owned subsidiary, SMC and its
coupon free standing insert ("FSI") operation previously conducted by its
discontinued wholly-owned subsidiary SMI.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Discontinued
Operations" and note 5 of the Company's consolidated financial statements.

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


                          Selected Financial Data
                            ACG Holdings, Inc.
<TABLE>
<CAPTION>
                                                                                           Fiscal Year Ended March 31,
                                                                             ----------------------------------------------------
                                                                                   1998      1997      1996     1995(a)     1994
                                                                             ----------------------------------------------------
Statement of Operations Data:                                                                  (dollars in thousands)
<S>                                                                           <C>           <C>       <C>       <C>       <C>
Sales                                                                           $ 533,335   524,551   529,523   433,198   414,673
Cost of Sales                                                                     461,407   459,880   465,110   370,267   369,520
                                                                                  -------   -------   -------   -------   -------
    Gross Profit                                                                   71,928    64,671    64,413    62,931    45,153

Selling, general and administrative expenses (b)                                   54,227    51,418    44,164    41,792    39,343
Restructuring costs and other special charges (c)                                   5,598     2,881     7,533        --        --
Gain from curtailment and establishment of defined benefit
    pension plans, net (d)                                                             --        --        --    (3,311)       --
                                                                                  -------   -------   -------   -------   -------
    Operating income                                                               12,103    10,372    12,716    24,450     5,810
Interest expense, net                                                              38,813    36,132    32,425    25,334    23,737
Other expense (income)                                                                412       245     1,722       985     2,369
Income tax expense                                                                  2,106     2,591     4,874     2,552     2,380
                                                                                  -------   -------   -------   -------   -------

    Loss from continuing operations before extraordinary items                    (29,228)  (28,596)  (26,305)   (4,421)  (22,676)
                                                                                  -------   -------   -------   -------   -------
Discontinued operations: (e)

    Loss from operations, net of tax                                                   --    (1,557)   (1,364)     (912)  (23,272)
    Estimated (loss) on shut down and gain on settlement, net of tax                 (667)   (1,550)    2,868    18,495   (38,412)
Loss on early extinguishment of debt (f)                                               --        --    (4,526)       --        --
                                                                                  -------   -------   -------   -------   -------

Net (loss) income                                                               $ (29,895)  (31,703)  (29,327)   13,162   (84,360)
                                                                                  =======   =======   =======   =======   =======

Balance Sheet Data (at end of period):

Cash and cash equivalents                                                     $         0         0         0     4,635     8,839
Working capital (deficit)                                                          11,610    (8,598)    9,612     4,958     6,956
Total assets                                                                      329,958   333,975   351,181   328,368   305,521
Long-term debt and capitalized leases, including current installments (g)         319,657   312,309   297,617   258,201   250,439
Stockholders' deficit                                                            (106,085)  (76,318)  (44,396)  (14,970)  (45,485)
Other Data:

Net cash provided (used) by operating activities                              $    18,625    24,313    (4,187)   30,510   (27,329)
Net cash used by investing activities                                             (10,024)  (10,997)  (24,436)  (17,580)   (1,332)

Net cash (used) provided by financing activities                                   (8,587)  (13,312)   23,982   (17,527)   23,113
Capital expenditures (including lease obligations entered into)                    23,713    37,767    28,022    20,415    15,722
EBITDA (h)                                                                    $    52,367    46,972    46,847    51,719    33,068


NOTES TO SELECTED FINANCIAL DATA

(a)  On August 15, 1995, Shakopee was merged with and into Graphics (the
     "Shakopee Merger").  The merger has been accounted for as a
     combination of entities under common control (similar to a pooling-of-
     interests), and accordingly, the consolidated financial statements
     give retroactive effect to the Shakopee Merger and include the
     combined operations of Holdings and Shakopee subsequent to December
     22, 1994 (the date on which Shakopee became under common control with
     the Company).  Shakopee's financial results are not reflected in
     periods prior to December 22, 1994 as these periods were prior to
     common control ownership.

(b)  Fiscal Year 1998 selling, general and administrative expenses include
     (1) $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 (2) $0.6 million of non-cash charges
     associated with an employee benefit program.  Fiscal Year 1997
     selling, general and administrative expense includes $2.5 million of
     non-recurring employee termination expenses (including $1.9 million
     related to the resignation of the Company's former Chief Executive
     Officer - see note 21 to the Company's consolidated financial
     statements).

(c)  In January 1998, the Company approved a restructuring plan for its
     printing division designed to improve responsiveness to customer
     requirements, increase asset utilization and reduce overhead costs.
     The Company recognized $3.9 million of costs under such plan in Fiscal
     Year 1998.

     In April 1995, the Company implemented a restructuring plan for its
     American Color division which was designed to improve productivity,
     increase customer service and responsiveness and provide increased
     growth in the business.  The Company recognized $0.9 million and $4.1
     million of costs under such plan in Fiscal Year 1997 and Fiscal Year
     1996, respectively.

     In addition, the Company recorded $1.7 million, $1.9 million and $3.4
     million of other special charges related to asset write-offs and
     write-downs in its printing and American Color divisions in Fiscal
     Year 1998, Fiscal Year 1997 and Fiscal Year 1996, respectively (see
     note 19 to the Company's consolidated financial statements).

(d)  In October 1994, the Company amended its defined benefit pension
     plans, which resulted in the freezing of additional defined benefits
     for future services under the plans effective January 1, 1995.  The
     Company recognized a curtailment gain of $3.7 million as a result of
     freezing such benefits.  Also 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.  The Company
     recognized a $0.4 million expense associated with the establishment of
     the SERP.

(e)  In February of Fiscal Year 1997, the Company made a strategic decision
     to shut down the operation of its wholly-owned subsidiary SMC.  SMC's
     shut down has been accounted for as a discontinued operation, and
     accordingly, SMC's operations are segregated in the Company's
     consolidated financial statements.  Sales, costs of sales and selling,
     general and administrative expenses attributable to SMC for Fiscal
     Years 1997, 1996 and 1995 have been reclassified to discontinued
     operations.  See "Management's Discussion and Analysis of Financial
     Condition and Results of Operations--Discontinued Operations" and note
     5 of the Company's consolidated financial statements.

     On February 16, 1994, the Company assigned the coupon FSI contracts of
     its subsidiary, Sullivan Marketing, Inc.  ("SMI"), to News America
     FSI, Inc.  ("News America").  In June 1994, the Company recorded
     income from the settlement of a lawsuit entitled Sullivan Marketing,
     Inc. and Sullivan Graphics, Inc. v.  Valassis Communications, Inc.,
     News America FSI Inc. and David Brandon, (the "SMI Settlement") of
     $18.5 million, net of taxes, and when coupled with settlement expenses
     which had previously been accrued, the net cash proceeds resulting
     from this settlement were approximately $16.7 million.

     In Fiscal Year 1996, the Company recognized settlement of a complaint
     naming SMI, News America and two packaged goods companies as
     defendants (the "EPI lawsuit") and reversed certain accruals related
     to the estimated loss on shut down of SMI.  The resulting effect
     reflected in the Fiscal Year 1996 consolidated statement of operations
     was $2.9 million income in discontinued operations.  See "Management's
     Discussion and Analysis of Financial Condition and Results of
     Operations--Discontinued Operations" and note 5 of the Company's
     consolidated financial statements.

(f)  As part of the Shakopee Merger and the refinancing transactions (the
     "Refinancing"), collectively (the "Transactions"), the Company
     recorded an extraordinary loss related to early extinguishment of debt
     of $4.5 million, net of zero taxes.  This extraordinary loss primarily
     consisted of the early redemption premium on Graphics' 15% Senior
     Subordinated Notes due 2000 (the "15% Notes") and the write-off of
     deferred financing costs related to refinanced indebtedness partially
     offset by the write-off of a bond premium associated with the 15%
     Notes.

(g)  The balance of long-term debt outstanding at March 31, 1995 and 1994
     includes an additional $9.7 million and $11.3 million, respectively,
     relating to a purchase accounting adjustment to the 15% Notes
     resulting from the 1993 Acquisition.  The principal amount payable at
     maturity of the 15% Notes remained at $100 million.  The 15% Notes
     were redeemed in connection with the Refinancing.

(h)  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, depreciation, amortization, other special
     charges related to asset write-offs and write-downs, other income
     (expense), 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 (the "Indenture") and the
     Company's Credit Agreement with BT Commercial Corporation (the "Bank
     Credit Agreement") are based on EBITDA, subject to certain adjustments.

     EBITDA includes (1) $1.5 million of non-recurring charges associated
     with the relocation of American Color's corporate office and various
     severance related expenses, and (2) $0.6 million of non-cash charges
     associated with an employee benefit program in Fiscal Year 1998.

     EBITDA includes $3.9 million in restructuring costs related to its
     printing division in Fiscal Year 1998 and $0.9 million and $4.1
     million of restructuring costs related to its American Color division
     in Fiscal Year 1997 and Fiscal Year 1996, respectively (see note 19 to
     the Company's consolidated financial statements).

     EBITDA includes non-recurring employee termination expenses of $2.5
     million in Fiscal Year 1997 (including $1.9 million related to the
     resignation of the Company's former Chief Executive Officer - see note
     21 to the Company's consolidated financial statements).

     EBITDA in Fiscal Year 1995 includes a $3.3 million net gain related to
     a change in the Company's defined benefit pension plans (as discussed
     in note (d) above).
</TABLE>

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

Overview

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

On March 11, 1996, the Company sold its 51% interest in NIS for
approximately $2.5 million in cash and a note for approximately $0.2
million.  This transaction resulted in a net gain on disposal of
approximately $1.3 million, which is classified as Other, net in the
consolidated statement of operations.  The proceeds of the sale were used
to repay indebtedness under the Bank Credit Agreement.

On March 12, 1996, Graphics acquired the assets of Gowe, Inc., a Medina,
Ohio based regional printer of newspapers, T.V. books and retail
advertising inserts and catalogs (the "Medina Facility") for cash and
assumption of certain liabilities of Gowe, Inc.  (the "Medina
Acquisition").  The Medina Acquisition was accounted for under the purchase
method of accounting applying the provisions of Accounting Principles Board
Opinion No. 16 ("APB 16").  The Medina Facility's results of operations are
included in the Company's consolidated financial statements subsequent to
March 11, 1996.

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

In Fiscal Year 1997, the Company began to present certain costs of its
American Color production facilities within cost of sales rather than as
selling, general and administrative expenses.  This new presentation is
consistent with the Company's presentation of the printing sector's
financial information, and the Company believes that this is a more
accurate measure of the gross margin of the business.  The financial
information for Fiscal Year 1996 has been reclassified to conform with this
presentation.

In February of Fiscal Year 1997, the Company made a strategic decision to
shut down the operations of its wholly-owned subsidiary SMC.  SMC's shut
down has been accounted for as a discontinued operation, and accordingly,
SMC's operations are segregated in the Company's consolidated financial
statements.  Sales, cost of sales and selling, general and administrative
expenses attributable to SMC for Fiscal Year 1996 have been reclassified to
discontinued operations.

Printing.  In recent years, the Company has taken a number of steps which
have resulted in improved printing sector performance including the hiring
of several key managers in the manufacturing, purchasing, quality,
technical services, production planning and customer service departments
(see "EBITDA" below).  Comprehensive quality improvement and cost reduction
programs have also been implemented for all the Company's printing
processes.  As a result of these measures, the Company has been successful
in lowering its manufacturing costs within the printing sector, while
improving product quality.

Additionally, in order to grow sales and improve gross margins, the Company
increased the geographic and industry scope of its sales force and shifted
the mix of its business toward retail customers and away from the printing
of certain lower margin publications.  The Shakopee Merger, Medina
Acquisition and Flexi-Tech operations (see "Business - Printing") are
consistent with the Company's overall strategy to continue to increase
profitability by growing its revenues, increasing its market share and
reducing costs.

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 which in conjunction with the Company's cost reduction
programs has had favorable impact on printing gross profit levels.

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' preference for larger printers, such
as the Company, with a wider variety of services, greater distribution
capabilities and more flexibility have also contributed to consolidation
within the industry.  The industry is expected to remain competitive in the
near future and the Company's sales will continue to be subject to changes
in retailers' demands for printed products.

The cost of paper is a principal factor in the Company's overall pricing to
its customers.  The level of paper costs also has a significant impact on
the Company's reported sales.  Beginning in Fiscal Year 1994 and throughout
Fiscal Year 1995 and the majority of Fiscal Year 1996, the paper industry
experienced increased demand and high capacity utilization in various
grades of paper.  This led to a global tightening of the paper supply, and
as a result, the printing industry experienced substantial increases in the
cost of paper.  In late Fiscal Year 1996 and throughout Fiscal Year 1997,
the overall cost of paper declined.  During Fiscal Year 1998, paper prices
remained relatively stable.  In accordance with industry practice, the
Company generally passes through changes in the cost of paper to its
customers.  Although the Company has been successful in passing through
paper price increases to its customers in the past, there can be no
assurances that the Company will be able to pass through future paper price
increases.

In January 1998, the Company approved a plan for its printing division
which was designed to improve responsiveness to customer requirements,
increase asset utilization and reduce overhead costs.  The cost of this
plan was accounted for in accordance with the guidance set forth in
Emerging Issues Task Force Issue 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)" ("EITF 94-3")  (see
"Restructuring Costs and Other Special Charges" below).

American Color.  The digital imaging and prepress services industry has
experienced significant technological advances as electronic digital
prepress systems have replaced the largely manual and photography-based
methods utilized in the past.  This shift in technology (which improved
process efficiencies and decreased processing costs) produced increased
unit growth for American Color as the demand for color pages increased.
However, American Color's selling price levels per page have declined
because of greater efficiencies resulting from increased use of technology.
American Color's revenue from traditional services are now supplemented by
new revenue sources from electronic digital imaging and prepress services
such as digital image storage, facilities management, computer-to-plate
services, creative services, consulting and training services and software
and data-base management.

In April 1995, the Company implemented a plan for its American Color
division which was designed to improve productivity, increase customer
service and responsiveness, and provide increased growth in this business.
The cost of this plan was accounted for in accordance with the guidelines
set forth in EITF 94-3 (see "Restructuring Costs and Other Special Charges"
below).

The following table summarizes the Company's historical results of continuing
operations for Fiscal Year 1998, 1997 and 1996.


                                          Fiscal Year Ended March 31,
                               -----------------------------------------------
                                   1998              1997             1996
                               ------------       -----------      -----------
                                            (dollars in thousands)


Sales:

   Printing                       $446,350          $449,924        $453,381


   American Color                   86,985            74,627          72,461


   Other (a)                            --                --           3,681
                                   -------           -------         -------

      Total                       $533,335          $524,551        $529,523
                                   =======           =======         =======

Gross Profit:

   Printing                        $51,278           $49,469         $49,015

   American Color                   20,628            15,133          13,687

   Other (a)                            22                69           1,711
                                   -------           -------         -------

      Total                        $71,928           $64,671         $64,413
                                   =======           =======         =======

Gross Margin:

   Printing                          11.5%             11.0%           10.8%

   American Color                    23.7%             20.3%           18.9%

      Total                          13.5%             12.3%           12.2%

Operating Income (Loss):

   Printing (b)(c)                 $22,612           $25,858         $28,239

   American Color (b) (c)            2,509            (1,576)         (3,975)

   Other (a) (d)                   (13,018) (e)      (13,910) (e)    (11,548)
                                   -------           -------         -------

      Total                        $12,103           $10,372         $12,716
                                   =======           =======         =======


(a)  Other operations in Fiscal Year 1996 include revenues and expenses
     associated with the Company's 51% owned subsidiary, NIS (sold on March
     11, 1996, see note 4 to the Company's consolidated financial
     statements).

(b)  Printing operating income includes the impact of $1.7 million, $0.4
     million and $2 million in Fiscal Year 1998, Fiscal Year 1997 and
     Fiscal Year 1996, respectively, of other special charges related to
     asset write-offs and write-downs.  American Color's operating loss
     includes the impact of $1.5 million and $1.4 million in Fiscal Year
     1997 and Fiscal Year 1996, respectively, of other special charges
     related to asset write-offs and write-downs (see note 19 to the
     Company's consolidated financial statements).

(c)  Printing operating income includes the impact of $3.9 million of
     restructuring costs in Fiscal Year 1998.  American Color's operating
     income (loss) includes the impact of restructuring costs of $0.9
     million and $4.1 million in Fiscal Year 1997 and Fiscal Year 1996,
     respectively (see note 19 to the Company's consolidated financial
     statements) and $1.5 million of non-recurring charges in Fiscal Year
     1998 associated with the relocation of its corporate office and
     various severance related expenses.

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

(e)  Also reflects non-cash charges associated with an employee benefit
     program of $0.6 million in Fiscal Year 1998 and non-recurring employee
     termination expenses of $2.5 million in Fiscal Year 1997 (including $1.9
     million related to the resignation of the Company's former Chief Executive
     Officer-see note 21 to the Company's consolidated financial statements).

Historical Results of Operations


                   Fiscal Year 1998 vs. Fiscal Year 1997


The Company's sales increased 1.7% to $533.3 million in Fiscal Year 1998
from $524.6 million in Fiscal Year 1997.  This increase includes an
increase in American Color sales of $12.4 million, or 16.6%, offset in part
by a decrease in printing sales of $3.5 million, or 0.8%.  The Company's
gross profit increased to $71.9 million or 13.5% of sales in Fiscal Year
1998 from $64.7 million or 12.3% of sales in Fiscal Year 1997.  The
Company's operating income increased to $12.1 million or 2.3% of sales in
Fiscal Year 1998 from $10.4 million or 2% of sales in Fiscal Year 1997.
See the discussion of these changes by sector below.

Printing

Sales.  Printing sales decreased $3.5 million to $446.4 million in Fiscal
Year 1998 from $449.9 million in Fiscal Year 1997.  This decrease is
primarily the result of an increase in sales to customers that supply their
own paper offset in part by an increase in production volume of
approximately 2.5%.

Gross Profit.  Printing gross profit increased $1.8 million to $51.3
million in Fiscal Year 1998 from $49.5 million in Fiscal Year 1997.
Printing gross margin increased to 11.5% in Fiscal Year 1998 from 11.0% in
Fiscal Year 1997.  The increase in gross profit includes reduced
manufacturing costs, improved mix and pricing, along with an increase in
production volume.  These gains were partially offset by an increase in
depreciation and amortization expense.  The increase in gross margin
includes the above mentioned factors and the impact of an increase in sales
to customers that supply their own paper.

Selling, General and Administrative Expenses.  Printing selling, general
and administrative expenses remained relatively unchanged at $23.1 million,
or 5.2% of printing sales, in Fiscal Year 1998 compared to $23.1 million,
or 5.1% of printing sales, in Fiscal Year 1997.

Operating Income.  As a result of the above factors and the incurrence of
both restructuring costs associated with the printing restructuring plan of
$3.9 million in Fiscal Year 1998 and other special charges related to asset
write-offs and write-downs of $1.7 million and $0.4 million in Fiscal Year
1998 and 1997, respectively (see "Restructuring Costs and Other Special
Charges" below), operating income from the printing business decreased to
$22.6 million in Fiscal Year 1998 from $25.9 million in Fiscal Year 1997.

American Color

Sales.  American Color's sales increased $12.4 million, or 16.6%, to $87.0
million in Fiscal Year 1998 from $74.6 million in Fiscal Year 1997.  The
increase in Fiscal Year 1998 was primarily the result of higher digital
imaging and prepress production volume due to American Color's
implementation of various digital prepress technologies, including
facilities management, packaging prepress, software and image management
services and increases in digital visual effects work.

Gross Profit.  American Color's gross profit increased $5.5 million to
$20.6 million in Fiscal Year 1998 from $15.1 million in Fiscal Year 1997.
American Color's gross margin increased to 23.7% in Fiscal Year 1998 from
20.3% in Fiscal Year 1997.  These improvements resulted from increased
volume (primarily from increased facilities management sales) and material
and payroll cost savings offset in part by costs associated with new
operations servicing the packaging industry.

Selling, General and Administrative Expenses.  American Color's selling,
general and administrative expenses increased to $18.1 million, or 20.8% of
American Color's sales in Fiscal Year 1998 from $14.3 million, or 19.2% of
American Color's sales in Fiscal Year 1997.  This increase includes
relocation costs related to the move of American Color's corporate office
from Phoenix to Nashville and various severance related expenses of $1.5
million in Fiscal Year 1998.  In addition, the increase includes increased
sales and marketing expenses, including the costs of the new packaging
sales group.

Operating Income (Loss).  As a result of the above factors and the
incurrence of both restructuring costs associated with the American Color
restructuring plan of $0.9 million in Fiscal Year 1997 and other special
charges related to asset write-offs and write-downs of $1.5 million in
Fiscal Year 1997 (see "Restructuring Costs and Other Special Charges"
below), operating income (loss) at American Color increased to income of
$2.5 million in Fiscal Year 1998 from a loss of $1.6 million in Fiscal Year
1997.


                   Fiscal Year 1997 vs. Fiscal Year 1996

The Company's sales decreased 0.9% to $524.6 million in Fiscal Year 1997
from $529.5 million in Fiscal Year 1996.  This decrease includes a decrease
in printing sales of $3.5 million, or 0.8%, an increase in American Color
sales of $2.2 million, or 3% and a $3.7 million decrease in other sales.
The Company's gross profit increased to $64.7 million or 12.3% of sales in
Fiscal Year 1997 from $64.4 million or 12.2% of sales in Fiscal Year 1996.
The Company's operating income decreased to $10.4 million or 2% of sales in
Fiscal Year 1997 from $12.7 million or 2.4% of sales in Fiscal Year 1996.
See the discussion of these changes by sector below.

Printing

Sales.  Printing sales decreased to $449.9 million in Fiscal Year 1997 from
$453.4 million in Fiscal Year 1996.  This decrease includes a decrease in
paper prices and the effect of an increase in customer supplied paper.
These decreases were partially offset by $46.2 million of incremental sales
from the Medina Facility and Flexi-Tech and an increase in production
volume of approximately 3% (excluding the Medina Facility and Flexi-Tech).

Gross Profit.  Printing gross profit increased $0.5 million, or 0.9%, to
$49.5 million in Fiscal Year 1997 from $49 million in Fiscal Year 1996.
Printing gross margin increased to 11% in Fiscal Year 1997 from 10.8% in
Fiscal Year 1996.  The increase in gross profit primarily reflects
incremental gross profit from the Medina Facility and an increase in
production volume.  In addition, the gross profit improvement includes
reduced variable production and certain other manufacturing costs due to
continued cost containment programs at the printing plants.  These gains
were partially offset by an increase in depreciation expense, a reduction
in the price of scrap paper and incremental costs related to the start-up
of Flexi-Tech.  The increase in gross margin as a percentage of sales is
due primarily to the impact of the above described items and the impact of
lower paper prices on sales in Fiscal Year 1997.

Selling, General and Administrative Expenses.  Printing selling, general
and administrative expenses increased 23.2% to $23.1 million, or 5.1% of
printing sales, in Fiscal Year 1997 from $18.8 million, or 4.1% of printing
sales, in Fiscal Year 1996.  The increase in Fiscal Year 1997 was primarily
the result of increased sales and marketing expenses and incremental
selling, general and administrative costs at the Medina Facility and Flexi-
Tech.

Operating Income.  As a result of the above factors and the incurrence of
other special charges related to asset write-offs and write-downs of $0.4
million and $2 million in Fiscal Year 1997 and 1996, respectively (see
"Restructuring Costs and Other Special Charges" below), operating income
from the printing business decreased to $25.9 million in Fiscal Year 1997
from $28.2 million in Fiscal Year 1996.

American Color

Sales.  American Color's sales increased 3% to $74.6 million in Fiscal Year
1997 from $72.5 million in Fiscal Year 1996.  The increase in Fiscal Year
1997 was primarily the result of higher digital imaging and prepress
production volume due to American Color's implementation of various digital
prepress technologies, including facilities management and software and
image management services and increases in digital visual effects work
partially offset by lower equipment sales.

Gross Profit.  American Color's gross profit increased $1.4 million to
$15.1 million in Fiscal Year 1997 from $13.7 million in Fiscal Year 1996.
American Color's gross margin was 20.3% in Fiscal Year 1997, up from 18.9%
in Fiscal Year 1996.  These increases were primarily the result of
increased volume and material cost savings offset in part by increased
facilities management costs.

Selling, General and Administrative Expenses.  American Color's selling,
general and administrative expenses increased 18% to $14.3 million or 19.2%
of American Color sales in Fiscal Year 1997 from $12.1 million or 16.7% of
American Color sales in Fiscal Year 1996, primarily as a result of the
addition of sales and marketing and administrative support personnel and
related expenses, including expenses related to its digital visual effects
group.

Operating Loss.  As a result of the above factors and the incurrence of
both restructuring costs associated with the American Color restructuring
plan of $0.9 million in Fiscal Year 1997 and $4.1 million in Fiscal Year
1996 and other special charges related to asset write-offs and write-downs
of $1.5 million and $1.4 million in Fiscal Year 1997 and 1996, respectively
(see "Restructuring Costs and Other Special Charges" below), operating loss
at American Color decreased to $1.6 million in Fiscal Year 1997 from $4
million in Fiscal Year 1996.

Other Operations (Fiscal Year 1998 vs.  Fiscal Year 1997 and Fiscal Year
1997 vs.  Fiscal Year 1996)

Other operations primarily include corporate general and administrative
expenses, other expenses and amortization expense.  Fiscal Year 1996 also
included revenues and expenses associated with the Company's 51% owned
subsidiary, NIS (sold on March 11, 1996).  Amortization expenses for other
operations, including goodwill amortization (see below), were $8.6 million,
$8.4 million and $8.7 million in Fiscal Year 1998, 1997 and 1996,
respectively.

Operating losses from other operations decreased $0.9 million to a loss of
$13.0 million in Fiscal Year 1998 from a loss of $13.9 million in Fiscal
Year 1997.  This decrease includes non-recurring employee termination
expenses of $2.5 million in Fiscal Year 1997 (including $1.9 million
related to the resignation of the Company's former Chief Executive Officer
- see note 21 to the Company's consolidated financial statements) offset in
part by $0.6 million of non-cash expenses associated with an employee
benefit program in Fiscal Year 1998, a $0.2 million increase in
amortization expenses and increases in certain corporate general and
administrative expenses during Fiscal Year 1998.

Operating losses from other operations increased $2.4 million to a loss of
$13.9 million in Fiscal Year 1997 from a loss of $11.5 million in Fiscal
Year 1996.  This increase primarily reflects non-recurring employee
termination expenses of $2.5 million in Fiscal Year 1997 (including $1.9
million related to the resignation of the Company's former Chief Executive
Officer - see note 21 to the Company's consolidated financial statements).

Goodwill Amortization

Amortization expense associated with goodwill was $8.5 million, $8.3
million and $8.6 million for Fiscal Year 1998, 1997 and 1996, respectively.

Restructuring Costs and Other Special Charges

Restructuring Costs:

Printing In January 1998, the Company approved a plan for its printing
division which was designed to improve responsiveness to customer
requirements, increase asset utilization and reduce overhead costs.  The
cost of this plan is being accounted for in accordance with the guidance
set forth in EITF 94-3.  The pretax costs of $3.9 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) includes $3.3
million of employee termination costs and $0.6 million of relocation and
other transition expenses.  This restructuring charge was recorded in the
quarter ended March 31, 1998.  The majority of these costs will be paid or
settled before March 31, 1999.

American Color In April 1995, the Company implemented a plan for its
American Color division which was designed to improve productivity,
increase customer service and responsiveness, and provide increased growth
in the digital imaging and prepress services business.  The cost of this
plan was accounted for in accordance with the guidance set forth in EITF
94-3.  The pretax costs of $5 million which were incurred as a part of this
plan (excluding other special charges related to asset write-offs and write
downs - see below) represent employee termination, goodwill write-down and
other related costs that were incurred as a direct result of the plan.
Approximately $0.9 million of restructuring costs primarily related to
relocation expenses were recognized in Fiscal Year 1997.  In Fiscal Year
1996 the Company recognized $4.1 million of such restructuring charges,
which included $0.9 million of goodwill write-down related to certain
facilities that were either shut down or relocated in conjunction with the
American Color restructuring and $3.2 million primarily for severance and
other personnel related costs.

Other Special Charges:

During the quarter ended March 31, 1998, the Company recorded special
charges totaling $1.7 million to adjust the carrying values of idle,
disposed and under-performing assets of the Company's printing sector to
estimated fair values.  The provision was based on a review of Company
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" ("FASB 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.

During Fiscal Year 1997 and Fiscal Year 1996, the Company recorded special
charges totaling $1.9 million and $3.4 million, respectively, for impaired
long-lived assets and to adjust the carrying values of idle, disposed and
under performing assets to estimated fair values.  The provisions were
based on a review of long-lived assets in connection with the adoption of
FASB 121.  Of the Fiscal Year 1997 total of long-lived assets that were
adjusted based on being idle, disposed of or under performing,
approximately $0.4 million and $1.5 million related to the printing and
American Color divisions, respectively.  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.  Approximately $2 million
of the Fiscal Year 1996 total related to the printing sectors long-lived
assets that were adjusted based on being idle, disposed of or under
performing.  The remaining $1.4 million of the Fiscal Year 1996 total
related to the American Color division.  The estimated undiscounted future
cash flows attributable to certain American Color division identifiable
long-lived assets held and used was less than their carrying value
principally as a result of high levels of ongoing technological change.
The methodology used to assess the recoverability of the American Color
division long-lived assets involved projecting aggregate cash flows.  Based
on this evaluation, the Company determined in Fiscal Year 1996 that long-
lived assets with a carrying amount of $2.2 million were impaired and such
assets were then written down by $1.4 million to their fair value.  Fair
value was based on Company estimates and appraisals.

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

Interest Expense

Interest expense increased 7.3% to $39.0 million in Fiscal Year 1998 from
$36.3 million in Fiscal Year 1997.  This increase includes the impact of
increased obligations under capital leases and incremental costs related to
the $25 million term loan facility entered into on June 30, 1997 (the "Term
Loan Facility")  (see note 9 to the Company's consolidated financial
statements).

Interest expense increased 11% to $36.3 million in Fiscal Year 1997 from
$32.7 million in Fiscal Year 1996.  This increase includes the impact of
increased average indebtedness levels including indebtedness related to the
Transactions and obligations under capital leases.  The increased
indebtedness includes the additional indebtedness related to the Shakopee
Merger and indebtedness incurred to fund the fees and expenses associated
with the Refinancing (see notes 2 and 9 to the Company's consolidated
financial statements).

Nonrecurring Charges Related to Terminated Merger

The Company recognized $1.5 million of expenses related to a terminated
merger in Fiscal Year 1996.

Other Expense (Income) and Taxes

Other expenses net, increased to $0.4 million in Fiscal Year 1998 from $0.2
million in Fiscal Year 1997, which was relatively unchanged from Fiscal
Year 1996.

Income tax expense decreased to $2.1 million in Fiscal Year 1998 from $2.6
million in Fiscal Year 1997.  This change is primarily due to smaller
amounts of taxable income in foreign jurisdictions and changes in the
deferred tax valuation allowance.  During Fiscal Year 1998, the Company
increased its valuation allowance by $7.1 million to $37.2 million.

Income tax expense decreased to $2.6 million in Fiscal Year 1997 from $4.9
million in Fiscal Year 1996.  This change is primarily due to smaller
amounts of taxable income in foreign jurisdictions, the Shakopee Merger and
the sale of NIS, partially offset by changes in the deferred tax valuation
allowance.  During Fiscal Year 1997, the Company increased its valuation
allowance by $8.9 million to $30.1 million.


Discontinued Operations

SMC

The Company's Fiscal Year 1998 and Fiscal Year 1997 net loss includes the
estimated net loss on shut down of approximately $0.4 million and $1.5
million, respectively.  See note 5 to the Company's consolidated financial
statements.  The Company's net loss in Fiscal Year 1997 and Fiscal Year
1996 includes the loss from operations of its discontinued wholly-owned
subsidiary SMC of approximately $1.6 million and $1.4 million,
respectively.

SMI

In Fiscal Year 1998, the Company recorded an additional $0.3 million
estimated loss on shut down.  In Fiscal Year 1996, the Company recognized
the settlement of the EPI lawsuit and reversed certain accruals related to
the estimated loss on shut down of SMI.  The resulting effect reflected in
the Fiscal Year 1996 consolidated statement of operations was $2.9 million
income in discontinued operations.

Loss on Early Extinguishment of Debt, Net of Tax

As part of the Shakopee Merger and the Refinancing in Fiscal Year 1996 (see
notes 2 and 9 to the Company's consolidated financial statements), the
Company recorded an extraordinary loss related to early extinguishment of
debt of $4.5 million, net of zero taxes.  This extraordinary loss primarily
consisted of the early redemption premium on the 15% Notes and the write-
off of deferred financing costs related to refinanced indebtedness
partially offset by the write-off of a bond premium associated with the 15%
Notes.

Net Loss

As a result of the factors discussed above, the Company's net loss
decreased to a loss of $29.9 million in Fiscal Year 1998 from a loss of
$31.7 million in Fiscal Year 1997.  As discussed above, Fiscal Year 1998
includes $3.9 million of restructuring costs and $1.7 million of other
special charges related to asset write-offs and write-downs associated with
the Company's printing division.  In addition, Fiscal Year 1998 includes
$1.5 million of non-recurring charges related to the relocation of American
Color's corporate office and various severance related expenses, non-cash
charges of $0.6 million associated with an employee benefit program and an
approximate $0.7 million loss from discontinued operations related to SMC
and SMI.  The Company's net loss increased to a loss of $31.7 million in
Fiscal Year 1997 from a loss of $29.3 million in Fiscal Year 1996.  Fiscal
Year 1997 includes $0.9 million of expense related to the American Color
restructuring, $1.9 million of other special charges related to asset
write-offs and write-downs, $2.5 million of non-recurring employee
termination expenses (including $1.9 million related to the resignation of
the Company's former Chief Executive Officer - see note 21 to the Company's
consolidated financial statements) and an approximate $3.1 million loss
from discontinued operations related to SMC.  The Company's net loss in
Fiscal Year 1996 includes $4.1 million of expense related to the American
Color restructuring, $3.4 million of other special charges related to asset
write-offs and write-downs, a $1.5 million non-recurring expense associated
with a terminated merger, a $4.5 million extraordinary loss on early
extinguishment of debt and approximately $2.9 million of income and a $1.4
million loss from discontinued operations related to SMI and SMC,
respectively.

Liquidity and Capital Resources

On May 8, 1998, the Company refinanced all of its existing bank
indebtedness (see notes 9 and 23 to the Company's consolidated financial
statements).  The primary objectives of the refinancing were to gain
greater financial and operating flexibility, reduce the Company's overall
cost of capital and provide greater opportunity for internal growth and
growth through acquisitions.

The 1998 refinancing transaction included the following (1) the Company
entered into a $145 million credit facility with Bankers Trust Company,
Morgan Stanley Senior Funding, Inc., General Electric Capital Corporation,
and a syndicate of lenders (the "Amended and Restated Credit Agreement")
providing for a $70 million revolving credit facility which is not subject
to a borrowing base limitation (the "New 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");  (2) the repayment of all $57.0 million of indebtedness
outstanding under the existing Bank Credit Agreement (plus $0.4 million of
accrued interest to the date of repayment);  (3) the repayment of all $25.0
million of indebtedness outstanding under the existing Term Loan Facility
(plus $0.6 million of accrued interest to the date of repayment) and (4)
the payment of approximately $2.2 million in fees and expenses associated
with the refinancing transaction.

The New Revolving Credit Facility provides for a maximum of $70 million
borrowing availability and includes a $40 million letter of credit sub-
limit.  As of May 31, 1998, the Company had total borrowings and letters of
credit outstanding under the New Revolving Credit Facility of approximately
$33.3 million, and therefore, additional borrowing availability of
approximately $36.7 million.

At May 31, 1998, the $25 million of the A Term Loan Facility and $50
million of the B Term Loan Facility remained outstanding.  Scheduled A Term
Loan Facility and B Term Loan Facility payments due over the remainder of
fiscal year ending March 31, 1999 ("Fiscal Year 1999") are $0 and $0.5
million, respectively.  In addition, scheduled repayments of capital lease
obligations and other senior indebtedness during Fiscal Year 1999 are
approximately $7 million and $2.3 million, respectively.

In Fiscal Year 1998, cash flow from operations and proceeds from the Term
Loan Facility (see the consolidated statements of cash flows) were used to
reduce borrowings under the Revolving Credit Facility of $11.5 million and
to pay $19.8 million in scheduled principal payments on indebtedness
(including capital lease obligations).  Additionally, these cash sources
were used to fund the Company's Fiscal Year 1998 cash capital expenditures
of $10.8 million and meet additional investing and financing needs of $1.5
million.  The Company plans to continue its program of upgrading its
printing and prepress equipment and currently anticipates that cash capital
expenditures will approximate $8 million and equipment acquired under
capital leases will approximate $7 million during Fiscal Year 1999.  The
Company had zero cash on hand at March 31, 1998 due to a requirement under
the Bank Credit Agreement that the Company's daily available funds be used
to reduce borrowings under the Revolving Credit Facility.

At March 31, 1998, the Company had total indebtedness outstanding of $319.7
million, including capital lease obligations.  Of the total debt
outstanding at March 31, 1998, $65.2 million was outstanding under the Bank
Credit Agreement at a weighted average interest rate of 8.48% and $25
million was outstanding under the Term Loan Facility at a weighted average
interest rate of 10.63%.  Indebtedness under the Amended and Restated
Credit Agreement (effective May 8, 1998) had interest at floating rates.
At March 31, 1998, the Company had indebtedness other than obligations
under the Bank Credit Agreement and Term Loan Facility of $229.5 million
(including $185 million of the Notes).  The Company was in compliance with
all financial covenants set forth in the Bank Credit Agreement, as amended,
at March 31, 1998.  The Company is currently in compliance with all
financial covenants set forth in the Amended and Restated Credit Agreement.
See notes 9 and 23 to the Company's consolidated financial statements.

A significant portion of Graphics long-term obligations, including
indebtedness under the Amended and Restated Credit Agreement, has been
fully and unconditionally guaranteed by Holdings.  Holdings is subject to
certain restrictions under its guarantee of indebtedness under the Amended
and Restated Credit Agreement, including among other things, restrictions
on merges, acquisitions, incurrence of additional debt and payment of cash
dividends.  See Notes 1 and 23 to the Company's consolidated financial
statements.


<TABLE>
<CAPTION>

EBITDA

                                             Fiscal Year Ended March 31,
                                --------------------------------------------------
                                  1998                 1997                1996
                                --------             --------            --------
                                               (dollars in thousands)
EBITDA:
<S>                            <C>                  <C>                 <C>
   Printing (a)                $    46,838          $    46,755         $    46,597

   American Color (a)                9,927                5,770               2,907

   Other (b) (c)                    (4,398) (d)          (5,553) (d)         (2,657)
                                 ---------            ---------           ---------

      Total                    $    52,367          $    46,972         $    46,847
                                 =========            =========           =========

EBITDA Margin:

    Printing                         10.5%                10.4%               10.3%

    American Color                   11.4%                 7.7%                4.0%

       Total                          9.8%                 9.0%                8.8%


(a)  Printing EBITDA includes the impact of $3.9 million of restructuring
     costs in Fiscal Year 1998.  American Color EBITDA for Fiscal Year 1997
     and 1996 includes the impact of restructuring costs of $0.9 million
     and $4.1 million, respectively (see note 19 to the Company's
     consolidated financial statements and discussion above) and $1.5
     million of non-recurring charges in Fiscal Year 1998 associated with
     the relocation of its corporate office and various severance related
     expenses.

(b)  Other operations in Fiscal Year 1996 include revenues and expenses
     associated with the Company's 51% owned subsidiary, NIS (sold on March
     11, 1996; see note 4 to the Company's consolidated financial
     statements).

(c)  Also includes corporate general and administrative expenses.

(d)  Also reflects non-cash charges associated with an employee benefit
     program of $0.6 million in Fiscal Year 1998 and non-recurring employee
     termination expenses of $2.5 million in Fiscal Year 1997 (including
     $1.9 million related to the resignation of the Company's former Chief
     Executive Officer - see note 21 to the Company's consolidated
     financial statements).
</TABLE>

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

         Printing.  As a result of the reasons previously described under
"--Printing," (excluding changes in depreciation and amortization expense
and other special charges related to asset write-offs and write-downs),
printing EBITDA was $46.8 million in both Fiscal Year 1998 and Fiscal Year
1997 and printing EBITDA increased to $46.8 million in Fiscal Year 1997
from $46.6 million in Fiscal Year 1996, representing an increase of $0.2
million.  Printing EBITDA Margin increased to 10.5% in Fiscal Year 1998
from 10.4% in Fiscal Year 1997 and printing EBITDA Margin increased to
10.4% in Fiscal Year 1997 from 10.3% in Fiscal Year 1996.  Included in the
Fiscal Year 1998 EBITDA and EBITDA Margin is $3.9 million of restructuring
costs related to the printing restructuring plan (see discussion above).

         American Color.  As a result of the reasons previously described
under "--American Color," (excluding changes in depreciation and
amortization expense and other special charges related to asset write-offs
and write-downs), American Color EBITDA increased to $9.9 million in Fiscal
Year 1998 from $5.8 million in Fiscal Year 1997, representing an increase
of $4.1 million.  EBITDA Margin increased to 11.4% in Fiscal Year 1998 from
7.7% in Fiscal Year 1997.  American Color EBITDA increased to $5.8 million
in Fiscal Year 1997 from $2.9 million in Fiscal Year 1996, representing an
increase of $2.9 million.  EBITDA Margin increased to 7.7% in Fiscal Year
1997 from 4% in Fiscal Year 1996.  American Color EBITDA and EBITDA Margin
in Fiscal Year 1998 includes $1.5 million of non-recurring charges
associated with the relocation of its corporate office and various
severance related expenses.  Included in the Fiscal Year 1997 and Fiscal
Year 1996 EBITDA and EBITDA Margin is the impact of restructuring costs of
$0.9 million and $4.1 million, respectively (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 $4.4 million in Fiscal Year 1998 from negative EBITDA of
$5.6 million in Fiscal Year 1997.  EBITDA from other operations increased
to negative EBITDA of $5.6 million in Fiscal Year 1997 from negative EBITDA
of $2.7 million in Fiscal Year 1996.  Negative EBITDA for Fiscal Year 1998
includes the impact of non-cash charges of $0.6 million associated with an
employee benefit program.  Negative EBITDA for Fiscal Year 1997 includes
the impact of non-recurring employee termination expenses of $2.5 million
(including $1.9 million related to the resignation of the Company's former
Chief Executive Officer - see note 21 to the Company's consolidated
financial statements).

Amortization of Goodwill

The goodwill is amortized on a straight-line basis by business sector.
Goodwill amortization expense will be approximately $2.5 million in Fiscal
Year 1999.

Impact of Inflation

Generally, the Company believes it has been able to pass along increases in
its costs to its customers (primarily paper and ink) through increased
prices of its printed products.  Throughout the majority of Fiscal Year
1996, the printing industry experienced substantial increases in the cost
of paper.  In late Fiscal Year 1996 and throughout Fiscal Year 1997,
however, the overall cost of paper began to decline.  During Fiscal Year
1998, paper prices remained relatively stable.  Management expects that, as
a result of the Company's strong relationship with key suppliers, its
material costs will remain competitive within the industry.

Seasonality

Some of the Company's printing and digital imaging and prepress services
business is seasonal in nature, particularly those revenues derived from
advertising inserts.  Generally, the Company's sales from advertising
inserts are highest during periods prior to the following advertising
periods:  Spring advertising season (March 15 -- May 15);  Back-to-School
(July 15 -- August 15); and Thanksgiving/Christmas (October 15 -- December
15).  One of the reasons the Company chose to enter the comic book printing
market is that it is not subject to significant seasonal fluctuations.
Sales of newspaper Sunday comics are also not subject to significant
seasonal fluctuations.  The Company's strategy has been and will continue
to include the mitigation of the seasonality of its printing business by
increasing its sales to customers whose own sales are less seasonal (i.e.,
food and drug companies).

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.

The Company believes that environmental liabilities, currently and in the
prior periods discussed herein, are not material.  The Company has recorded
an environmental reserve of approximately $0.1 million in connection with a
Superfund site in its consolidated statement of financial position at March
31, 1998 which the Company believes to be adequate.  See "Legal Proceedings
- Environmental Matters". The Company does 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 the consolidated financial position
or results of operations of the Company.

Accounting

There are no pending accounting pronouncements that, when adopted, are
expected to have a material effect in the Company's results of operations
or its financial position.

Year 2000 Compliance

The Year 2000 issue is the result of certain computer programs being
written using two digits rather than four digits to define the applicable
year.  Software that is not Year 2000 compliant recognizes a date using
"00" as the year 1900 rather than 2000, which could result in system
failures, miscalculations or temporary inability to engage in normal
business activity.  The Company is currently working to resolve the
potential impact of this issue.  The Company has determined that certain
software programs and computer hardware will need to be modified or
replaced.  Although there can be no assurance, the Company believes such
modification or replacement will mitigate the potential impact of this
issue.  The Company will utilize both internal and external resources to
accomplish this task.  Based upon management's best estimate, the cost
associated with these modifications and/or replacement is not expected to
be material to the Company.

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........................................... 29
Consolidated balance sheets - March 31, 1998 and 1997.................... 30
For the Years Ended March 31, 1998, 1997 and 1996:
          Consolidated statements of operations.......................... 32
          Consolidated statements of stockholders' deficit............... 33
          Consolidated statements of cash flows.......................... 34
Notes to Consolidated Financial Statements............................... 36


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

          I.   Condensed Financial Information of Registrant
               Condensed Consolidated Financial Statements (parent
               company only) for the years ended March 31, 1998, 1997,
               and 1996, and as of March 31, 1998 and 1997

         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.



                         Report of Independent Auditors

The Board of Directors
ACG Holdings, Inc.

We have audited the accompanying consolidated balance sheets of ACG Holdings,
Inc. (formerly Sullivan Communications, Inc.) as of March 31, 1998 and 1997, 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,
1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. 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.

As discussed in Note 15 to the consolidated financial statements, in fiscal year
1998 the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation."


ERNST & YOUNG LLP

Nashville, Tennessee
May 22, 1998





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

<TABLE>
<CAPTION>
                                                                                                    March 31,
                                                                                   --------------------------------------------
                                                                                         1998                       1997
                                                                                   -----------------          -----------------
Assets

Current assets:
<S>                                                                                 <C>                        <C>
   Cash                                                                               $          0                          0

   Receivables:

     Trade accounts, less allowance for doubtful accounts of
         $2,112 and $5,879 at March 31, 1998 and 1997, respectively                         63,185                     53,510


     Other                                                                                   2,605                      3,252
                                                                                   -----------------          -----------------


                  Total receivables                                                         65,790                     56,762

   Inventories                                                                              10,795                      9,711

   Prepaid expenses and other current assets                                                 3,578                      3,604
                                                                                   -----------------          -----------------

                  Total current assets                                                      80,163                     70,077

Property, plant and equipment:

   Land and improvements                                                                     3,148                      3,278

   Buildings and improvements                                                               19,426                     17,837

   Machinery and equipment                                                                 178,713                    175,196

   Furniture and fixtures                                                                    5,379                      3,625

   Leased assets under capital leases                                                       48,039                     35,113

   Equipment installations in process                                                        1,612                      3,118
                                                                                   -----------------          -----------------

                                                                                           256,317                    238,167

   Less accumulated depreciation                                                           (96,684)                   (71,270)
                                                                                   -----------------          -----------------

                  Net property, plant and equipment                                        159,633                    166,897

Excess of cost over net assets acquired, less accumulated
   amortization of $42,060 and $33,523 at March 31, 1998 and 1997, respectively             74,556                     81,964

Other assets                                                                                15,606                     15,037
                                                                                   -----------------          -----------------

                  Total assets                                                        $    329,958                    333,975
                                                                                   =================          =================


See accompanying notes to consolidated financial statements.
</TABLE>



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

<TABLE>
<CAPTION>
                                                                                                    March 31,
                                                                                   --------------------------------------------
                                                                                         1998                       1997
                                                                                   -----------------          -----------------


Liabilities and Stockholders' Deficit

Current liabilities:
<S>                                                                                 <C>                           <C>
   Current installments of long-term debt and capitalized leases                      $      9,131                     18,252

   Trade accounts payable                                                                   27,381                     29,364

   Accrued expenses                                                                         31,539                     30,037

   Income taxes                                                                                502                      1,022
                                                                                  -------------------         ------------------

        Total current liabilities                                                           68,553                     78,675

Long-term debt and capitalized leases, excluding current installments                      310,526                    294,057

Deferred income taxes                                                                        9,443                      8,713

Other liabilities                                                                           47,521                     28,848
                                                                                  -------------------         ------------------

        Total liabilities                                                                  436,043                    410,293

Stockholders' deficit:

   Common stock, voting, $.01 par value, 5,852,223 shares authorized,
      134,812 shares issued and outstanding at March 31, 1998 and
      123,889 shares issued and outstanding at March 31, 1997                                    1                          1

   Preferred Stock, $.01 par value, 5,750 shares authorized, 4,000 shares
      Series A convertible preferred stock issued and outstanding at
      March 31, 1997, $40,000,000 liquidation preference, 1,750 shares
      Series B convertible preferred stock issued and outstanding at
      March 31, 1997, $17,500,000 liquidation preference                                        --                         --

   Preferred Stock, $.01 par value, 15,823 shares authorized, 3,631 shares
       Series AA convertible preferred stock issued and outstanding at
       March 31, 1998, $40,000,000 liquidation  preference, 1,606 shares
       Series BB convertible preferred stock issued and outstanding at March
       31, 1998, $17,500,000 liquidation preference                                             --                         --

   Additional paid-in capital                                                               58,249                     57,499

   Accumulated deficit                                                                    (162,250)                  (132,228)

   Cumulative translation adjustment                                                        (2,000)                    (1,590)

   Unfunded pension liability                                                                  (85)                        --
                                                                                    -------------------        ------------------

        Total stockholders' deficit                                                        (106,085)                  (76,318)
                                                                                    -------------------        ------------------

Commitments and contingencies

        Total liabilities and stockholders' deficit                                   $     329,958                   333,975
                                                                                    ===================        ==================
See accompanying notes to consolidated financial statements.

</TABLE>


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

<TABLE>
<CAPTION>

                                                                                           Year ended March 31,
                                                                        -------------------------------------------------------
                                                                            1998                  1997                 1996
                                                                        -----------           ------------         ------------
<S>                                                                     <C>                   <C>                  <C>
Sales                                                                   $   533,335              524,551             529,523

Cost of sales                                                               461,407              459,880             465,110
                                                                          ---------            ---------           ---------

     Gross profit                                                            71,928               64,671              64,413



Selling, general and administrative expenses                                 45,690               43,164              35,533

Amortization of goodwill                                                      8,537                8,254               8,631

Restructuring costs and other special charges                                 5,598                2,881               7,533
                                                                          ---------            ---------           ---------

     Operating income                                                        12,103               10,372              12,716
                                                                          ---------            ---------           ---------

Other expense (income):

   Interest expense                                                          38,956               36,289              32,688

   Interest income                                                            (143)                 (157)               (263)

   Nonrecurring charge related to terminated merger                              --                   --               1,534

   Other, net                                                                   412                  245                 188
                                                                          ---------            ---------           ---------

         Total other expense                                                 39,225               36,377              34,147
                                                                          ---------            ---------           ---------



     Loss from continuing operations before income
        taxes and extraordinary item                                        (27,122)             (26,005)            (21,431)


Income tax expense                                                           (2,106)              (2,591)             (4,874)
                                                                          ---------            ---------           ---------

     Loss from continuing operations before
        extraordinary item                                                  (29,228)             (28,596)            (26,305)


Discontinued operations:

          Loss from operations, net of tax                                       --               (1,557)             (1,364)

          Estimated (loss) on shut down and gain
             on SMI settlement, net of tax                                    (667)               (1,550)              2,868
                                                                          ---------            ---------           ---------

           Loss before extraordinary item                                  (29,895)              (31,703)            (24,801)

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

           Net  loss                                                  $    (29,895)              (31,703)            (29,327)
                                                                          =========            =========           =========





See accompanying notes to consolidated financial statements.
</TABLE>



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

<TABLE>
<CAPTION>
                                          Series AA      Series A
                                            and BB         and B
                               Voting     Convertible   Convertible   Additional                  Cumulative    Unfunded
                               common     preferred      preferred     paid-in     Accumulated    translation    Pension
                               stock        stock          stock       capital       deficit      adjustment    Liability   Total
                               ------     -----------   -----------   ----------   -----------    -----------   ---------   -----
<S>                            <C>        <C>           <C>           <C>          <C>            <C>           <C>         <C>
Balances, April 1, 1995        $    1          --            --         57,499       (71,198)       (1,272)         --     (14,970)

Change in cumulative
 translation adjustment -
 exchange rate fluctuations        --          --            --            --             --           (99)         --         (99)



Net loss                           --          --            --            --        (29,327)           --          --     (29,327)
                                ------      ------       -------        ------       -------        ------       ------    -------

Balances, March 31, 1996      $    1           --            --         57,499      (100,525)       (1,371)         --     (44,396)

Change in cumulative
 translation adjustment -
 exchange rate fluctuations        --          --            --            --             --          (219)         --        (219)



Net loss                           --          --            --            --        (31,703)           --          --     (31,703)
                                ------      ------       -------        ------       -------        ------       ------    -------

Balances, March 31, 1997      $    1           --            --         57,499      (132,228)       (1,590)         --     (76,318)

Change in cumulative
 translation adjustment -
 exchange rate fluctuations        --          --            --            --             --          (410)         --        (410)



Treasury stock                     --          --            --            --           (127)           --          --        (127)


Exercise of stock options          --          --            --            176            --            --          --         176


Executive stock compensation       --          --            --            574            --            --          --         574


Unfunded pension liability         --          --            --            --             --            --         (85)        (85)


Net loss                           --          --            --            --        (29,895)           --          --     (29,895)
                                ------      ------       -------        ------       -------        ------       ------    -------

Balances, March 31, 1998      $    1           --            --         58,249      (162,250)       (2,000)        (85)   (106,085)
                                ======      ======       =======        ======       =======        ======       ======    =======


See accompanying notes to consolidated financial statements.
</TABLE>



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

<TABLE>
<CAPTION>
                                                                                       Year ended March 31,
                                                                         ------------------------------------------------
                                                                              1998             1997             1996
                                                                         --------------    ------------    --------------
<S>                                                                      <C>               <C>             <C>
Cash flows from operating activities:

   Net loss                                                               $   (29,895)        (31,703)          (29,327)

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

Extraordinary item - non cash                                                      --              --            (1,912)

Other special charges - non cash                                                1,727           1,944             4,306

Depreciation                                                                   28,124          25,282             21,385

Depreciation and amortization related to SMC                                       --             251                932

Amortization of goodwill                                                        8,537           8,254              8,631

Amortization of other assets                                                    1,876           1,120                680

Amortization of deferred financing costs and bond premium                       2,292           1,784              1,469

Gain on shut down of SMI, net of tax                                               --              --             (1,480)

Loss on shut down                                                                 667           1,550                 --

(Gain) loss on disposals of property, plant and  equipment                        (37)              6                350

Deferred income tax expense                                                       930             911                595

Changes in assets and liabilities, net of effects of shut down of SMI
  and SMC and acquisition of the Medina Facility:


  (Increase) decrease in receivables                                           (9,079)         11,262            (12,870)

  (Increase) decrease in inventories                                           (1,122)          3,453             (1,744)

  (Decrease) increase in trade accounts payable                                (1,887)         (6,528)            11,571

  Increase (decrease) in accrued expenses                                       1,172           1,226                981

  (Decrease) increase in current income taxes payable                            (520)           (193)               195

  Increase (decrease)  in other liabilities                                    18,588           3,106             (2,722)

  Other                                                                        (2,748)          2,588             (5,227)
                                                                              -------         -------            -------

                        Total adjustments                                      48,520          56,016             25,140
                                                                              -------         -------            -------

Net cash provided (used) by operating activities                               18,625          24,313             (4,187)
                                                                              -------         -------            -------


See accompanying notes to consolidated financial statements.

</TABLE>


                            ACG HOLDINGS, INC.
                   Consolidated Statements of Cash Flows
                              (In thousands)
<TABLE>
<CAPTION>
                                                                                       Year ended March 31,
                                                                         ------------------------------------------------
                                                                              1998             1997             1996
                                                                         --------------    ------------    --------------
<S>                                                                      <C>               <C>             <C>
Cash flows from investing activities:

 Purchases of property, plant and equipment                                   (10,826)        (10,810)          (20,276)

 Proceeds from sales of property, plant and equipment                           1,067              63                36

 Medina acquisition                                                                --              --            (6,682)

 Proceeds from sale of NIS                                                         --              --             2,550

 Other                                                                           (265)           (250)              (64)
                                                                              -------         -------           -------

             Net cash used by investing activities                            (10,024)        (10,997)          (24,436)
                                                                              -------         -------           -------



Cash flows from financing activities:

    Debt:

      Proceeds                                                                 25,000           1,162           280,451

      Payments                                                                (24,899)        (10,374)         (242,970)

        Increase in deferred financing costs                                   (2,467)           (827)          (12,095)

        Repayment of capital lease obligations                                 (6,349)         (3,212)             (591)

      Other                                                                       128             (61)             (813)
                                                                              -------         -------           -------

              Net cash (used) provided by financing activities                 (8,587)        (13,312)           23,982
                                                                              -------         -------           -------


Effect of exchange rates on cash                                                  (14)             (4)                6
                                                                              -------         -------           -------

Decrease in cash                                                                    0               0            (4,635)

Cash:

   Beginning of period                                                              0               0             4,635
                                                                              -------         -------           -------

   End of period                                                             $      0               0                 0
                                                                              =======         =======           =======

Supplemental disclosure of cash flow information:

Cash paid for:

   Interest                                                                  $ 35,931          34,284            30,581

   Income taxes, net of refunds                                                 1,751           1,863             3,964

Exchange rate adjustment to long-term debt                                        (67)            (61)               53

Non cash investing activities:

   Lease obligations                                                         $ 12,887          26,957             7,746




See accompanying notes to consolidated financial statements.
</TABLE>



                            ACG HOLDINGS, INC.

                Notes to Consolidated Financial Statements


(1)       Summary of Significant Accounting Policies

          ACG Holdings, Inc.  ("Holdings"), together with its wholly-owned
          subsidiary, American Color Graphics, Inc.  ("Graphics"),
          (collectively the "Company"), was formed in April 1989 under the
          name GBP Holdings, Inc. to effect the purchase of all the capital
          stock of GBP Industries, Inc. from its stockholders in a
          leveraged buyout transaction.  In October 1989, GBP Holdings,
          Inc. changed its name to Sullivan Holdings, Inc. and GBP
          Industries, Inc. changed its name to Sullivan Graphics, Inc.
          Effective June 1993, Sullivan Holdings, Inc. changed its name to
          Sullivan Communications, Inc.  Effective July 1997, Sullivan
          Communications, Inc. changed its name to ACG Holdings, Inc. and
          Sullivan Graphics, Inc. changed its name to American Color
          Graphics, Inc.

          On August 15, 1995, the Company completed a merger transaction
          with Shakopee Valley Printing Inc.  ("Shakopee")  (the "Shakopee
          Merger").  Shakopee was formed to effect the purchase of certain
          assets and assumption of certain liabilities of Shakopee Valley
          Printing, a Guy Gannett Communications division.  On December 22,
          1994, Morgan Stanley Capital Partners III, L.P., Morgan Stanley
          Capital Investors, L.P., and MSCP III 892 Investors, L.P.
          (collectively the "MSCP III Entities"), together with First Plaza
          Group Trust and Leeway & Co. purchased 35,000 shares of common
          stock of Shakopee.  On December 22, 1994, pursuant to an
          Agreement for the Purchase of Assets between Guy Gannett
          Communications (the "Seller") and Shakopee (the "Buyer"), the
          Seller agreed to sell (effective at the close of business on
          December 22, 1994) certain assets and transfer certain
          liabilities of Shakopee Valley Printing to the Buyer for a total
          purchase price of approximately $42.6 million, primarily financed
          through the issuance of 35,000 shares of Common Stock and bank
          borrowings.  Each of the MSCP III Entities is affiliated with
          Morgan Stanley Dean Witter & Co., the parent company of the
          general partner of the Company's majority stockholder.  In
          addition, the other stockholders of Shakopee were also
          stockholders of the Company.  See note 2 for a description of the
          specific terms of the Shakopee Merger.

          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, 1998, 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 and the Amended and
          restated 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 have been fully and unconditionally
          guaranteed by Holdings.

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

                            ACG HOLDINGS, INC.

                Notes to Consolidated Financial Statements

          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 generally accepted accounting
               principles.

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

               The Shakopee Merger has been accounted for as a combination
               of entities under common control (similar to a pooling-of-
               interests).  The consolidated financial statements give
               retroactive effect to the merger of the Company and Shakopee
               and include the combined operations of the Company and
               Shakopee for the fiscal year ended March 31, 1995.  Shakopee
               was not under common control until December 22, 1994, and,
               accordingly, the consolidated financial statements reflect
               Shakopee as under common control subsequent to such date.

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

          (b)  Revenue Recognition

               In accordance with trade practices of the printing industry,
               printing 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)  (see note
               6).

          (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.

          (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 sectors.  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 cash flows.  In addition, the Company assesses long-
               lived assets for impairment under Financial Accounting
               Standards Board Statement No. 121, "Accounting for the
               Impairment of Long-Lived Assets and for Long-Lived Assets to
               be Disposed Of" ("FASB 121").  Under these rules, goodwill
               associated with assets acquired in a purchase business
               combination is included in impairment evaluations when
               assets or circumstances exist that indicate the carrying
               amount of these assets may not be recoverable.

          (f)  Other Assets

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

               The covenants not to compete are amortized over the three
               and five year terms of the respective underlying agreements.

          (g)  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").

          (h)  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 interdivision accounts are of a long-term investment
               nature, no transaction adjustments are included in
               operations.

          (i)  Reclassifications

               Certain prior period amounts have been reclassified to
               conform with the most recent period presentation.

          (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.

          (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 generally accepted accounting principles requires
               management to make estimates and assumptions that affect the
               amounts reported in the financial statements and
               accompanying notes.  Actual results could differ from those
               estimates.

          (n)  Stock Based Compensation

               Effective April 1, 1997 the Company changed its method of
               accounting for stock based compensation plans from the
               intrinsic value method of Accounting Principles Board
               Opinion No. 25, "Accounting for Stock Issued to Employees"
               ("APB 25") to the fair value method established by Statement
               of Financial Accounting Standards No. 123, "Accounting for
               Stock-Based Compensation" ("SFAS 123").  Application of the
               recognition provisions of SFAS 123 is prospective
               (restatement of prior periods is prohibited).  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.

(2)       The Shakopee Merger

          On August 15, 1995, the Shakopee Merger was consummated and each
          outstanding share of the Common Stock of Shakopee was converted
          into one share of the New Common Stock of the Company and 1/20 of
          one share of Series B Preferred Stock of the Company.  Also on
          August 15, 1995, concurrent with the Shakopee Merger, the Company
          also refinanced its then existing indebtedness (the
          "Refinancing")  (see note 9).

          The Shakopee Merger was accounted for under the purchase method
          of accounting applying the provisions of Accounting Principles
          Board Opinion No. 16 ("APB 16").  The purchase price of $42.6
          million, was allocated to the tangible assets and identifiable
          intangible assets and liabilities assumed based upon their
          respective fair values.  The resulting excess of cost over net
          assets acquired was $12.2 million.

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

(3)       The Medina Acquisition

          On March 12, 1996, Graphics acquired the assets of Gowe, Inc., a
          Medina, Ohio based regional printer of newspapers, T.V. books and
          retail advertising inserts and catalogs (the "Medina Facility"),
          for cash and assumption of certain liabilities of Gowe, Inc.,
          pursuant to an Asset Purchase Agreement, among Graphics, Gowe,
          Inc. and ComCorp, Inc., the parent company of Gowe, Inc.  (the
          "Medina Acquisition").  The Medina Acquisition was accounted for
          under the purchase method of accounting applying the provisions
          of APB 16.  The Medina Facility's results of operations are
          included in the Company's consolidated financial statements
          subsequent to March 11, 1996.

          The Company's pro forma unaudited results of operations for the
          fiscal year ended March 31, 1996 ("Fiscal Year 1996"), assuming
          that the Medina Acquisition occurred as of April 1, 1995, were
          $561.6 million in sales, a $25.9 million loss from continuing
          operations before extraordinary item and a $28.9 million net
          loss.


(4)       Disposal of 51% Interest in National Inserting Systems, Inc.

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

(5)       Discontinued Operations

          SMC

          In February 1997, the Company made a strategic decision to shut
          down the operations of its wholly-owned subsidiary Sullivan Media
          Corporation ("SMC").  This resulted in an estimated net loss on
          shut down of approximately $1.5 million, which is net of zero
          income tax benefits.  In the fiscal year ended March 31, 1998
          ("Fiscal Year 1998") the Company recorded an additional $0.4
          million estimated net loss on shutdown.

          The shut down of SMC has been accounted for as a discontinued
          operation, and accordingly, its operating results are segregated
          and reported as a discontinued operation in the accompanying
          consolidated statements of operations.  The assets of SMC and any
          resulting gain or loss on the disposal of those assets, is
          immaterial to the results of operations and financial position of
          the Company.

          The condensed consolidated statements of operations relating to
          the discontinued SMC operation follows:

<TABLE>
<CAPTION>
                                                               Year Ended March 31,
                                        ------------------------------------------------------------------

                                               1998                    1997                    1996
                                        ------------------      ------------------      ------------------
      <S>                               <C>                     <C>                     <C>
      Sales                             $             --                   9,786                   6,819


      Cost and expenses                               --                  11,343                   8,183
                                        ------------------      ------------------      ------------------

      Loss before income taxes                        --                 (1,557)                 (1,364)


      Income taxes                                    --                      --                      --
                                        ------------------      ------------------      ------------------

      Net loss                     $                  --                 (1,557)                 (1,364)
                                        ==================      ==================      ==================
</TABLE>

SMI

In Fiscal Year 1996, the Company recognized settlement of the EPI Group
Limited ("EPI") complaint naming Sullivan Marketing, Inc.  ("SMI"), News
America FSI, Inc.  ("News America") and two packaged goods companies as
defendants ("EPI Lawsuit") and reversed certain accruals related to the
estimated loss on shut down of SMI.  The resulting effect reflected in the
Fiscal Year 1996 consolidated statement of operations was $2.9 million
income in discontinued operations.  In Fiscal Year 1998, the Company
recorded an additional $0.3 million estimated net loss on shut down.

(6)       Inventories

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

<TABLE>
<CAPTION>
                                                               March 31,
                                          -------------------------------------------------
                                                  1998                        1997
                                          ---------------------       ---------------------
           <S>                            <C>                         <C>
           Paper                           $           9,161                      7,831

           Ink                                           227                        324

           Supplies and other                          1,407                      1,556
                                           --------------------        --------------------

                  Total                    $          10,795                      9,711
                                           ====================        ====================


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

(7)       Other Assets

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

                                                                                                     March 31,
                                                                                    -------------------------------------------
                                                                                           1998                      1997
                                                                                    ------------------       ------------------
         <S>                                                                        <C>                      <C>
         Deferred financing costs, less accumulated
           amortization of $5,185 in 1998 and $2,893
           in 1997                                                                   $         10,104                   9,996

         Spare parts inventory, net of valuation allowance
           of $100 in 1998 and 1997                                                             1,852                   1,699

         Other                                                                                  3,650                   3,342
                                                                                       --------------           -------------

                Total                                                                $         15,606                  15,037
                                                                                       ==============           =============
</TABLE>

(8)       Accrued Expenses

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


<TABLE>
<CAPTION>
                                                                                                     March 31,
                                                                                    ---------------------------------------------

                                                                                           1998                      1997
                                                                                    ------------------       --------------------
         <S>                                                                        <C>                      <C>
         Compensation and related taxes                                         $              10,004                      9,206

         Employee benefits                                                                      8,755                      8,353

         Interest                                                                               5,028                      4,445

         Accrued costs related to shut down of SMC                                                163                      1,046

         Other                                                                                  7,589                      6,987
                                                                                    ------------------       --------------------

                Total                                                           $              31,539                     30,037
                                                                                    ==================       ====================
</TABLE>

(9)       Notes Payable, Long-term Debt and Capitalized Leases

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

<TABLE>
<CAPTION>
                                                                                                       March 31,
                                                                                     ---------------------------------------------

                                                                                            1998                        1997
                                                                                     ------------------          -----------------
          <S>                                                                        <C>                         <C>
          Bank Credit Agreement:

                  Term Loan                                                          $          35,979                     47,088

                  Revolving Credit Facility Borrowings                                          29,257                     40,710
                                                                                     ------------------       --------------------

                                                                                                65,236                     87,798

          Term Loan Facility                                                                    25,000                         --


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

          Capitalized leases                                                                    38,147                     31,607

          Other loans with varying maturities and
              interest rates                                                                     6,274                      7,904
                                                                                     ------------------       --------------------

                 Total long-term debt                                                          319,657                    312,309

          Less current installments                                                              9,131                     18,252
                                                                                     ------------------       --------------------

                 Long-term debt and capitalized leases,
                     excluding current installments                               $            310,526                    294,057
                                                                                     ==================       ====================

</TABLE>

August 15, 1995 Refinancing

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

The BTCC Agreement as amended (the "Bank Credit Agreement"), required the
Company to meet certain financial covenants which as of March 31, 1998 were
met.  The Bank Credit Agreement required prepayments in certain
circumstances including: excess cash flows, proceeds from asset
dispositions totaling prescribed levels, and changes in ownership.
Borrowings under the Revolving Credit Facility were subject to a borrowing
base requirement including accounts receivable and inventory.  Graphics had
outstanding borrowings under the Revolving Credit Facility of $29.3 million
at March 31, 1998.

Interest under the Bank Credit Agreement was floating based on prevailing
market rates .  The weighted average rate on outstanding indebtedness under
the Bank Credit Agreement at March 31, 1998 was 8.48%.

Holdings guaranteed Graphics' indebtedness under the Bank Credit Agreement,
which guarantee was secured by a pledge of all of Graphics' and its
subsidiaries' stock.  In addition, borrowings under the Bank Credit
Agreement were secured by substantially all of the assets of Graphics.
Holdings was restricted under its guarantee of indebtedness under the Bank
Credit Agreement from, among other things, entering into mergers,
acquisitions, incurring additional debt, or paying cash dividends.


June 30, 1997 Term Loan Facility


On June 30, 1997, the Company entered into a $25 million term loan facility
which included a $5 million participation by Morgan Stanley Senior Funding,
Inc., a related party, which matures on March 31, 2001 (the "Term Loan
Facility").  Net proceeds of approximately $23.5 million (after loan fees
and other transaction costs) were received and used to reduce outstanding
borrowings under the existing Revolving Credit Facility.  Interest under
the Term Loan Facility was floating based upon existing market rates plus
agreed upon margin levels which escalated over the initial 24 months of the
facility.  The obligations under this facility were guaranteed on the same
basis and by the same guarantors as the Company's Bank Credit Agreement
although such guarantees were secured by second priority security interests
in the tangible and intangible assets of the Company and such guarantors.
Covenants under this agreement were substantially similar to, but in
certain respects are more restrictive than, existing covenants under the
Senior Subordinated Notes Indenture.  Morgan Stanley Senior Funding, Inc.
received transaction fees of approximately $0.3 million.  In connection
with the Term Loan Facility, the Company obtained amendments to the Bank
Credit Agreement with respect to certain financial covenants and an
amendment that decreased the Borrowing Base through March 30, 1998.

May 8, 1998 Refinancing

On May 8, 1998, the Company refinanced all outstanding indebtedness under
the BTCC Agreement and the Term Loan Facility (see note 23 for a discussion
of the terms of this refinancing transaction).

The amortization for total long-term debt and capitalized leases at March
31, 1998 as adjusted to reflect the scheduled payments due under the terms
of the Company's senior debt structure as refinanced on May 8, 1998 (see
note 23), is shown below (in thousands):

<TABLE>
<CAPTION>
                                                             Long-Term                       Capitalized
        Fiscal year                                             Debt                            Leases
      ----------------------                           ---------------------           -----------------------
        <C>                                            <C>                             <C>
        1999                                           $             2,779             $               9,728

        2000                                                         3,278                             9,054

        2001                                                         7,152                             7,527

        2002                                                         6,980                             6,290

        2003                                                         7,835                             5,709

        Thereafter                                                 253,486                            13,077
                                                       ---------------------           -----------------------

            Total                                 $                281,510                            51,385
                                                       =====================

        Imputed interest                                                                            (13,238)
                                                                                       -----------------------

             Present value of minimum                                                 $
               lease payments                                                                         38,147
                                                                                       =======================
</TABLE>

Capital leases have varying maturity dates and interest rates which
generally approximate 9%-10%.  The Company estimates that the carrying
amounts of the Company's debt and other financial instruments approximate
their fair values at March 31, 1998 and 1997.

(10)      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,
          1998 and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                  March 31,
                                                                             ----------------------------------------------------

                                                                                     1998                           1997
                                                                             --------------------           ---------------------
        <S>                                                                  <C>                            <C>
        Deferred tax liabilities:

           Book over tax basis in fixed assets                               $           31,466                           31,402

           Foreign taxes                                                                  3,701                            2,505

           Accumulated amortization                                                         766                              483

           Other, net                                                                     4,594                            4,459
                                                                             --------------------            ---------------------

           Total deferred tax liabilities                                                40,527                           38,849

        Deferred tax assets:

           Bad debts                                                                        830                            2,197

           Accrued expenses and other liabilities                                        34,754                           24,953

           Accrued loss on discontinued operations                                          254                              722

           Net operating loss carryforwards                                              30,420                           30,515

           AMT credit carryforwards                                                       1,262                            1,262

           Cumulative translation adjustment                                                786                              625
                                                                             --------------------            ---------------------



           Total deferred tax assets                                                     68,306                           60,274

           Valuation allowance for deferred tax assets                                   37,222                           30,138
                                                                             --------------------            ---------------------

           Net deferred tax assets                                                       31,084                           30,136
                                                                             --------------------            ---------------------

        Net deferred tax liabilities                                        $             9,443                            8,713
                                                                             ====================            =====================

</TABLE>

Management has evaluated the need for a valuation allowance and as such, a
valuation allowance of $37.2 million has been recorded .  The valuation
allowance was increased by $7.1 million during the current fiscal year.

The components of income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     Year ended March 31,
                                                ---------------------------------------------------------------
                                                        1998                 1997                  1996
                                                -------------------- --------------------  --------------------
   <S>                                          <C>                  <C>
   Amount attributable to
      continuing operations                     $             2,106                2,591                 4,874

   Amount attributable to
      discontinued operations                                    --                   --                    75
                                                -------------------- --------------------  --------------------

        Total expense                         $               2,106                2,591                 4,949
                                                ==================== ====================  ====================

</TABLE>


Income tax expense attributable to loss from continuing operations consists
of (in thousands):

<TABLE>
<CAPTION>
                                                                          Year ended March 31,
                                                     -------------------------------------------------------------
                                                             1998                  1997                1996
                                                     --------------------   ------------------- ------------------
       <S>                                           <C>                    <C>
       Current

          Federal                                    $                --                    --                689

          State                                                      230                   145                618

          Foreign                                                    946                 1,535              3,047
                                                     --------------------   ------------------- ------------------

           Total current                                           1,176                 1,680              4,354
                                                     --------------------   ------------------- ------------------



       Deferred

          Federal                                                   (108)                  354                513

          State                                                     (157)                  120                  7


          Foreign                                                  1,195                    437                 --
                                                     --------------------   ------------------- ------------------

           Total deferred                                            930                   911                520
                                                     --------------------   ------------------- ------------------



       Provision for income taxes                    $             2,106                 2,591              4,874
                                                     ====================   =================== ==================
</TABLE>

The effective tax rates for Fiscal Year 1998, the fiscal year ending March
31, 1997 ("Fiscal Year 1997") and Fiscal Year 1996 were (7.8%), (10.0%),
and (22.7%), respectively.  The difference between these effective rates
relating to continuing operations and the statutory federal income tax rate
is composed of the following items:

<TABLE>
<CAPTION>
                                                                               Year ended March 31,
                                                      ----------------------------------------------------------------------
                                                             1998                       1997                     1996
                                                      -------------------       --------------------      ------------------
        <S>                                           <C>                       <C>                       <C>
        Statutory tax rate                                   35.0%                      35.0%                   35.0%

        State income taxes, less
           federal tax impact                                (0.2)                      (0.7)                   (1.9)

        Foreign taxes, less Federal
           tax impact                                        (5.2)                      (5.0)                   (9.4)

        Amortization                                         (9.9)                     (11.9)                  (16.1)

        Change in valuation
           allowance                                        (24.1)                     (28.3)                  (26.7)

        Other, net                                           (3.4)                       0.9                    (3.6)
                                                      -------------------       --------------------      ------------------

        Effective income tax rate                            (7.8)%                    (10.0)%                 (22.7)%
                                                      ===================       ====================      ==================
</TABLE>

As of March 31, 1998, the Company had available net operating loss
carryforwards ("NOL's") for state purposes of $63.1 million which can be
used to offset future state taxable income.  If these NOL's are not
utilized, they will begin to expire in 1999 and will be totally expired in
2013.

As of March 31, 1998, the Company had available NOL's for federal purposes
of $79.7 million which can be used to offset future federal taxable income.
If these NOL's are not utilized, they will begin to expire in 2006 and will
be totally expired in 2013.

The Company also had available an alternative minimum tax credit
carryforward of $1.3 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 $60.3
million which will begin to expire in 2007 and will be completely expired
in 2013.

(11)      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, bonds and guaranteed investment contracts.

          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.

          Total net periodic pension expense and its components for these
          plans during the periods indicated is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 Year ended March 31,
                                            -----------------------------------------------------------------
                                                    1998                  1997                  1996
                                            --------------------  --------------------  ---------------------
       <S>                                  <C>                   <C>                   <C>
       Service cost                         $               499                   446                    318

       Interest cost                                      3,533                 3,546                  3,428

       Actual return on assets                           (6,046)               (4,349)                (6,404)

       Net amortization and deferral                      2,071                   725                  3,076
                                            --------------------  --------------------  ---------------------

       Total pension expense                 $               57                   368                    418
                                            ====================  ====================  =====================

</TABLE>

Funded status of the four plans sponsored by the Company is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                                       March 31,
                                                                                       -----------------------------------------
                                                                                               1998                     1997
                                                                                       --------------------         ------------
          <S>                                                                          <C>                          <C>
          Actuarial present value of accumulated benefit obligations:

                   Vested                                                              $             52,759                 47,756

                   Non-Vested                                                                           179                    829
                                                                                             ---------------         --------------

                                                                                       $             52,938                 48,585
                                                                                             ===============         ==============


                                                                                                       March 31,
                                                                                       -----------------------------------------
                                                                                               1998                      1997
                                                                                       --------------------         ------------

          Projected benefit obligations                                                $             52,938                 48,585

          Plan assets on deposit with trustees at fair value                                         45,306                 41,436
                                                                                             ---------------         --------------

          Projected benefit obligations in excess of plan assets                                    (7,632)                (7,149)

          Unrecognized:

            Net gain                                                                                (2,142)                (3,146)

            Prior Service Cost                                                                        (627)                  (784)
                                                                                             ---------------         --------------

          Pension liability recognized in consolidated balance sheets                  $           (10,401)               (11,079)
                                                                                             ===============         ==============
</TABLE>


The above pension liability balance is recorded in the consolidated balance
sheets as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                      March 31,
                                                                  --------------------------------------------------

                                                                           1998                        1997
                                                                  ----------------------       ---------------------
           <S>                                                    <C>                          <C>
           Accrued expenses - employee benefits                   $                938                         771

           Other liabilities                                                     9,463                      10,308
                                                                  ----------------------       ---------------------

                                                                  $             10,401                      11,079
                                                                  ======================       =====================
</TABLE>


The pension liability at March 31, 1998 and 1997 reflects the impact of
changes in certain assumptions effective during such times as follows:

<TABLE>
<CAPTION>


                                                                                          March 31,
                                                          ---------------------------------------------------------------------

                                                                  1998                     1997                    1996
                                                          ---------------------    --------------------    --------------------
         <S>                                              <C>                      <C>                     <C>
          Discount rate:

              Pension expense                                            7.75%                7.50%                8.75%

              Funded status                                              7.25%                7.75%                7.50%

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


          The expected long-term rate of return on plan assets was 9.25% in
          the Fiscal Years 1998, 1997 and 1996.

(12)      Other 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.

          The following table sets forth the plan's funded status,
          reconciled with amounts recognized in the Company's consolidated
          balance sheets at March 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                                           March 31,
                                                                       --------------------------------------------------
                                                                               1998                         1997
                                                                       --------------------         ---------------------
          <S>                                                          <C>                          <C>
          Accumulated postretirement benefit obligation:



             Retirees                                                 $             2,506                         2,371

             Active plan participants                                               1,260                         1,022
                                                                       --------------------         ---------------------

             Total                                                                  3,766                         3,393

          Plan assets at fair value                                                    --                            --
                                                                       --------------------         ---------------------

          Accumulated postretirement benefit obligation in
             excess of plan assets                                                  3,766                         3,393

          Unrecognized prior service cost                                           2,391                         2,584

          Unrecognized net gain                                                     1,145                         1,694
                                                                       --------------------         ---------------------

          Accrued postretirement benefit cost                         $             7,302                         7,671
                                                                       ====================         =====================
</TABLE>



          The estimated current portion of the above accrued postretirement
          benefit cost is $0.3 million and is included in accrued expenses
          in the accompanying consolidated balance sheet at March 31, 1998.
          The remaining $7.0 million is included in the other liabilities
          section of the consolidated balance sheet.

          Net periodic postretirement benefit cost for the periods
          indicated included the following components (in thousands):


<TABLE>
<CAPTION>
                                                                                        Year ended March 31,
                                                                -------------------------------------------------------------------
                                                                        1998                     1997                  1996
                                                                --------------------     --------------------   -------------------
    <S>                                                         <C>                      <C>                    <C>
    Service cost attributed to service during the period        $                46                       40                    35

    Interest cost in accumulated postretirement benefit
      obligation                                                                266                      250                   317

    Amortization of net gain from earlier periods                               (79)                     (92)                  (67)

    Amortization of prior service cost                                         (194)                    (194)                 (194)
                                                                --------------------     --------------------   -------------------

    Net periodic postretirement benefit cost                    $                39                        4                    91
                                                                ====================     ====================   ===================
</TABLE>


          The significant assumptions used in determining postretirement
          benefit cost and the accumulated postretirement benefit
          obligation were as follows:

<TABLE>
<CAPTION>


                                                                    March 31,
                                   -------------------------------------------------------------------------

                                           1998                       1997                      1996
                                   ---------------------      --------------------      --------------------
     <S>                           <C>                        <C>                       <C>
     Discount rate - expense                      7.75%                  7.50%                  8.75%

     Discount rate - APBO                         7.25%                  7.75%                  7.50%

</TABLE>


          The assumed health care cost trend rate used in measuring the
          accumulated postretirement benefit obligation at March 31, 1998
          was 9.95% gradually declining to 5.75% in the year 2005 and
          forward.  The effect of a one percentage point increase in the
          assumed health care cost trend rate would increase the
          accumulated postretirement benefit obligation as of March 31,
          1998 by approximately 8%, and the aggregate of the service and
          interest cost components of net annual postretirement benefit
          cost by approximately 8%.

          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 unfunded accumulated
          benefit obligation under this plan is approximately $2.1 million.

(13)      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 $3.3 million during Fiscal Year 1998, $3.4 million
          during Fiscal Year 1997 and $2.8 million during the Fiscal Year
          1996.

(14)      Capital Stock

          Effective January 16, 1998, the Company amended and restated its
          Certificate of Incorporation and approved a recapitalization plan
          resulting in the conversion of Series A and Series B convertible
          preferred stock (the "Previously Issued Preferred Stock") into
          Series AA and Series BB convertible Preferred Stock collectively,
          ("Preferred Stock").  At March 31, 1998, capital stock consists
          of Holdings Common Stock ("Common Stock") and Preferred Stock.
          The Preferred Stock has rights on preferences substantially the
          same as the Previously Issued 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.

(15)      Stock Option Plans

          Effective April 1, 1997 the Company changed its method of
          accounting for stock based compensation plans from the intrinsic
          value method of APB 25 to the fair value method established by
          SFAS 123.  Application of the recognition provisions of SFAS 123
          is prospective (restatement of prior periods is prohibited).
          However, SFAS 123 pro forma information for prior years is
          required.  The effects of applying SFAS 123 for either
          recognizing compensation expense or providing pro forma
          disclosures are not likely to be representative of the effects on
          future years.

          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 provides for granting up to
          20,841 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 (the "Participants") 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:
                                                             Options
                                                          --------------

          Outstanding at April 1, 1995                           15,264

             Granted                                              2,497
             Exercised                                               --
             Canceled                                            (1,262)
                                                            -------------

          Outstanding at March 31, 1996                          16,499

             Granted                                              6,015
             Exercised                                               --
             Canceled                                            (3,108)
                                                            -------------

          Outstanding at March 31, 1997                          19,406
             Granted                                             30,014
             Exercised                                          (11,774)
             Canceled                                              (105)
                                                            -------------

          Outstanding at March 31, 1998                          37,541
                                                            =============



         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.  Additionally, the options
         granted in Fiscal Year 1998 were with a $.01 exercise price.  The
         weighted average fair value of options granted at the grant date
         was $0 for fiscal years ending March 31, 1998, 1997 and 1996.  The
         weighted average remaining contractual life of the options
         outstanding at March 31, 1998, 1997 and 1996, is 8.5 years, 7.6
         years and 7.9 years, respectively.  Of the options outstanding;
         1,147, 9,004 and 5,507 were exercisable at March 31, 1998, 1997
         and 1996, respectively.  A total of 8,466 shares of Holdings
         Common Stock were reserved for issuance, but not granted under the
         Common Stock Option Plans at March 31, 1998.  The fair value for
         these options was estimated at the date of grant using a Black-
         Scholes option pricing model with the following weighted-average
         assumptions for Fiscal Year 1998 and Fiscal Year 1997,
         respectively: risk-free interest rates of 5.5% and 6.5%; no annual
         dividend yield; volatility factors of 0; and an expected option
         life of 5 years.

         For the purposes of Fiscal Year 1997 and Fiscal Year 1996 SFAS 123
         pro forma disclosures, the estimated fair value of the options is
         amortized to expense over the options' vesting period.  Because
         the fair value of the Company's options equals $0, earnings were
         the same for Fiscal Year 1997 and Fiscal Year 1996 under both APB
         25 and SFAS 123.

         Preferred Stock Option Plan

         In Fiscal Year 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 Holdings Preferred Stock
         ("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, 1997                              --

      Granted                                                526

      Exercised                                               --

      Canceled                                                --
                                                        ----------

   Outstanding at March 31, 1998                             526
                                                        ==========

         All options were granted with a $1,909 exercise price.  The
         weighted average fair value of options granted at the grant date
         was $1,091 for Fiscal Year 1998.  The weighted average remaining
         contractual life of the options outstanding at March 31, 1998 is
         9.8 years.  The fair value for these options was estimated at the
         date of grant using a Black- Scholes option pricing model with the
         following weighted average assumptions for Fiscal Year 1998: risk
         free interest rate of 5.5%; 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, 1998.  A total
         of 57 shares of Holdings Preferred Stock were reserved for
         issuance, but not granted under the Preferred Stock Option Plan at
         March 31, 1998.

         The Company recognized $0.6 million of related compensation expense
         within Fiscal Year 1998 selling, general and administrative
         expenses as a result of the SFAS 123 requirements.

(16)     Commitments and Contingencies

         The Company incurred rent expense for Fiscal Year 1998, Fiscal
         Year 1997 and Fiscal Year 1996 of $6.4 million, $5.4 million and
         $4.9 million, respectively, under various operating leases.
         Future minimum rental commitments under existing operating lease
         arrangements at March 31, 1998 are as follows (in thousands):


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

           1999                             $           6,824

           2000                                         6,152

           2001                                         4,786

           2002                                         2,667

           2003                                         1,377


           Thereafter                                   4,995
                                              -----------------

                 Total                      $          26,801
                                              =================

         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.  The aggregate
         commitment for future salaries at March 31, 1998, excluding
         bonuses, was approximately $3.3 million.

         On December 21, 1989, Graphics sold CPS, its ink manufacturing
         operations and facilities.  Graphics remains contingently liable
         under $2.7 million of industrial revenue bonds assumed by CPS.
         CPS assumed these liabilities and has agreed to indemnify Graphics
         for any resulting obligation and has also provided an irrevocable
         letter of credit in favor of the holders of such bonds.
         Accordingly, management believes that any obligation of Graphics
         under this contingency is unlikely.

         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 ending 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, 1998
         is $19.2 million and is included within other liabilities in the
         Company's consolidated balance sheet .

         Graphics, together with over 300 other persons, has been
         designated by the U.S.  Environmental Protection Agency as a
         potentially responsible party (a "PRP") under the Comprehensive
         Environmental Response Compensation and Liability Act ("CERCLA",
         also known as "Superfund") at one Superfund site.  Although
         liability under CERCLA may be imposed on a joint and several basis
         and the Company's ultimate liability is not precisely
         determinable, the PRPs have agreed that Graphics' share of removal
         costs is 0.46% and therefore Graphics believes that its share of
         the anticipated remediation costs at such site will not be
         material to its business or financial condition.  Based upon an
         analysis of Graphics' volumetric share of waste contributed to the
         site and the agreement among the PRPs, the Company has a reserve
         of approximately $0.1 million in connection with this liability on
         its consolidated balance sheet at March 31, 1998.  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 liability that may arise from such actions will
         not have a material adverse effect on the consolidated financial
         statements of the Company.

(17)     Significant Customers

         No single customer represented 10% or more of total sales in the
         fiscal year ended March 31, 1998 and 1997.  Sales to Best Buy Co.
         for Fiscal Year 1996 amounted to approximately 12.7% of the
         Company's consolidated sales.  Receivables outstanding from these
         sales were approximately $5.9 million at March 31, 1996.

(18)     Interim Financial Information (Unaudited)

         Quarterly financial information follows (in thousands):

<TABLE>
<CAPTION>

                                                            (a)
                                                            SMC
                                     Quarter as        Discontinued        Revised
                                       Issued           Operations         Quarter
                                    ---------------   ---------------   --------------
Fiscal Year 1998:
    <S>                             <C>               <C>               <C>
    Quarter Ended June 30, 1997:
       Net Sales                       $ 126,128                --           126,128
       Gross Profit                    $  17,028                --            17,028
       Net Loss                        $  (4,950)               --            (4,950)

    Quarter Ended September 30, 1997:
       Net Sales                         135,609                --           135,609
       Gross Profit                       17,863                --            17,863
       Net Loss                           (6,404)               --            (6,404)

    Quarter Ended December 31, 1997:
       Net Sales                         145,748                --           145,748
       Gross Profit                       20,370                --            20,370
       Net Loss                           (2,285)               --            (2,285)

    Quarter Ended March 31, 1998:
       Net Sales                         125,850                --           125,850
       Gross Profit                       16,667                --            16,667
       Net Loss                          (16,256)               --           (16,256)

Totals:
       Net Sales                       $ 533,335                --           533,335
       Gross Profit                    $  71,928                --            71,928
       Net Loss                        $ (29,895)               --           (29,895)

Fiscal Year 1997:

    Quarter Ended June 30, 1996:
       Net Sales                       $ 139,704            (1,603)          138,101
       Gross Profit                    $  15,393              (624)           14,769
       Net Loss                        $  (7,604)               --            (7,604)

    Quarter Ended September 30, 1996:
       Net Sales                        138,495             (2,705)          135,790
       Gross Profit                      17,490             (1,167)           16,323
       Net Loss                          (7,548)                --            (7,548)

    Quarter Ended December 31, 1996:
       Net Sales                        136,472             (1,153)          135,319
       Gross Profit                      19,719               (159)           19,560
       Net Income                        (4,339)                --            (4,339)

    Quarter Ended March 31, 1997:
       Net Sales                        119,666             (4,325)          115,341
       Gross Profit                      15,915             (1,896)           14,019
       Net Loss                         (12,212)                --           (12,212)

Totals:
      Net Sales                       $ 534,337             (9,786)          524,551
      Gross Profit                    $  68,517             (3,846)           64,671
      Net Loss                        $ (31,703)                --           (31,703)


(a)  In February 1997, the Company shut down the operations of its wholly-
     owned subsidiary SMC.  The resulting effect of this change is a
     retroactive restatement of Fiscal Year 1997, reclassifying SMC's
     results of operations to Discontinued Operations (see note 5).
</TABLE>

(19)     Restructuring Costs and Other Special Charges

         Restructuring Costs:
         Printing In January 1998, the Company approved a plan for its
         printing division which was designed to improve responsiveness to
         customer requirements, increase asset utilization and reduce
         overhead costs.  The cost of this plan is being accounted for in
         accordance with the guidance set forth in Emerging Issues Task
         Force Issue 94-3 "Liability Recognition for Certain Employee
         Termination Benefits and Other Costs to Exit an Activity
         (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-
         3").  The pretax costs of $3.9 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) includes
         $3.3 million of employee termination costs and $0.6 million of
         relocation and other transition expenses.  This restructuring
         charge was recorded in the quarter March 31, 1998.  The majority
         of these costs will be paid or settled before March 31, 1999.

         American Color In April 1995, the Company implemented a plan for
         its American Color division which was designed to improve
         productivity, increase customer service and responsiveness, and
         provide increased growth in the digital imaging and prepress
         services business.  The cost of this plan was accounted for in
         accordance with the guidance set forth in EITF 94-3.  The pretax
         costs of $5 million which were incurred as a part of this plan
         (excluding other special charges related to asset write-offs and
         write-downs - see below) represent employee termination, goodwill
         write-down and other related costs that were incurred as a direct
         result of the plan.  Approximately $0.9 million of restructuring
         costs primarily related to relocation expenses were recognized in
         Fiscal Year 1997.  In Fiscal Year 1996 the Company recognized $4.1
         million of such restructuring charges, which included $0.9 million
         of goodwill write-down related to certain facilities that were
         either shut down or relocated in conjunction with the American
         Color restructuring and $3.2 million primarily for severance and
         other personnel related costs.

         Other Special Charges:
         During the quarter ended March 31, 1998, the Company recorded
         special charges totaling $1.7 million to adjust the carrying
         values of idle, disposed and under-performing assets of the
         Company's printing sector to estimated fair values.  The provision
         was based on a review of Company long-lived assets in accordance
         with FASB 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.

         During Fiscal Year 1997 and Fiscal Year 1996, the Company recorded
         special charges totaling $1.9 million and $3.4 million,
         respectively, for impaired long-lived assets and to adjust the
         carrying values of idle, disposed and under performing assets to
         estimated fair values.  The provisions were based on a review of
         long-lived assets in connection with the adoption of FASB 121.  Of
         the Fiscal Year 1997 total long-lived assets that were adjusted
         based on being idle, disposed of or under performing,
         approximately $0.4 million and $1.5 million related to the
         printing and American Color sectors, respectively.  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.  Approximately $2 million of the Fiscal Year 1996 total
         related to the printing sector's long-lived assets, respectively
         that were adjusted based on being idle, disposed of or under
         performing.  The remaining $1.4 million of the Fiscal Year 1996
         total related to the American Color sector.  The estimated
         undiscounted future cash flows attributable to certain American
         Color division identifiable long-lived assets held and used was
         less than their carrying value principally as a result of high
         levels of ongoing technological change.  The methodology used to
         assess the recoverability of the American Color sector long-lived
         assets involved projecting aggregate cash flows.  Based on this
         evaluation, the Company determined in Fiscal Year 1996 that long-
         lived assets with a carrying amount of $2.2 million were impaired
         and such assets were then written down by $1.4 million to their
         fair value.  Fair value was based on Company estimates and
         appraisals.

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

(20)     Non-recurring Charge Related to Terminated Merger

         The Company recognized $1.5 million of expenses related to a
         terminated merger in Fiscal Year 1996.

(21)     Non-recurring Charge Related to Resignation of Former Chief Executive
         Officer

         A non-recurring charge of $1.9 million relating to the resignation
         of the Company's former Chief Executive Officer was recorded in
         Fiscal Year 1997, and is classified as a selling, general and
         administrative expense.  Payments under the related agreement
         continue through 2001, subject to certain requirements.

(22)     Summarized Financial Information of American Color Graphics, Inc.

         Summary financial information for Holdings' wholly-owned subsidiary,
         American Color Graphics, Inc., is as follows (in thousands):

<TABLE>
<CAPTION>


                                                                         March 31,
                                                      ------------------------------------------------

                                                              1998                       1997
                                                      ---------------------      ---------------------
       <S>                                            <C>                        <C>
       Balance sheet data:

       Current assets                                 $            80,163                     70,077

       Noncurrent assets                                          249,795                    263,898

       Current liabilities                                         69,176                     78,675

       Noncurrent liabilities                                     367,490                    331,618

</TABLE>

<TABLE>
<CAPTION>


                                                                        Year ended March 31,
                                                  ----------------------------------------------------------------

                                                          1998                   1997                  1996
                                                  ---------------------   -------------------   ------------------
      <S>                                         <C>                     <C>
      Statement of operations data:

      Sales                                      $             533,335               524,551              529,523

      Operating income                                          12,103                10,372               12,716

      Net loss                                                 (29,895)              (31,703)             (29,327)

</TABLE>

(23)      Subsequent Events

          On May 8, 1998, the Company completed a refinancing transaction
          which included the following:  (1) the Company entered into a $145
          million credit facility with Bankers Trust Company, Morgan Stanley
          Senior Funding, Inc., General Electric Capital Corporation and a
          syndicate of lenders (the "Amended and Restated Credit Agreement")
          providing for a $70 million revolving credit facility which is not
          subject to a borrowing base limitation (the "New 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");  (2) the
          repayment of all $57.0 million of indebtedness outstanding under
          the existing Bank Credit Agreement ($65.2 million was outstanding
          at March 31, 1998)  (plus $0.4 million of accrued interest to the
          date of repayment);  (3) the repayment of all $25.0 million of
          indebtedness outstanding under the existing Term Loan Facility
          (plus $0.6 million of accrued interest to the date of repayment)
          and (4) the payment of approximately $2.2 million in fees and
          expenses associated with the refinancing transaction.  In
          addition, the Company will record an extraordinary loss related to
          early extinguishment of debt of $4.0 million, net of taxes
          associated with the write-off of refinanced indebtedness deferred
          financing costs in the first quarter of the fiscal year ending
          March 31, 1999.

          Interest under the Amended and Restated Credit Agreement is
          floating based upon existing market rates plus agreed upon margin
          levels.  In addition, the Company 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 Amended and Restated Credit Agreement are
          secured by substantially all of the Company's assets.  In
          addition, Holdings has guaranteed the indebtedness under the
          Amended and Restated 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
          substantially to the same extent as under the Bank Credit
          Agreement (see note 1 for a discussion of those restrictions).


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

          None.


                                 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, 1998).  All directors hold office until their successors are duly
elected and qualified.

    Name                      Age    Position with Graphics and Holdings
    ----                      ---    -----------------------------------

    Stephen M. Dyott          46     Chairman, President, Chief Executive
                                     Officer and Director
    Michael M. Janson         49     Director
    Eric T. Fry               31     Director
    Joseph M. Milano          45     Executive Vice President and Chief
                                     Financial Officer
    Malcolm J. Anderson       59     Executive Vice President Operations of
                                     Graphics
    Terrence M. Ray           45     President/Chief Operating Officer of
                                     American Color
    Timothy M. Davis          43     Senior Vice President-Administration,
                                     Secretary and General Counsel
    Patrick W. Kellick        40     Senior Vice President/Corporate
                                     Controller and Assistant Secretary

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 since 1991;  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.

Michael M. Janson - Director of Holdings and Graphics since February 1998;
Managing Director of the general partner of Morgan Stanley Capital Partners
("MSCP") and of Morgan Stanley Dean Witter & Co.  ("MWD"); 1987 joined
Morgan Stanley & Co., Incorporated ("MS&Co."); 1997 joined the Private
Equity Group of MWD;  Managing Director in MS&Co.'s High Yield Capital
Markets Department before joining the Private Equity Group;  Director of
Jefferson Smurfit Corporation and Renaissance Media Group.

Eric T. Fry - Director of Graphics and Holdings since March 1996.  Vice
President of the general partner of MSCP and MWD.  Joined MS&Co. in 1989,
initially in the Mergers and Acquisitions Department and from 1991 to 1992
in the Private Equity Group.  From 1992 to 1994 attended Harvard Business
School and received an MBA.  Rejoined MS&Co.'s Private Equity Group in
1994.  Director of Enterprise Reinsurance Holdings Corporation, Vanguard
Health Systems, Inc. and LifeTrust America, L.L.C.

Joseph M. Milano - Executive Vice President and Chief Financial Officer of
Holdings and Graphics from 1997 to 1998;  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 - Executive Vice President Operations of Graphics since
1996;  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 Packing, American National Can
Company from 1982 to 1989;  Vice President, Eastern Division General
Manager of Sinclair and Valentine Ink Company from 1980 to 1982.

Terrence M. Ray - President and Chief Operating Officer of American Color
since August 1996;  Executive Vice President of American Color from March
1996 to July 1996;  Executive Vice President of Wace USA, Inc. from April
1994 to February 1996;  Group Vice President, Chicago Group of Wace USA,
Inc. from January 1992 to March 1994;  Vice President, Secretary and Chief
Financial Officer of Wace USA, Inc., 1988 to 1992.

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.

Patrick W. Kellick - Senior Vice President/Corporate Controller of
Holdings and Graphics from 1997 to 1998;  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 paid for
services to Holdings and Graphics during the fiscal years ended March 31,
1998, 1997 and 1996 to the Chief Executive Officers and the four other most
highly compensated executive officers (the "Named Executive Officers") of
Holdings and/or Graphics.

                        Summary Compensation Table

<TABLE>
<CAPTION>

                                                       Annual Compensation              Long-Term Compensation
                                                  ----------------------------   ------------------------------------
                                                                                         Awards             Payouts
                                                                                 -----------------------  -----------
                                                                                              Securities
                                                                        Other                   Under-
                                                                       Annual    Restricted     lying                   All 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 1998    $475,000   $525,000      --        --          14,762        --           --
President, Chief Operating    Fiscal Year 1997    $463,462   $350,000      --        --           1,761        --           --
Officer & Director            Fiscal Year 1996    $450,000   $250,000      --        --             380        --           --
thru 09/96
Chairman, President and
Chief Executive Officer &
Director 09/96 forward


Joseph M. Milano              Fiscal Year 1998    $275,000   $290,000      --        --           7,381        --           --
Senior Vice President &       Fiscal Year 1997    $260,097   $150,000      --        --             760        --           --
Chief Financial Officer       Fiscal Year 1996    $228,923   $125,000      --        --             614        --           --


Malcolm J. Anderson           Fiscal Year 1998    $230,000   $200,000      --        --           1,809        --           --
Executive Vice President      Fiscal Year 1997    $230,000   $105,000      --        --             125        --           --
Operations Graphics           Fiscal Year 1996    $212,693   $ 70,000      --        --              --        --       $38,504 (a)


Timothy M. Davis              Fiscal Year 1998    $233,200   $160,000      --        --           3,706        --           --
Senior Vice President         Fiscal Year 1997    $220,562   $110,000      --        --             290        --           --
Administration,               Fiscal Year 1996    $209,923   $106,000      --        --              --        --           --
Secretary & General Counsel


Terrence M. Ray               Fiscal Year 1998    $246,490   $ 35,000      --        --           3,618        --       $50,000 (a)
President/Chief               Fiscal Year 1997    $230,000   $ 50,000      --        --           1,447        --       $14,550 (a)
Operating Officer             Fiscal Year 1996    $ 20,962   $  6,000      --        --              --        --           --
American Color

-------------------------
(a)  Represents relocation expense reimbursements.

</TABLE>



The following table presents information concerning the options granted to
the Named Executive Officers during the last fiscal year.  All outstanding
options issued prior to April 8, 1993 were canceled in connection with the
1993 Acquisition.



                   Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                                 Potential
                                                                                              Realizable Value
                                                                                             at Assumed Annual
                                                                                               Rates of Stock
                                                                                             Price Appreciation
                                         Individual Grants                                    for Option Term
-----------------------------------------------------------------------------------   -----------------------------
                                             % of Total
                                              Options/
                             Number of         SAR's
                            Securities       Granted to
                            Underlying       Employees     Exercise or
                           Options/SAR's     in Fiscal      Base Price   Expiration     0%($)     5%($)     10%($)
         Name               Granted (#)      Year 1998        ($/sh)        Date         (h)       (h)*      (h)*
---------------------      -------------     ----------    -----------   ----------   --------   -------   --------
<S>                        <C>               <C>           <C>           <C>          <C>        <C>       <C>
Common Plan (a)

  Stephen M. Dyott          14,470 (b)            32%           .01           (b)        --         --         --

  Joseph M. Milano           7,235 (c)            16%           .01           (c)        --         --         --

  Malcolm J. Anderson        1,809 (d)             4%           .01           (d)        --         --         --

  Timothy M. Davis           3,618 (e)             8%           .01           (e)        --         --         --

  Terrence M. Ray            3,618 (f)             8%           .01           (f)        --         --         --


         * The Common Stock had no value at the date of grant and as such, the
potential realizable value is zero.

<CAPTION>

Preferred Plan (g)
<S>                        <C>               <C>           <C>           <C>          <C>        <C>       <C>
  Stephen M. Dyott             292                55%        1,908.76    01/19/2008    318,642    870,522   1,711,482

  Joseph M. Milano             146                28%        1,908.76    01/19/2008    159,321    435,261     855,741

  Timothy M. Davis              88                17%        1,908.76    01/19/2008     96,029    262,349     515,789

</TABLE>



------------
(a)  All options will become 25 percent exercisable on the first
     anniversary date from each option's respective date of grant and are
     scheduled to vest in additional 25 percent increments on each of the
     next three anniversary dates from each option's date of grant.

(b)  14,470 options consists of: 9,170 options granted 01/19/98 with an
     expiration of 01/19/2008 and the following options granted with a $50
     exercise price per option, repriced January 16, 1998 to a $.01 exercise
     price per option: 1,761 options granted 10/01/96 with an expiration of
     10/01/2006; 380 options granted 10/01/95 with an expiration of 10/01/2005;
     859 options granted 09/01/94 with an expiration of 09/01/2004 and 2,300
     options granted 04/01/93 with an expiration of 04/01/2003.

(c)  7,235 options consists of 5,071 options granted 01/19/98 with an
     expiration of 01/19/2008 and the following options granted with a $50
     exercise price per option, repriced January 16, 1998 to a $.01 exercise
     price per option: 760 options granted 10/01/96 with an expiration of
     10/01/2006; 614 options granted 10/01/95 with an expiration of
     10/01/2005; 688 options granted 09/01/94 with an expiration of
     09/01/2004 and 102 options granted 04/01/93 with an expiration of
     04/01/2003.

(d)  1,809 options consists of: 1,158 options granted 01/19/98 with an
     expiration of 01/19/2008 and the following options granted with a $50
     exercise price per option, repriced January 16, 1998 to a $.01
     exercise price per option: 125 options granted 10/01/96 with an
     expiration of 10/01/2006 and 526 options granted 09/01/94 with an
     expiration of 09/01/2004.

(e)  3,618 options consists of: 2,538 options granted 01/19/98 with an
     expiration of 01/19/2008 and the following options granted with a $50
     exercise price per option, repriced January 16, 1998 to a $.01 exercise
     price per option: 290 options granted 10/01/96 with an expiration of
     10/01/2006; 535 options granted 09/01/94 with an expiration of 09/01/2004
     and 255 options granted 04/01/93 with an expiration of 04/01/2003.

(f)  3,618 options consists of: 2,171 options granted 01/19/98 with an
     expiration of 01/19/2008 and the following options granted with a $50
     exercise price per option, repriced January 16, 1998 to a $.01
     exercise price per option: 1,447 options granted 10/01/96 with an
     expiration of 10/01/2006.

(g)  All options vested and were exercisable at the date of grant.

(h)  The potential realizable value shown in the table is based on
     hypothetical increases in the estimated fair market value of the
     common and preferred stock of Holdings ("Holdings Common Stock") over
     the terms of the options, assuming 0%, 5% and 10% growth in such fair
     market value.  These estimates of potential realizable value have been
     prepared pursuant to the rules of the Commission and are not
     necessarily indicative of the amount that would have been utilized
     upon exercise of the options had such options remained outstanding.


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 3/31/98           SAR's at 3/31/98
                                 on Exercise (#)        Realized($)       Exercisable/Unexercisable      Exercisable/Unexercisable
                              ---------------------   ---------------   -----------------------------    -------------------------
<S>                           <C>                     <C>               <C>                              <C>
Common Plan (a)
     Stephen M. Dyott               3,574.50                35.75                  0 / 10,896                       (a)
     Joseph M. Milano               1,115.00                11.15                   0 / 6,120                       (a)
     Malcolm J. Anderson              425.75                 4.26                   0 / 1,383                       (a)
     Timothy M. Davis                 728.75                 7.28                   0 / 2,889                       (a)
     Terrence M. Ray                  361.75                 3.62                   0 / 3,256                       (a)

Preferred Plan (b)
     Stephen M. Dyott                  --                    --                       292 / 0                       (b)
     Joseph M. Milano                  --                    --                       146 / 0                       (b)
     Timothy M. Davis                  --                    --                        88 / 0                       (b)


(a)  Holdings Common Stock has not been registered or publicly traded and,
     therefore a public market price of the stock is not available.  At
     March 31, 1998, the Company believes fair market value to be $0 per
     share of Common Stock.

(b)  Holdings Preferred Stock has not been registered or publicly traded
     and, therefore a public market price of the stock is not available.  At
     March 31, 1998, the Company believes fair market value to be $3,000 per
     share of Preferred Stock.

</TABLE>


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.  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.

In October 1994, the Board of Directors approved an amendment to the
Pension Plan which resulted in the freezing of additional defined benefits
for future services under such plan effective January 1, 1995 (see note 11
to the Company's consolidated financial statements).

At March 31, 1998, all of the Named Executive Officers with the exception
of Malcolm J.  Anderson and Terrence M.  Ray had vested in the pension
plan.  At March 31, 1998, 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),
and Timothy M.  Davis (5 years, 5 months; $11,700).

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 and certain other
key executives.  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 April 1, 1996,
through March 31, 2001 for Mr.  Ray) and retirement on or after attaining
age 65 or the present value of such benefit at an earlier date under
certain circumstances, if elected.  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
         Terrence  M. Ray                             $ 50,000

Such benefits will be paid from the Company's assets (see note 12 to the
Company's consolidated financial statements).

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

In connection with the 1993 Acquisition, Graphics entered into a new
employment agreement with Stephen M. Dyott (the "New Employment
Agreement").  The New Employment Agreement for Mr. Dyott superseded
previous employment agreements.

The New Employment Agreement has been amended so that it has a term of four
years commencing as of the effective time Acquisition Corp. merged with and
into Holdings (the "Effective Time").  The term under the New Employment
Agreement is automatically extended at the end of the then current term for
one-year periods absent two year's notice of an intent not to renew.  The
New Employment Agreement provides for the payment of an annual salary and
an annual bonus pursuant to a plan adopted following the 1993 Acquisition.
In addition, under the New Employment Agreement, Mr. Dyott is eligible to
receive all other employee benefits and perquisites made available to
Graphics' senior executives generally.

Under the New Employment Agreement, if the employee's employment is
terminated by Graphics "without cause" ("cause", as defined in the New
Employment Agreement, means a material breach by the employee of his
obligations under the New 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
New 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 New Employment Agreement), the employee
will be entitled to salary continuation payments (and certain other
benefits) through the greater of the remainder of the scheduled term and a
period of two years beginning on the date of termination.  The New
Employment Agreement also provides for post-employment non-solicitation,
non-competition and confidentiality covenants.

Graphics entered into an employment agreement with Terrence M.  Ray on
August 18, 1997, (the "Agreement").  The Agreement has a term of three
years commencing with the date of the Agreement and that term shall be
automatically extended for one year periods absent one year's notice of an
intent not to renew.  The Agreement provides for the payment of an annual
salary and an annual bonus pursuant to an executive bonus plan adopted by
American Color.  In addition, under the Agreement, Mr.  Ray is eligible to
receive all other employee benefits and prerequisites made available to
Graphics' senior executives generally.

In addition, Graphics has entered into severance agreements with Joseph M.
Milano, Malcolm J.  Anderson and Timothy M.  Davis.  These agreements
provide that if 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 salary continuation
payments (and certain other benefits) for up to two years beginning on the
date of termination.

James T. Sullivan resigned as Chairman of the Board and Chief Executive
Officer and as a director and employee of Holdings effective as of
September 18, 1996 (the "Effective Date").  For the period commencing on
the Effective Date and ending on April 8, 1999, Mr. Sullivan will hold the
title of Vice Chairman of Holdings.  Mr.  Sullivan will receive salary
continuation payments at an annual rate of $0.6 million through April 8,
1999.  For two years thereafter, Mr. Sullivan will be engaged as a
consultant to Holdings for which he will be paid an annual fee of $0.2
million.  Under the terms of his resignation agreement, Mr. Sullivan will
be entitled, through April 8, 1999, to continue to participate in certain
employee benefit plans provided by Holdings to its employees generally.
Mr. Sullivan also received payment of his full supplemental retirement
benefit under the American Color Graphics, Inc.  Supplement Executive
Retirement Plan.  Mr. Sullivan's resignation agreement also contains
certain noncompetition and other restrictive covenants.

Compensation Committee Interlocks and Insider Participation

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

Repriced Options

During 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 15 to the
Company's consolidated financial Statements.

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                                      Length of
                                   Underlying     Price of                                  Original Option
                                    Options/      Stock at        Exercise                       Term
                                      SARs         Time of        Price at       New         Remaining at
                                   Repriced or   Repricing or     Time of       Exercise        Date of
                                     Amended      Amendment       Repricing      Price        Repricing or
       Name              Date          (#)           ($)             ($)          ($)          Amendment
---------------------  --------    -----------   ------------     ---------     --------    ---------------
<S>                    <C>         <C>           <C>              <C>           <C>         <C>
Stephen M. Dyott       01/16/98        1,761           --             50            .01       8 yrs. 6 mo.
Chairman, President,   01/16/98          380           --             50            .01       7 yrs. 6 mo.
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         01/16/98          614           --             50            .01       7 yrs. 6 mo.
President and Chief    01/16/98          688           --             50            .01       6 yrs. 5 mo.
Financial Officer      01/16/98          102           --             50            .01       5 yrs. 0 mo.

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

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

Terrence M. Ray        01/16/98        1,447           --             50            .01       8 yrs. 6 mo.
President/Chief
Operating Officer
of American Color

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

</TABLE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 31, 1998,
concerning the persons having beneficial ownership of more than five
percent of the capital stock of Holdings and the ownership thereof by each
director of Holdings and by all current 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               44.1                  2,727             52.0

MSCP Entities
1221 Ave. of the Americas
New York, NY 10020                             23,333               17.3                  1,070             20.4

First Plaza Group Trust
c/o Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, PA 15258                           17,000               12.6                    780             14.8

Leeway & Co.
c/o State Street
Master Trust Div. W6
One Enterprise Drive
North Quincy, MA 02171                         10,667                7.9                    489              9.3

Stephen M. Dyott                                4,075                3.0                    315 (1)          5.7 (1)

Michael M. Janson                                  --                 --                     --               --

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

All current directors and
 officers as a group                            8,854                6.6                    554 (2)          9.6 (2)


------------
(1)  Includes 292 preferred stock options exercisable within 60 days.
(2)  Includes 526 preferred stock options exercisable within 60 days.

</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The 1993 Acquisition

On the Acquisition Date, MSLEF II and the Purchasing Group invested $40
million in Holdings and acquired control of Holdings and Graphics.

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 (the "Holdings Preferred Stock"), 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 MWD.  MWD is a holding
company that, through its subsidiaries, is a major international 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 MWD.  As a result of these relationships, MWD may
be deemed to control the management and policies of Graphics and Holdings.
In addition, MWD 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.

Management Equity Participation.  In connection with the 1993 Acquisition,
certain members of the Company's management at that time, including James
T.  Sullivan and Stephen M.  Dyott (collectively, the "Management
Investors"), invested an aggregate of approximately $2.3 million in
Holdings and received an aggregate of 3,700 shares of Holdings Common Stock
and 185 shares of Holdings Preferred Stock.

Each Management Investor also entered into a Management Equity Agreement,
dated as of April 8, 1993, with Holdings (collectively, the "Management
Agreements"), pursuant to which, if a Management Investor's employment with
the Company terminates for any reason, Holdings has the right to repurchase
any of the shares of Holdings Common Stock and Holdings Preferred Stock
held by such Management Investor at a price per share equal to the
"Threshold Amount" (as defined in section 4.2(d)(ix) of Holdings'
Certificate of Incorporation) applicable to such shares at such time
divided by the number of shares of Holdings Preferred Stock outstanding at
such time.  In the case of shares of Holdings Common Stock held by such
Management Investor, the repurchase price will be equal to fair market
value.  The payment of the repurchase price may be deferred (with interest)
if the making of such payment would cause Holdings to violate any debt
covenant or provision of applicable law, or if the Board of Directors of
Holdings determines that Holdings is not financially capable of making such
payment.

Stockholders' Agreement.  In connection with the 1993 Acquisition,
Holdings, MSLEF II, each of the members of the Purchasing Group, the GTC
Funds, certain other stockholders of Holdings who were stockholders of
Holdings immediately prior to the Merger Agreement (such stockholders,
together with the GTC Funds, being referred to as the "Existing Holders")
and GTC entered into a Stockholders' Agreement, dated as of April 8, 1993
(the "Stockholders' Agreement").  The Stockholders' Agreement includes
provisions requiring the delivery of certain shares of Holdings Common
Stock from the Purchasing Group to Holdings, depending upon the return
realized by the members of the Purchasing Group on their investment, and
thereafter from Holdings to the Existing Holders.  Depending upon the
returns realized by the members of the Purchasing Group on their
investment, their interest in the Holdings Common Stock could be reduced
and the interest of the Existing Holders could be increased as set forth in
the Stockholders' Agreement.

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.

Shakopee Merger

In December 1994, Graphics and Shakopee entered into an agreement pursuant
to which they agreed in principle to the terms of the Shakopee Merger and
to negotiate definitive agreements with respect thereto.  Prior to the
consummation of the Shakopee Merger, the MSCP III Entities owned a majority
of Shakopee's outstanding stock and the Company provided general
management, supervisory and administrative services to Shakopee, pursuant
to a management agreement entered into in December 1994, in exchange for an
annual service fee of $0.5 million.  The Shakopee Merger was consummated
and the management agreement was terminated simultaneously with the
consummation of the offering of the Notes.

In 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 Holdings 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.  In Fiscal Year 1998, the Company granted options to
purchase 526 shares of Preferred Stock to certain key executives, at an
exercise price of $1,909/share.  See note 15 to the Company's consolidated
financial statements.

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 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 Amended and Restated
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.


                                  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, 1998 and 1997

                         For the Years Ended March 31, 1998, 1997 and 1996:

                              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.................   73
        Condensed Financial Statements (parent company only)
                 for the years ended March 31, 1998, 1997, and 1996
                 and as of March 31, 1998 and 1997

II.     Valuation and qualifying accounts.............................   80

         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**
  10.0        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
 10.0(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         Credit Agreement, dated as of August 15, 1995, among Holdings,
              Graphics, BT Commercial Corporation, as Agent, Bankers Trust
              Company, as Issuing Bank, and the parties signatory thereto**
 10.1(a)      January 10, 1996, First Amendment to Credit Agreement,
              dated as of August 15, 1995, among Holdings, Graphics, BT
              Commercial Corporation, as Agent, Bankers Trust Company, as
              Issuing Bank, and the parties signatory thereto***
 10.1(b)      March 6, 1996, Second Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto+++
 10.1(c)      June 6, 1996, Third Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto+++
 10.1(d)      August 13, 1996, Fourth Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto****
 10.1(e)      February 27, 1997, Fifth Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto++++
 10.1(f)      June 30, 1997, Sixth Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto
 10.1(g)      March 13, 1998, Seventh Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto
 10.2         Agreement and Plan of Merger, dated as of August 14, 1995, among
              Holdings, Graphics and Shakopee**
 10.3         Resignation letter, dated as of September 18, 1996, between
              Graphics and James T. Sullivan****
 10.4(a)      Employment Agreement, dated as of April 8, 1993, between
              Graphics and Stephen M. Dyott*
 10.4(b)      Amendment to Employment Agreement, dated December 1, 1994,
              between Graphics and Stephen M.  Dyott++
 10.4(c)      Amendment to Employment Agreement, dated February 15, 1995,
              between Graphics and Stephen M.  Dyott++
 10.4(d)      Amendment to Employment Agreement, dated September 18, 1996,
              between Graphics and Stephen M. Dyott****
 10.5         Employment Agreement, dated as of August 18, 1997, between
              Graphics and Terrence M. Ray
 10.6         Severance Letter, dated April 8, 1993, between Graphics and
              Joseph M. Milano+
 10.6(a)      October 12, 1995, Amendment to Severance Letter, dated
              April 8, 1993, between Graphics and Joseph M. Milano***
 10.7         Severance Letter, dated April 8, 1993, between Graphics and
              Timothy M. Davis+
 10.7(a)      October 12, 1995, Amendment to Severance Letter, dated April 8,
              1993, between Graphics and Timothy M.  Davis***
 10.8         Severance Letter dated September 8, 1995, between
              Graphics and M.J. Anderson
 10.9         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**
 10.9(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 therein
 10.10        Purchase Agreement between Guy Gannett, Holdings and Shakopee,
              dated November 23, 1994+
 10.11        First Amendment Agreement, dated as of December 22, 1994,
              between Guy Gannett, Holdings and Shakopee**
 10.12        Second Amendment Agreement, dated as of March 27,
              1995, between Guy Gannett, Holdings and Shakopee**
 10.13        Stock Option Plan of Holdings++
 10.14        Purchase Agreement between ComCorp, Inc., Graphics and Gowe
              Inc., dated March 12, 1996+++
 10.15        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
 10.16        Holdings Common Stock Option Plan
 10.17        Holdings Preferred Stock Option Plan
 21.1         List of Subsidiaries
 27.0         Financial Data Schedule



*    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 fiscal
     year ended March 31, 1995 - Commission file number 33-31706-01.

**   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 December 31, 1995 - Commission file number 33-31706-
     01.

+++  Incorporated by reference from the Annual Report on Form 10-K for
     fiscal year ended March 31, 1996 - Commission file 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 Annual Report on Form 10-K for
     fiscal year ended March 31, 1997 - 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 1998:

     1.  Form 8-K filed with the Securities and Exchange Commission on
     January 29, 1998 under Item 5 to announce the Company's EBITDA for the
     three months ended December 31, 1997.

     The Company did not file any other reports on Form 8-K during the three
months ended March 31, 1998.



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


                                                       March 31,
                                             ---------------------------

                                                1998             1997
                                             ----------       ----------
Assets

Current assets:

     Receivable from subsidiary              $      359             128
                                              ----------       --------

              Total assets                   $      359             128
                                              =========        ========







See accompanying notes to condensed financial statements.



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

<TABLE>
<CAPTION>


                                                                                                           March 31,
                                                                                              -----------------------------------
                                                                                                    1998               1997
                                                                                              ----------------   ----------------
Liabilities and Stockholders' Deficit

<S>                                                                                           <C>                <C>
Current liabilities:

     Income taxes payable                                                                   $            53                128
                                                                                              ---------------    ---------------

        Total current liabilities                                                                        53                128

Liabilities of subsidiary in excess of assets                                                       106,391             76,318
                                                                                              ---------------    ---------------

        Total liabilities                                                                           106,444             76,446
                                                                                              ---------------    ---------------

Stockholders' deficit:

   Common stock, voting, $.01 par value, 5,852,223 shares
     authorized, 134,812 shares issued and outstanding at
     March 31, 1998 and 123,889 shares issued and outstanding
     at March 31, 1997                                                                                    1                  1

   Preferred Stock, $.01 par value, 5,750 shares authorized,
     4,000 shares Series A convertible preferred stock issued
     and outstanding at March 31, 1997, $40,000,000 liquidation
     preference, 1,750 shares Series B convertible preferred
     stock issued and outstanding at March 31, 1997, $17,500,000
     liquidation preference                                                                              --                 --

   Preferred Stock, $.01 par value, 15,823 shares authorized, 3,631
     shares series AA convertible preferred stock issued and
     outstanding at March 31, 1998, $40,000,000 liquidation preference,
     1,606 shares Series BB convertible preferred stock issued and
     outstanding at March 31, 1998, $17,500,000 liquidation preference                                   --                 --

   Additional paid-in capital                                                                        58,249             57,499

   Accumulated deficit                                                                             (162,250)          (132,228)

   Cumulative translation adjustment                                                                 (2,000)            (1,590)

   Unfunded pension liability                                                                           (85)                --
                                                                                              ---------------    ---------------

        Total stockholders' deficit                                                                (106,085)           (76,318)
                                                                                              ---------------    ---------------

Commitments and contingencies

         Total liabilities and stockholders' deficit                                        $           359                128
                                                                                              ===============    ===============

</TABLE>


See accompanying notes to condensed financial statements.


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

<TABLE>
<CAPTION>


                                                            Year Ended March 31,
                                  ------------------------------------------------------------------------

                                           1998                      1997                     1996
                                  ----------------------     --------------------     --------------------
<S>                              <C>                         <C>                      <C>

Equity in loss of subsidiary     $             (29,895)                 (31,703)                 (29,327)
                                  ----------------------     --------------------     --------------------



         Net loss                $             (29,895)                 (31,703)                 (29,327)
                                  ======================     ====================     ====================

</TABLE>


See accompanying notes to condensed financial statements.



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

<TABLE>
<CAPTION>

                                                                      Year Ended March 31,
                                            -------------------------------------------------------------------------

                                                    1998                      1997                       1996
                                            --------------------       -------------------        -------------------
<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.



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

Description of ACG Holdings, Inc.

Sullivan Communications, Inc.  ("Communications"), together with its
wholly-owned subsidiary, Sullivan Graphics, Inc., collectively the
("Company"), was formed in April 1989 under the name GBP Holdings, Inc. to
effect the purchase of all the capital stock of GBP Industries, Inc. from
its stockholders in a leveraged buyout transaction.  In October 1989, GBP
Holdings, Inc. changed its name to Sullivan Holdings, Inc. and GBP
Industries, Inc. changed its name to Sullivan Graphics, Inc.  Effective
June 1993, Sullivan Holdings, Inc. changed its name to Sullivan
Communications, Inc.  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,
1998, 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 the
         Company'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 the Company's consolidated financial statements, a
         substantial portion of Graphics' long-term obligations have 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.

         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.

         On May 8, 1998, the Company refinanced all outstanding indebtedness
         under the Bank Credit Agreement and the Term Loan Facility (see
         note 5 below for a discussion of the terms of this refinancing
         transaction).

     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.  Subsequent Events

         On May 8, 1998, the Company completed a refinancing transaction
         which included the following:  (1) the Company entered into a $145
         million credit facility with Bankers Trust Company, Morgan Stanley
         Senior Funding, Inc., General Electric Capital Corporation and a
         syndicate of lenders (the "Amended and Restated Credit Agreement")
         providing for a $70 million revolving credit facility which is not
         subject to a borrowing base limitation (the "New 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");  (2) the
         repayment of all $57.0 million of indebtedness outstanding under
         the existing Bank Credit Agreement ($65.2 million was outstanding
         at March 31, 1998) (plus $0.4 million of accrued interest to the
         date of repayment);  (3) the repayment of all $25.0 million of
         indebtedness outstanding under the existing Term Loan Facility
         (plus $0.6 million of accrued interest to the date of repayment)
         and (4) the payment of approximately $2.2 million in fees and
         expenses associated with the refinancing transaction.  In
         addition, the Company recorded an extraordinary loss related to
         early extinguishment of debt of $4.0 million, net of taxes
         associated with the write-off of refinanced indebtedness deferred
         financing costs in the first quarter of the fiscal year ending
         March 31, 1999.

         Interest under the Amended and Restated Credit Agreement is
         floating based upon existing market rates plus agreed upon margin
         levels.  In addition, the Company 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 Amended and Restated Credit Agreement are
         secured by substantially all of the Company's assets.  In
         addition, Holdings has guaranteed the indebtedness under the
         Amended and Restated 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.




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

<TABLE>
<CAPTION>

                                                                                                             Balance
                                                   Balance at       Additions                                  at
                                                  Beginning of      Charged to                   Other       End of
                                                    Period           Expense     Write-offs   Adjustments    Period
                                                  ------------      ----------   ----------   -----------    -------
                                                                               (in thousands)
<S>                                               <C>               <C>          <C>          <C>            <C>
Fiscal Year ended March 31, 1998

   Allowance for doubtful accounts                 $     5,879           908       (4,675)          --       $ 2,112

   Reserve for inventory obsolescence -
      spare parts                                  $       100            --          --            --       $   100

   Reserve for inventory obsolescence -
      paper & ink                                  $        69           184          (47)         (41)      $   165

   Income tax valuation allowance                  $    30,138            --          --   (a)   7,084       $37,222




Fiscal Year ended March 31, 1997

   Allowance for doubtful accounts                 $     4,830         4,847       (3,798)          --       $ 5,879

   Reserve for inventory obsolescence -
      spare parts                                  $       100            --           --           --       $   100

   Reserve for inventory obsolescence -
      paper & ink                                  $       611           318          (45)        (815)      $    69

   Income tax valuation allowance                  $    21,210            --           --  (a)   8,928       $30,138


Fiscal Year ended March 31, 1996

   Allowance for doubtful accounts                 $     3,174         3,619       (1,963)          --       $ 4,830

   Reserve for inventory obsolescence -
      spare parts                                  $       100            --           --           --       $   100

   Reserve for inventory obsolescence -
      paper & ink                                  $        50            --           --           561      $   611

   Income tax valuation allowance                  $    13,808            --           --  (a)    7,402      $21,210



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

</TABLE>





                                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 29, 1998
                    -------------------------------------       -------------
                             Stephen M. Dyott
              Chairman, President and Chief Executive Officer
                            ACG Holdings, Inc.
              Chairman, President 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 in the capacities and
on the dates indicated.


         Signature                           Title                   Date
         ---------                           -----                   ----

 /s/  Joseph M. Milano
----------------------------     Executive Vice President       June 29, 1998
     (Joseph M. Milano)          Chief Financial Officer        -------------




 /s/  Patrick W. Kellick
----------------------------      Senior Vice President         June 29, 1998
    (Patrick W. Kellick)           Corporate Controller         -------------
                                   Assistant Secretary
                              (Principal Accounting Officer)


 /s/  Michael M. Janson                 Director                June 29, 1998
----------------------------                                    -------------
     (Michael M. Janson)


 /s/  Eric T. Fry                       Director                June 29, 1998
----------------------------                                    -------------
     (Eric T. Fry)





                            ACG HOLDINGS, INC.


                        Annual Report on Form 10-K

                     Fiscal Year Ended March 31, 1998

                             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**
  10.0        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
 10.0(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         Credit Agreement, dated as of August 15, 1995, among Holdings,
              Graphics, BT Commercial Corporation, as Agent, Bankers Trust
              Company, as Issuing Bank, and the parties signatory thereto**
 10.1(a)      January 10, 1996, First Amendment to Credit Agreement,
              dated as of August 15, 1995, among Holdings, Graphics, BT
              Commercial Corporation, as Agent, Bankers Trust Company, as
              Issuing Bank, and the parties signatory thereto***
 10.1(b)      March 6, 1996, Second Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto+++
 10.1(c)      June 6, 1996, Third Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto+++
 10.1(d)      August 13, 1996, Fourth Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto****
 10.1(e)      February 27, 1997, Fifth Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto++++
 10.1(f)      June 30, 1997, Sixth Amendment to Credit Agreement, dated as of
              August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto
 10.1(g)      March 13, 1998, Seventh Amendment to Credit Agreement, dated as
              of August 15, 1995, among Holdings, Graphics, BT Commercial
              Corporation, as Agent, Bankers Trust Company, as Issuing
              Bank, and the parties signatory thereto
 10.2         Agreement and Plan of Merger, dated as of August 14, 1995, among
              Holdings, Graphics and Shakopee**
 10.3         Resignation letter, dated as of September 18, 1996, between
              Graphics and James T. Sullivan****
 10.4(a)      Employment Agreement, dated as of April 8, 1993, between
              Graphics and Stephen M. Dyott*
 10.4(b)      Amendment to Employment Agreement, dated December 1, 1994,
              between Graphics and Stephen M.  Dyott++
 10.4(c)      Amendment to Employment Agreement, dated February 15, 1995,
              between Graphics and Stephen M.  Dyott++
 10.4(d)      Amendment to Employment Agreement, dated September 18, 1996,
              between Graphics and Stephen M. Dyott****
 10.5         Employment Agreement, dated as of August 18, 1997, between
              Graphics and Terrence M. Ray
 10.6         Severance Letter, dated April 8, 1993, between Graphics and
              Joseph M. Milano+
 10.6(a)      October 12, 1995, Amendment to Severance Letter, dated
              April 8, 1993, between Graphics and Joseph M. Milano***
 10.7         Severance Letter, dated April 8, 1993, between Graphics and
              Timothy M. Davis+
 10.7(a)      October 12, 1995, Amendment to Severance Letter, dated April 8,
              1993, between Graphics and Timothy M.  Davis***
 10.8         Severance Letter dated September 8, 1995, between
              Graphics and M.J. Anderson
 10.9         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**
 10.9(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 therein
 10.10        Purchase Agreement between Guy Gannett, Holdings and Shakopee,
              dated November 23, 1994+
 10.11        First Amendment Agreement, dated as of December 22, 1994,
              between Guy Gannett, Holdings and Shakopee**
 10.12        Second Amendment Agreement, dated as of March 27,
              1995, between Guy Gannett, Holdings and Shakopee**
 10.13        Stock Option Plan of Holdings++
 10.14        Purchase Agreement between ComCorp, Inc., Graphics and Gowe
              Inc., dated March 12, 1996+++
 10.15        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
 10.16        Holdings Common Stock Option Plan
 10.17        Holdings Preferred Stock Option Plan
 21.1         List of Subsidiaries
 27.0         Financial Data Schedule



*    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 fiscal
     year ended March 31, 1995 - Commission file number 33-31706-01.

**   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 December 31, 1995 - Commission file number 33-31706-
     01.

+++  Incorporated by reference from the Annual Report on Form 10-K for
     fiscal year ended March 31, 1996 - Commission file 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 Annual Report on Form 10-K for
     fiscal year ended March 31, 1997 - Commission file number 33-97090.