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, 2000

                                       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 143,399 shares outstanding of its common stock, $.01 Par
Value, as of May 31, 2000 (all of which are privately owned and not traded on
a public market).

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>

                                      INDEX


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

                                     PART I


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



                                     PART II

Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters ..........................................    9
Item 6.    Selected Financial Data.......................................    9
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations.....................................   13
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk....   22
Item 8.    Financial Statements and Supplementary Data...................   23
Item 9.    Changes In And Disagreements With Accountants on
           Accounting and Financial Disclosure...........................   51



                                    PART III

Item 10.   Directors and Executive Officers ............................    52
Item 11.   Executive Compensation.......................................    53
Item 12.   Security Ownership of Certain Beneficial Owners
           and Management...............................................    58
Item 13.   Certain Relationships and Related Transactions...............    59



                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports
           on Form 8-K...................................................   61



           Signatures....................................................   70









<PAGE>


                                     PART I

Special Note Regarding Forward Looking Statements

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

         -   fluctuations in the cost of paper and other raw materials used,
         -   changes in the advertising and print markets,
         -   actions by our competitors, particularly with respect to pricing,
         -   the financial condition of our customers,
         -   our financial condition and liquidity,
         -   the general condition of the United States economy,
         -   demand for our products and services, and
         -   the matters set forth in this Report generally.

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

ITEM 1.  BUSINESS

General

We are a successor to a business that commenced operations in 1926, and are one
of the largest national diversified commercial printers in North America with
ten print plants in eight states and Canada, nine prepress facilities located
throughout the United States and one digital visual effects facility, that
provides special effects services for the motion picture industry, located in
California. We operate primarily in two business segments of the commercial
printing industry: print, (which accounted for approximately 84% of total sales
during the fiscal year ended March 31, 2000 ("Fiscal Year 2000")) and digital
imaging and prepress services conducted through our American Color division
(which accounted for approximately 15% of total sales in Fiscal Year 2000). Our
print business and our digital imaging and prepress services business are both
headquartered in Nashville, Tennessee. Partnerships affiliated with Morgan
Stanley Dean Witter & Co. ("MSDW") currently own 57.7% of the outstanding common
stock and 72.7% of the outstanding preferred stock of Holdings.

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

Financial Information About Industry Segments

See disclosure in note 16 of our consolidated financial statements appearing
elsewhere in this Report.

                                       2
<PAGE>


Print

Our print business, which accounted for approximately 84%, 83% and 84% of our
sales in Fiscal Year 2000, the fiscal year ended March 31, 1999 ("Fiscal Year
1999") and the fiscal year ended March 31, 1998 ("Fiscal Year 1998"),
respectively, produces retail advertising inserts, comics (newspaper Sunday
comics, comic insert advertising and comic books), and other publications.

Retail Advertising Inserts (83% of print sales in Fiscal Year 2000, 81% in
Fiscal Year 1999 and 80% in Fiscal Year 1998). We believe that we are one of the
largest printers of retail advertising inserts in the United States. We print
advertising inserts for approximately 300 retailers. Retail advertising inserts
are preprinted advertisements, generally in color, that display products sold by
a particular retailer or manufacturer. Advertising inserts are used extensively
by many different retailers, including discount, department, supermarket, home
center, drug and automotive stores. Inserts are an important and cost effective
means of advertising for these merchants. Advertising inserts are primarily
distributed through insertion in newspapers but are also distributed by direct
mail or in-store by retailers. They generally advertise for a specific, limited
sale period. As a result, advertising inserts are both time sensitive and
seasonal.

Comics (11% of print sales in Fiscal Year 2000, 13% in Fiscal Year 1999 and 14%
in Fiscal Year 1998, includes newspaper Sunday comics, comic insert advertising
and comic books). We believe that we are one of the largest printers of comics
in the United States. We print Sunday comics for over 200 newspapers in the
United States and Canada and print a significant share of the annual comic book
requirements of Marvel Entertainment Group, Inc.

Other Publications (6% of print sales in Fiscal Year 2000, Fiscal Year 1999 and
Fiscal Year 1998). We print local newspapers, TV guide listings and other
publications.

Print Production

Our network of ten print plants in the United States and Canada are
strategically well positioned to service major metropolitan centers, providing
us with distribution efficiencies and shorter turnaround times, two factors that
we believe will allow our continuing success in servicing large national and
regional accounts. There are primarily three printing processes used to produce
advertising inserts and newspaper supplements: offset lithography (heatset and
cold), rotogravure and flexography. We principally use heatset offset and
flexographic web printing equipment in our print operations. We own a
substantial majority of our printing equipment, which currently consists of 40
heatset offset presses, 5 coldset offset presses and 11 flexographic presses.
Most of our advertising inserts, publications and comic books are printed using
the offset process, while substantially all of our newspaper Sunday comics and
comic advertising inserts are printed using the flexographic process.

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

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

                                       3
<PAGE>


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

Digital Imaging and Prepress Services

Our digital imaging and prepress services business is conducted by our American
Color division ("American Color") which accounted for approximately 15%, 16% and
15% of our Fiscal Year 2000, Fiscal Year 1999 and Fiscal Year 1998 sales,
respectively. We believe we are one of the largest full-service providers of
digital imaging, prepress and color separation services in the United States and
a technological leader in this industry. Our digital imaging and prepress
services business commenced operations in 1975 and maintains nine full service
locations nationwide.

We assist customers in the capture, manipulation, transmission and distribution
of images. The majority of this work leads to the production of a four-color
image in a format appropriate for use by printers. We make page changes,
including type changes, and combine digital page layout information with
electronically captured and color-corrected four-color images. From these
digital files, proofs, final corrections, and finally, four-color films or
digital files are produced for each advertising or editorial page. The final
four-color films or digital files enable printers to prepare plates for each
color resulting in the appearance of full color on the printed page. Our revenue
from these traditional services is being supplemented by 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, multimedia and internet services, and software and
data-base management. We have been a leader in implementing these new
technologies, which enables us to reduce unit costs and effectively service the
increasingly complex demands of our customers more quickly than many of our
competitors. We have also been one of the leaders in the integration of
electronic page make-up, microcomputer-based design and layout, and digital
cameras into 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 service companies such as
American Color, none of which has a significant nationwide market share. Many
smaller digital imaging and prepress service companies have left the industry in
recent years due to their inability to keep pace with technological advances in
the industry.

Competitive Advantages and Strategy

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

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

Strong Customer Base. We provide printing services to a diverse base of
customers, including approximately 300 retailers and over 200 newspapers in the
United States and Canada. Our print services customer base includes a
significant number of the major national retailers and larger newspaper chains
as well as numerous smaller regional retailers. Our consistent focus on
providing high quality print products and strong customer service at competitive
prices has resulted in long-term relationships with many of these customers. Our
digital imaging and prepress services' customer base includes large and
medium-sized customers in the publishing, retail and catalog businesses, many of
whom also have long-term relationships with our print segment. Although the
digital imaging and prepress services business has generally been on a spot bid
basis in the past, we have been successful in continuing to increase the
proportion of our business under long-term contracts.

                                       4
<PAGE>

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

Strong Management Team. We have strengthened our print management group by
hiring experienced managers with a clear focus on growth, quality and continued
cost reduction, resulting in an improved cost structure and a well-defined
strategy for future expansion. We have also strengthened our management group in
our digital imaging and prepress services business, filling a number of senior,
regional and plant management positions with individuals who we believe will
manage the digital imaging and prepress services business for growth and
profitability and will continue to upgrade our capabilities.

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

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

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

Continue to Improve Product Mix. We intend to increase our share of the retail
advertising insert market. In addition, we expect to continue to adjust the mix
of our customers and products within the retail advertising insert market to
those that are more profitable and less seasonable and to maximize the use of
our equipment. We are also continuing expansion of our print facilities'
capabilities for in-plant prepress and postpress services. Our 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 we have to offer. Additionally, we 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. We intend to further
reduce our production costs at our print facilities through our Total Quality
Management Process, an ongoing cost reduction and continuous quality improvement
process. Additionally, we plan to continue to maximize scale advantages in the
purchasing, technology and engineering areas. We also intend to continue to gain
variable cost efficiencies in our digital imaging and prepress services business
by using our technical resources to improve digital prepress workflows at our
various facilities. In addition, we believe we will be able to reduce our per
unit technical, sales and management costs as we increase sales in this
business.

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

                                       5
<PAGE>


Customers and Distribution

Customers. We sell our print products and services to a large number of
customers, primarily retailers and newspapers, and all of the products are
produced in accordance with customer specifications. We perform a portion of our
print work, primarily the printing of Sunday comics and comic books, under
long-term contracts with our 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 our print work, we obtain
varying time commitments from our customers ranging from job to job to annual
allocations. Print prices are generally fixed during such commitments; however,
our standard terms of trade call for the pass-through of changes in the price of
raw materials, primarily paper and ink.

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

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

No single customer accounted for sales in excess of 10% of our consolidated
sales in Fiscal Year 2000. Our top ten customers accounted for approximately 40%
of consolidated sales in Fiscal Year 2000.

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

Competition

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

American Color competes with numerous 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. We believe 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.

                                       6
<PAGE>


Raw Materials

The primary raw materials used in our print business are paper and ink. During
Fiscal Year 1998, paper prices increased slightly through mid year and then
declined to near beginning of the year levels. In Fiscal Year 1999, as most
grades of paper became more plentiful, paper prices declined. During Fiscal Year
2000, paper prices were on average at lower levels than comparable periods in
Fiscal Year 1999. Management expects that, as a result of our strong
relationships with key suppliers, our material costs will remain competitive
within the industry. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. We purchase substantially all of our ink and related products under
long-term ink supply contracts. The primary inputs in prepress service processes
are film and proofing materials.

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

Seasonality

Some of our print and 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" appearing elsewhere in this Report.

Backlog

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

Employees

As of April 30, 2000, we had a total of approximately 2,835 employees, of which
approximately 240 employees are represented by a collective bargaining agreement
that will expire on December 31, 2004. We consider our relations with our
employees to be excellent.

Governmental and Environmental Regulations

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

ITEM 2.  PROPERTIES

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

                                       7
<PAGE>


ITEM 3.         LEGAL PROCEEDINGS

We have been named as a defendant in several legal actions arising from our
normal business activities. In the opinion of management, any liabilities that
may arise from such actions will not, individually or in the aggregate, have a
material adverse effect on our financial condition or results of operations.

Environmental Matters

Graphics, together with over 300 other persons, has been designated by the U.S.
Environmental Protection Agency as a potentially responsible party (a "PRP")
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA," also known as "Superfund") at one Superfund site. Although liability
under CERCLA may be imposed on a joint and several basis and our ultimate
liability is not precisely determinable, the PRPs have agreed that Graphics'
share of removal costs is approximately 0.46% and therefore Graphics believes
that its share of the anticipated remediation costs at such site will not be
material to its business or financial condition. Based upon an analysis of
Graphics' volumetric share of waste contributed to the site and the agreement
among the PRPs, we maintain a reserve of approximately $0.1 million in
connection with this liability on our consolidated balance sheet at March 31,
2000. We believe this amount is adequate to cover such liability.

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

None.




                                       8
<PAGE>


                                     PART II

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

         Market Information

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

         Holders

         As of May 31, 2000, there were approximately 96 record holders of
         Holdings' common stock. Holdings is the sole shareholder of Graphics'
         common stock.

         Dividends

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

         Recent Sales of Unregistered Securities

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

         During the fourth quarter of Fiscal Year 1998, certain officers
         exercised options to purchase an aggregate of 8,254 shares of Holdings'
         common stock for $.01/share. The securities that were sold were exempt
         from registration on the basis that all such officers are "accredited
         investors" as defined by the rules of the Securities Act of 1933, as
         amended.


ITEM 6.  SELECTED FINANCIAL DATA

Set forth below is selected financial data for and as of the fiscal years ended
March 31, 2000, 1999, 1998, 1997 and 1996. The balance sheet data as of March
31, 2000, 1999, 1998, 1997 and 1996 and the statement of operations data for the
fiscal years ended March 31, 2000, 1999, 1998, 1997 and 1996 are derived from
the audited consolidated financial statements for such periods and at such
dates. The selected financial data below also reflects our discontinued
wholly-owned subsidiary, Sullivan Media Corporation ("SMC") and our coupon free
standing insert ("FSI") operation previously conducted by our discontinued
wholly-owned subsidiary Sullivan Marketing, Inc. ("SMI").

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


                                       9
<PAGE>


                             Selected Financial Data
                               ACG Holdings, Inc.

<TABLE>
<CAPTION>
                                                                                     Fiscal Year Ended March 31,
                                                                  ------------------------------------------------------------------
                                                                     2000           1999          1998         1997        1996
                                                                  ------------------------------------------------------------------
<S>                                                               <C>             <C>           <C>           <C>           <C>
Statement of Operations Data:                                                           (dollars in thousands)
Sales                                                             $ 546,710       520,343       533,335       524,551       529,523
Cost of Sales                                                       456,445       439,091       461,407       459,880       465,110
                                                                  ---------     ---------     ---------     ---------     ---------
    Gross Profit                                                     90,265        81,252        71,928        64,671        64,413
Selling, general and administrative expenses (a)                     44,181        46,333        54,227        51,418        44,164
Restructuring costs and other special charges (b)                      --           5,464         5,598         2,881         7,533
                                                                  ---------     ---------     ---------     ---------     ---------
    Operating income                                                 46,084        29,455        12,103        10,372        12,716
Interest expense, net                                                33,798        36,077        38,813        36,132        32,425
Other expense                                                           627         1,217           412           245         1,722
Income tax expense                                                    2,189           523         2,106         2,591         4,874
                                                                  ---------     ---------     ---------     ---------     ---------

    Income (loss) from continuing operations before
       extraordinary items                                            9,470        (8,362)      (29,228)      (28,596)      (26,305)
                                                                  ---------     ---------     ---------     ---------     ---------
Discontinued operations: (c)
    Loss from operations, net of tax                                   --            --            --          (1,557)       (1,364)
    Estimated (loss) gain on shut down, net of tax                     --            --            (667)       (1,550)        2,868
Extraordinary loss on early extinguishment of debt (d)                 --          (4,106)         --            --          (4,526)
                                                                  ---------     ---------     ---------     ---------     ---------

Net income (loss)                                                 $   9,470       (12,468)      (29,895)      (31,703)      (29,327)
                                                                  =========     =========     =========     =========     =========
Balance Sheet Data (at end of period):
Working capital (deficit)                                         $  (2,973)       (5,451)       11,610        (8,598)        9,612
Total assets                                                      $ 303,812       299,000       329,958       333,975       351,181
Long-term debt and capitalized leases, including
   current installments                                           $ 277,344       289,589       319,657       312,309       297,617
Stockholders' deficit                                             $(109,389)     (119,306)     (106,085)      (76,318)      (44,396)
Other Data:
Net cash provided (used) by operating activities                  $  38,774        48,137        18,257        24,313        (4,187)
Net cash used by investing activities                             $ (24,145)      (10,364)      (10,100)      (10,997)      (24,436)
Net cash (used) provided by financing activities                  $ (14,576)      (37,812)       (8,143)      (13,312)       23,982
Capital expenditures (including lease obligations
   entered into)                                                  $  22,724        16,238        23,713        37,767        28,022
EBITDA (e)                                                        $  80,007        64,286        52,367        46,972        46,847

</TABLE>


                                       10

<PAGE>


NOTES TO SELECTED FINANCIAL DATA

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

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

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

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

         In April 1995, we implemented a restructuring plan for our American
         Color division, which was designed to improve productivity, increase
         customer service and responsiveness and provide increased growth in the
         business. We recorded $0.9 million and $4.1 million of costs under this
         plan in Fiscal Year 1997 and the fiscal year ended March 31, 1996
         ("Fiscal Year 1996"), respectively.

         In addition, we recorded $0.9 million, $1.7 million, $1.9 million and
         $3.4 million of other special charges related to asset write-offs and
         write-downs in our print and American Color divisions in Fiscal Year
         1999, Fiscal Year 1998, Fiscal Year 1997 and Fiscal Year 1996,
         respectively. See note 14 to our consolidated financial statements
         appearing elsewhere in this Report.

(c)      In February of Fiscal Year 1997, we made a strategic decision to shut
         down the operation of our wholly-owned subsidiary SMC. This resulted in
         an estimated net loss on shut down of approximately $1.5 million, which
         is net of zero income tax benefits. SMC's shut down has been accounted
         for as a discontinued operation, and accordingly, SMC's operations are
         segregated in our consolidated financial statements. Sales, costs of
         sales and selling, general and administrative expenses attributable to
         SMC for Fiscal Years 1997 and 1996 have been reclassified to
         discontinued operations.

         In Fiscal Year 1996, we recognized settlement of a complaint naming our
         subsidiary, SMI, News America FSI, Inc. 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.

(d)      As part of a refinancing transaction entered into on May 8, 1998 (the
         "1998 Refinancing"), we recorded an extraordinary loss related to early
         extinguishment of debt of $4.1 million, net of zero taxes. This
         extraordinary loss primarily consisted of the write-off of deferred
         financing costs related to refinanced indebtedness in the quarter ended
         June 30, 1998. See "Management's Discussion and Analysis of Financial
         Condition and Results of Operations--Liquidity and Capital Resources".

         In August 1995, as part of Shakopee Valley Printing, Inc. merging with
         and into Graphics (the "Shakopee Merger") and the refinancing
         transactions (the "1995 Refinancing"), collectively (the "1995
         Transactions"), we 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.

                                       11
<PAGE>


(e)      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 and the bank credit agreement
         entered into in May 1998 (see "Management's Discussion and Analysis of
         Financial Condition and Results of Operations--Liquidity and Capital
         Resources") are based on EBITDA, subject to certain adjustments.

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

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

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

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

         EBITDA in Fiscal Year 1996 includes $4.1 million of restructuring costs
         related to the American Color division.

                                       12
<PAGE>


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

Overview

On May 8, 1998, we refinanced all of our existing bank indebtedness in the 1998
Refinancing (see note 6 to our consolidated financial statements appearing
elsewhere in this Report and "Liquidity and Capital Resources" below). The
primary objectives of the refinancing were to gain greater financial and
operating flexibility, to reduce our overall cost of capital and to provide
greater opportunity for internal growth and growth through acquisitions.

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

The cost of paper is a principal factor in our overall pricing to our customers.
The level of paper costs also has a significant impact on our reported sales.
During Fiscal Year 1998, paper prices increased slightly through mid year and
then declined to near beginning of the year levels. In Fiscal Year 1999, as most
grades of paper became more plentiful, paper prices declined. During Fiscal Year
2000, paper prices were on average at lower levels than comparable periods in
Fiscal Year 1999. In accordance with industry practice, we generally pass
through increases in the cost of paper to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers.

In recent years, comprehensive quality improvement and cost reduction programs
have been implemented for all our printing processes. As a result of these
measures, we have been successful in lowering our manufacturing costs within the
print sector, while improving product quality. Additionally, in order to grow
sales and improve gross margins, we increased the geographic and industry scope
of our sales force and shifted the mix of our business toward retail customers
and away from the printing of certain lower margin publications. 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
our cost reduction programs and increased unit volume has had a favorable impact
on print gross profit levels.

In January 1998, we approved a plan for our print 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 (Digital Imaging and Prepress Services). The digital imaging and
prepress services industry has experienced significant technological advances as
electronic digital prepress systems have replaced the more 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. American
Color's selling price levels per page, however, have declined because of greater
efficiencies resulting from technological advancements. American Color's revenue
from traditional services are now supplemented by new revenue sources such as
digital image storage, facilities management, computer-to-plate services,
creative services, consulting and training services, multimedia and internet
services, and software and data-base management.

In March 1999, we approved a plan for our digital imaging and prepress services
business, which was designed to consolidate certain facilities in order to
improve asset utilization and operational efficiency, modify the organizational
structure as a result of facility consolidation and other changes, and reduce
overhead and other costs. The cost of this plan is being accounted for in
accordance with the guidelines set forth in EITF 94-3 (see "Restructuring Costs
and Other Special Charges" below).

                                       13
<PAGE>


The following table summarizes our historical results of continuing operations
for Fiscal Years 2000, 1999 and 1998:

                                           Fiscal Year Ended March 31,
                                     ------------------------------------------
                                       2000             1999            1998
                                     ---------       ---------       ---------
                                             (dollars in thousands)

Sales

   Print                             $ 462,886         431,936         446,350

   American Color                       80,240          83,816          82,384

   Other (a)                             3,584           4,591           4,601
                                     ---------       ---------       ---------
      Total                          $ 546,710         520,343         533,335
                                     =========       =========       =========

Gross Profit

   Print                             $  73,572          62,025          51,278

   American Color                       17,971          19,128          19,249

   Other (a)                            (1,278)             99           1,401
                                     ---------       ---------       ---------
      Total                          $  90,265          81,252          71,928
                                     =========       =========       =========

Gross Margin

   Print                                  15.9%           14.4%           11.5%

   American Color                         22.4%           22.8%           23.4%

      Total                               16.5%           15.6%           13.5%

Operating Income (Loss)

   Print (b) (c)                     $  49,446          38,994          22,612

   American Color (b) (c)                4,883          (2,542)          2,404

   Other (a) (d) (e)                    (8,245)         (6,997)        (12,913)
                                     ---------       ---------       ---------
      Total                          $  46,084          29,455          12,103
                                     =========       =========       =========


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

(b)      Print operating income includes the impact of $1.7 million in Fiscal
         Year 1998 of other special charges related to asset write-offs and
         write-downs. American Color's operating loss includes the impact of
         other special charges related to asset write-offs and write-downs of
         $0.9 million in Fiscal Year 1999. See "Restructuring Costs and Other
         Special Charges" below.

(c)      Print operating income includes the impact of $3.9 million of
         restructuring costs in Fiscal Year 1998. American Color's operating
         loss includes the impact of restructuring costs of $4.6 million in
         Fiscal Year 1999. See "Restructuring Costs and Other Special Charges"
         below. American Color's operating income (loss) also includes $0.6
         million and $0.9 million of non-recurring charges in Fiscal Year 2000
         and Fiscal Year 1999, respectively, associated with the consolidation
         of certain production facilities 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)      Other operations also reflects the impact of $0.3 million of
         non-recurring employee termination expenses and $0.2 million of
         non-cash charges associated with an employee benefit program in Fiscal
         Year 1999 and certain charges associated with employee benefit programs
         of $0.7 million in Fiscal Year 1998.

                                       14
<PAGE>


Historical Results of Operations

                      Fiscal Year 2000 vs. Fiscal Year 1999

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

Print

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

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

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

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

American Color (Digital Imaging and Prepress Services)

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

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

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

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

                                       15
<PAGE>


                      Fiscal Year 1999 vs. Fiscal Year 1998

Total sales decreased 2.4% to $520.3 million in Fiscal Year 1999 from $533.3
million in Fiscal Year 1998. This decrease includes a decrease in print sales of
$14.5 million, or 3.2%, offset in part by an increase in American Color's sales
of $1.4 million or 1.7%. Total gross profit increased to $81.3 million or 15.6%
of sales in Fiscal Year 1999 from $71.9 million or 13.5% of sales in Fiscal Year
1998. Total operating income increased to $29.5 million or 5.7% of sales in
Fiscal Year 1999 from $12.1 million or 2.3% of sales in Fiscal Year 1998. See
the discussion of these changes by segment below.

Print

Sales. Print sales decreased $14.5 million to $431.9 million in Fiscal Year 1999
from $446.4 million in Fiscal Year 1998. Print production volume increased
approximately 4%. This increase was offset by an increase in sales to customers
that supply their own paper and the impact of declining paper prices.

Gross Profit. Print gross profit increased $10.7 million to $62.0 million in
Fiscal Year 1999 from $51.3 million in Fiscal Year 1998. Print gross margin
increased to 14.4% in Fiscal Year 1999 from 11.5% in Fiscal Year 1998. The
increase in gross profit is primarily the result of reduced manufacturing costs
and increased production volume. The increase in gross margin includes the above
mentioned factors coupled with the impact of an increase in sales to customers
that supply their own paper and declining paper prices.

Selling, General and Administrative Expenses. Print selling, general and
administrative expenses decreased slightly to $23.0 million, or 5.3% of print
sales, in Fiscal Year 1999 compared to $23.1 million, or 5.2% of print sales, in
Fiscal Year 1998.

Operating Income. As a result of the above factors and the incurrence of costs
associated with the print 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 in Fiscal Year 1998 (see "Restructuring Costs and Other Special Charges"
below), operating income from the print business increased to $39.0 million in
Fiscal Year 1999 from $22.6 million in Fiscal Year 1998.

American Color (Digital Imaging and Prepress Services)

Sales. American Color's sales increased $1.4 million, or 1.7%, to $83.8 million
in Fiscal Year 1999 from $82.4 million in Fiscal Year 1998. The increase in
Fiscal Year 1999 was primarily the result of higher packaging prepress sales and
increased digital imaging and prepress production volume.

Gross Profit. American Color's gross profit decreased $0.1 million to $19.1
million in Fiscal Year 1999 from $19.2 million in Fiscal Year 1998. American
Color's gross margin decreased to 22.8% in Fiscal Year 1999 from 23.4% in Fiscal
Year 1998. The decreases resulted from increased costs associated with new
operations servicing the packaging prepress industry and $0.9 million of
non-recurring costs associated with the consolidation of certain production
facilities, offset in part by an increase in volume and other material and
payroll savings.

Selling, General and Administrative Expenses. American Color's selling, general
and administrative expenses decreased to $16.2 million, or 19.3% of American
Color's sales in Fiscal Year 1999 from $16.8 million, or 20.4% of American
Color's sales in Fiscal Year 1998. This decrease is primarily a result of $1.5
million of non-recurring charges associated with the relocation of American
Color's corporate office and various severance related expenses in Fiscal Year
1998, partially offset by increased selling expenses for packaging prepress and
other operations in Fiscal Year 1999.

Operating (Loss) Income. As a result of the above factors and the incurrence of
restructuring costs associated with the American Color restructuring plan of
$4.6 million in Fiscal Year 1999 and other special charges related to asset
write-offs and write-downs of $0.9 million in Fiscal Year 1999 (see
"Restructuring Costs and Other Special Charges" below), operating (loss) income
at American Color decreased to a loss of $2.5 million in Fiscal Year 1999 from
income of $2.4 million in Fiscal Year 1998.

                                       16
<PAGE>


Other Operations (Fiscal Year 2000 vs. Fiscal Year 1999 and Fiscal Year 1999 vs.
Fiscal Year 1998)

Other operations consist primarily of revenues and expenses associated with
Digiscope, corporate general and administrative expenses, other expenses and
amortization expense. Amortization expenses for other operations, including
goodwill amortization (see below), were $2.8 million, $2.6 million and $8.7
million in Fiscal Years 2000, 1999 and 1998, respectively.

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

Operating losses from other operations improved to a loss of $7.0 million in
Fiscal Year 1999 from a loss of $12.9 million in Fiscal Year 1998. This decrease
is primarily attributable to a $6.0 million reduction in goodwill amortization
expense. This reduction results from full amortization of the original 1993
acquisition goodwill related to American Color as of March 31, 1998.

Goodwill Amortization

Amortization expense associated with goodwill was $2.6 million, $2.5 million and
$8.5 million for Fiscal Years 2000, 1999 and 1998, respectively.

Restructuring Costs and Other Special Charges

Restructuring Costs

American Color (Digital Imaging and Prepress Services). In March 1999, we
approved a plan for our American Color division, which was designed to
consolidate certain facilities in order to improve asset utilization and
operational efficiency, modify the organizational structure as a result of
facility consolidation and other changes and reduce overhead and other costs.
The cost of this plan is being accounted for in accordance with the guidance set
forth in EITF 94-3. The pretax costs of $4.6 million which were incurred as a
direct result of this plan (excluding other special charges related to asset
write-offs and write-downs - see below) included $2.5 million of employee
termination costs, $1.2 million of lease settlement costs and $0.9 million of
other transition and restructuring expenses. This restructuring charge was
recorded in the quarter ended March 31, 1999. The majority of these costs were
paid or settled before March 31, 2000. The $1.5 million balance in the related
restructuring reserve at March 31, 2000 primarily includes remaining payouts of
involuntary employee termination costs and remaining payouts under lease
commitments.

Print. In January 1998, we approved a plan for our print 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 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)
included $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. These costs were paid or settled before
March 31, 1999.

Other Special Charges

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

                                       17
<PAGE>


During the quarter ended March 31, 1998, we recorded special charges totaling
$1.7 million to adjust the carrying values of idle, disposed and
under-performing assets of the print segment to estimated fair values. The
provision was based on a review of our long-lived assets in accordance with SFAS
121. Fair value was based on our estimate of held and used and idle assets based
on current market conditions using the best information available.

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

Interest Expense

Interest expense decreased 6.3% to $34.0 million in Fiscal Year 2000 from $36.2
million in Fiscal Year 1999. This decrease includes the impact of both lower
levels of indebtedness and lower weighted average interest rates. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.

Interest expense decreased 7.0% to $36.2 million in Fiscal Year 1999 from $39.0
million in Fiscal Year 1998. This decrease includes the impact of both lower
levels of indebtedness and lower weighted average interest rates. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.

Other Expense (Income) and Taxes

Other expenses, net decreased to $0.6 million in Fiscal Year 2000 from $1.2
million in Fiscal Year 1999. Other expenses, net increased to $1.2 million in
Fiscal Year 1999 from $0.4 million in Fiscal Year 1998. Other expenses, net in
Fiscal Year 1999 include various non-recurring legal settlements and related
fees of approximately $0.8 million.

Our effective tax rate for Fiscal Year 2000 was less than the federal statutory
rate due primarily to decreases in the valuation allowance, partially offset by
amortization of nondeductible goodwill and foreign tax expense. Our effective
tax rates for Fiscal Years 1999 and 1998 exceeded the federal statutory rate due
primarily to increases in the valuation allowance, amortization of nondeductible
goodwill, and foreign tax expense.

Discontinued Operations

Our Fiscal Year 1998 net loss includes the estimated net loss on shut down of
approximately $0.4 million, related to our discontinued wholly-owned subsidiary
SMC. See note 2 to our consolidated financial statements appearing elsewhere in
this Report.

Extraordinary Loss on Early Extinguishment of Debt

As part of the 1998 Refinancing which was completed in Fiscal Year 1999 (see
note 6 to our consolidated financial statements appearing elsewhere in this
Report), we recorded an extraordinary loss related to early extinguishment of
debt of $4.1 million, net of zero taxes. This extraordinary loss primarily
consisted of the write-off of deferred financing costs related to refinanced
indebtedness in the quarter ended June 30, 1998.

Net Income (Loss)

As a result of the factors discussed above, our net income (loss) improved to
income of $9.5 million in Fiscal Year 2000 from a loss of $12.5 million in
Fiscal Year 1999. The Fiscal Year 1999 net loss includes the $4.1 million
extraordinary loss related to early extinguishment of debt, $4.6 million of
restructuring costs and $0.9 million of other special charges related to asset
write-offs and write-downs associated with our American Color division. Our net
loss improved to a loss of $12.5 million in Fiscal Year 1999 from a loss of
$29.9 million in Fiscal Year 1998. The Fiscal Year 1998 net loss 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 our print 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, certain charges associated with employee benefit
programs of $0.7 million and an approximate $0.7 million loss from discontinued
operations.

                                       18
<PAGE>

Liquidity and Capital Resources

On May 8, 1998, we refinanced all of our existing bank indebtedness in the 1998
Refinancing (see note 6 to our consolidated financial statements appearing
elsewhere in this Report). The primary objectives of the refinancing were to
gain greater financial and operating flexibility, to reduce our overall cost of
capital and to provide greater opportunity for internal growth and growth
through acquisitions.

The 1998 Refinancing transaction included the following:

     (1)  We entered into a $145 million credit facility with a syndicate of
          lenders (the "Bank Credit Agreement") providing for:
          -   a $70 million revolving credit facility, which is not subject to a
              borrowing base limitation, maturing on March 31, 2004 (the
              "Revolving Credit Facility"),
          -   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
          our previous credit agreement as amended (the "Old Bank Credit
          Agreement") (plus accrued interest to the date of repayment);
     (3)  The repayment of all $25.0 million of indebtedness outstanding under
          the Old Term Loan Facility (plus accrued interest to the date of
          repayment); and
     (4)  The payment of fees and expenses associated with the refinancing
          transaction.

The Revolving Credit Facility provides for a maximum of $70 million borrowing
availability. This availability includes a provision for up to $40 million of
letters of credit. At March 31, 2000, we had total borrowings and letters of
credit outstanding under the Revolving Credit Facility of approximately $33.8
million, and therefore, additional borrowing availability of approximately $36.2
million.

During Fiscal Year 2000, we voluntarily prepaid $15 million of our
bank indebtedness, reducing the A Term Loan Facility by $10.9 million and
the B Term Loan Facility by $4.1 million. At March 31, 2000, $9.6 million of the
A Term Loan Facility and $39.6 million of the B Term Loan Facility remained
outstanding. As a result of the voluntary prepayments, we have no scheduled
maturities due under either the A Term Loan Facility or B Term Loan Facility
until March 31, 2002. Scheduled repayments of existing capital lease obligations
and other senior indebtedness during the fiscal year ending March 31, 2001
("Fiscal Year 2001") will approximate $6.7 million and $1.0 million,
respectively.

In Fiscal Year 2000, net cash provided by operating activities of $38.8 million
(see consolidated statements of cash flows appearing elsewhere in this Report),
net revolver borrowings of $8.8 million, proceeds from long-term debt of $0.4
million and $0.1 million of proceeds from sales of property, plant and equipment
were primarily used to fund the following expenditures:

     (1)  $23.8 million in principal repayments of indebtedness and financing
          costs (including capital lease obligations of $7.5 million and
          voluntary prepayments of $10.9 million on our A Term Loan Facility and
          $4.1 million on our B Term Loan Facility),
     (2)  $21.5 million in cash capital expenditures, and
     (3)  $2.8 million for the acquisition of business.

We plan to continue our program of upgrading our print and prepress equipment
and currently anticipate that Fiscal Year 2001 cash capital expenditures will
approximate $18.2 million and equipment acquired under capital leases will
approximate $8.5 million. Our cash on hand of approximately $2.8 million is
presented net of outstanding checks within trade accounts payable at March 31,
2000. Accordingly, cash is presented at a balance of $0 in the March 31, 2000
balance sheet.

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

                                       19
<PAGE>


At March 31, 2000, we had total indebtedness outstanding of $277.3 million,
including capital lease obligations, as compared to $289.6 million at March 31,
1999, representing a net reduction of indebtedness during Fiscal Year 2000 of
$12.3 million. Of the total debt outstanding at March 31, 2000, $58.0 million
was outstanding under the Bank Credit Agreement at a weighted-average interest
rate of 8.3%. Indebtedness under the Bank Credit Agreement bears interest at
floating rates. At March 31, 2000, we had indebtedness other than obligations
under the Bank Credit Agreement of $219.3 million (including $185 million of the
Senior Subordinated Notes (the "Notes")). We are currently in compliance with
all financial covenants set forth in the Bank Credit Agreement. See note 6 to
our consolidated financial statements appearing elsewhere in this Report.

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

EBITDA

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

                                     2000                             1999                               1998
                              -------------------              ------------------                 -----------------

                                                             (dollars in thousands)


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

   Print (a)                  $       72,543                           61,627                             46,838

   American Color (a)                 11,003                            5,283                              8,405

   Other (b) (c)                      (3,539)                          (2,624)                            (2,876)
                              -------------------              ------------------                 ------------------

      Total                   $       80,007                           64,286                             52,367
                              ===================              ==================                 ==================

EBITDA Margin

    Print                               15.7%                            14.3%                              10.5%

    American Color                      13.7%                             6.3%                              10.2%

       Total                            14.6%                            12.4%                               9.8%
</TABLE>

(a)      Print EBITDA includes the impact of $3.9 million of restructuring costs
         in Fiscal Year 1998. American Color EBITDA for Fiscal Year 1999
         includes the impact of restructuring costs of $4.6 million. See
         "Restructuring Costs and Other Special Charges" above. American Color
         EBITDA also includes $0.5 million and $0.6 million of non-recurring
         charges in Fiscal Year 2000 and Fiscal Year 1999, respectively,
         associated with the consolidation of certain production facilities and
         $1.5 million of non-recurring charges in Fiscal Year 1998 associated
         with the relocation of American Color's corporate office and various
         severance related expenses.

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

(c)      Other operations also reflects the impact of $0.3 million of
         non-recurring employee termination expenses and $0.2 million of
         non-cash charges associated with an employee benefit program in Fiscal
         Year 1999, and certain charges associated with employee benefit
         programs of $0.7 million in Fiscal Year 1998.

                                       20
<PAGE>


EBITDA is presented and discussed because we believe that investors regard
EBITDA as a key measure of a leveraged company's performance and ability to meet
its future debt service requirements. "EBITDA" is defined as earnings before net
interest expense, income tax expense, 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
and the Bank Credit Agreement are based on EBITDA, subject to certain
adjustments.

Print. As a result of the reasons previously described under "--Print,"
(excluding changes in depreciation and amortization expense and other special
charges related to asset write-offs and write-downs), print EBITDA increased
$10.9 million to $72.5 million in Fiscal Year 2000 from $61.6 million in Fiscal
Year 1999. Print EBITDA increased $14.8 million to $61.6 million in Fiscal Year
1999 from $46.8 million in Fiscal Year 1998. Print EBITDA Margin increased to
15.7% in Fiscal Year 2000 from 14.3% in Fiscal Year 1999. Print EBITDA Margin
increased to 14.3% in Fiscal Year 1999 from 10.5% in Fiscal Year 1998. Included
in the Fiscal Year 1998 EBITDA and EBITDA Margin is $3.9 million of
restructuring costs related to the print restructuring plan (see discussion
above).

American Color (Digital Imaging and Prepress Services). As a result of the
reasons previously described under "--American Color," (excluding changes in
depreciation, amortization expense, other non-cash expenses and other special
charges related to asset write-offs and write-downs), American Color EBITDA
increased $5.7 million to $11.0 million in Fiscal Year 2000 from $5.3 million in
Fiscal Year 1999. American Color EBITDA decreased $3.1 million to $5.3 million
in Fiscal Year 1999 from $8.4 million in Fiscal Year 1998. American Color EBITDA
Margin increased to 13.7% in Fiscal Year 2000 from 6.3% in Fiscal Year 1999.
American Color EBITDA Margin decreased to 6.3% in Fiscal Year 1999 from 10.2% in
Fiscal Year 1998. Included in the Fiscal Year 2000 and Fiscal Year 1999 EBITDA
and EBITDA Margin is the impact of $0.5 million and $0.6 million of
non-recurring charges associated with the consolidation of certain production
facilities and $4.6 million of restructuring costs in Fiscal Year 1999 (see
discussion above). 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.

Other Operations. As a result of the reasons previously described under "--Other
Operations," (excluding changes in depreciation and amortization expense), other
operations negative EBITDA increased to negative EBITDA of $3.5 million in
Fiscal Year 2000 from negative EBITDA of $2.6 million in Fiscal Year 1999. Other
operations negative EBITDA improved to negative EBITDA of $2.6 million in Fiscal
Year 1999 from negative EBITDA of $2.9 million in Fiscal Year 1998. Other
operations negative EBITDA for Fiscal Year 1999 includes the impact of $0.3
million of non-recurring employee termination expenses and $0.2 million of
non-cash charges associated with an employee benefit program and negative EBITDA
for Fiscal Year 1998 includes the impact of $0.7 million of certain charges
associated with employee benefit programs.

Amortization of Goodwill

Our goodwill is amortized on a straight-line basis by business segment. Goodwill
amortization expense will be approximately $3.1 million in Fiscal Year 2001.

Impact of Inflation

In accordance with industry practice, we generally pass through increases in our
costs (primarily paper and ink) to customers in the costs of our printed
products, while decreases in paper costs generally result in lower prices to
customers. During Fiscal Year 1998, paper prices increased slightly through mid
year and then declined to near beginning of the year levels. In Fiscal Year
1999, as most grades of paper became more plentiful, paper prices declined.
During Fiscal Year 2000, paper prices were on average at lower levels than
comparable periods in Fiscal Year 1999. Management expects that, as a result of
our strong relationship with key suppliers, our material costs will remain
competitive within the industry.

                                       21
<PAGE>


Seasonality

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

Environmental

Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or future
period revenue generation are expensed. Environmental liabilities are recorded
when assessments and/or remedial efforts are probable and the related costs can
be reasonably estimated. We believe that environmental liabilities, currently
and in the prior periods discussed herein, are not material. We maintain a
reserve of approximately $0.1 million in connection with a Superfund site in our
consolidated statement of financial position at March 31, 2000, which we believe
to be adequate. See "Legal Proceedings - Environmental Matters" appearing
elsewhere in this Report. We do not anticipate receiving insurance proceeds
related to this potential settlement. Management does not expect that any
identified matters, individually or in the aggregate, will have a material
adverse effect on our consolidated financial position or results of operations.

Accounting

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

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

Quantitative Information. At March 31, 2000 and March 31, 1999, we had both
fixed rate and variable rate debt. The carrying value of our total variable rate
debt approximated the fair value of such debt at March 31, 2000 and March 31,
1999. At our March 31, 2000 and March 31, 1999 borrowing levels, a hypothetical
10% adverse change in interest rates on the variable rate debt would have been
immaterial. Approximately 76% and 75% of our long-term debt (excluding
capitalized lease obligations) was fixed rate at March 31, 2000 and March 31,
1999, respectively.

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

                                       22
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                        Page No.

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

Report of Independent Auditors...............................................24
Consolidated balance sheets - March 31, 2000 and 1999........................25
For the Years Ended March 31, 2000, 1999 and 1998:
                  Consolidated statements of operations......................27
                  Consolidated statements of stockholders' deficit...........28
                  Consolidated statements of cash flows......................29
Notes to Consolidated Financial Statements...................................31


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

          I. Condensed Financial Information:
             Condensed Consolidated Financial Statements (parent company only)
             for the years ended March 31, 2000, 1999, and 1998, and as of March
             31, 2000 and 1999

         II. Valuation and qualifying accounts

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

                                       23
<PAGE>


                         Report of Independent Auditors

Board of Directors
ACG Holdings, Inc.

We have audited the accompanying consolidated balance sheets of ACG Holdings,
Inc. as of March 31, 2000 and 1999, 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, 2000. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACG
Holdings, Inc. at March 31, 2000 and 1999, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

/s/ Ernst & Young LLP

Nashville, Tennessee
May 15, 2000

                                       24
<PAGE>


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

                                           -----------------------------------
                                                         March 31,
                                           -----------------------------------
                                                2000                  1999
                                           -------------          ------------

Assets

Current assets:

   Cash                             $                  0                     0

   Receivables:

     Trade accounts, less allowance
       for doubtful accounts of $2,945
       and $2,860 at March 31, 2000
       and 1999, respectively                     65,432                57,895

   Other                                           2,447                 2,082
                                           -------------          ------------
                  Total receivables               67,879                59,977

   Inventories                                    11,062                 8,343

   Prepaid expenses and other current assets       3,329                 3,271
                                           -------------          ------------
                  Total current assets            82,270                71,591

Property, plant and equipment:

   Land and improvements                           2,923                 2,907

   Buildings and improvements                     19,464                18,895

   Machinery and equipment                       191,378               177,851

   Furniture and fixtures                          9,265                 6,549

   Leased assets under capital leases             53,640                52,843

   Equipment installations in process              5,815                 4,146
                                           -------------          ------------

                                                 282,485               263,191

   Less accumulated depreciation                (145,993)             (119,576)
                                           -------------          ------------

         Net property, plant and equipment       136,492               143,615

Excess of cost over net assets acquired,
  less accumulated amortization of
  $47,206 and $44,587 at March 31, 2000
  and 1999, respectively                          72,781                72,029


Other assets                                      12,269                11,765
                                           -------------          ------------

                  Total assets             $     303,812               299,000
                                           =============          ============






See accompanying notes to consolidated financial statements.

                                       25
<PAGE>


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

                                                                         ------------------------------------
                                                                                       March 31,
                                                                         ------------------------------------
                                                                              2000                  1999
                                                                         --------------         -------------
<S>                                                                      <C>                           <C>

Liabilities and Stockholders' Deficit

Current liabilities:

   Current installments of long-term debt and capitalized leases         $       7,727                  7,994

   Trade accounts payable                                                       45,802                 37,096

   Accrued expenses                                                             31,658                 30,756

   Income taxes                                                                     56                  1,196
                                                                          ------------           ------------

        Total current liabilities                                               85,243                 77,042

Long-term debt and capitalized leases, excluding current installments          269,617                281,595

Deferred income taxes                                                            8,031                  7,916

Other liabilities                                                               50,310                 51,753
                                                                          ------------           ------------

        Total liabilities                                                      413,201                418,306

Stockholders' deficit:

    Common stock, voting, $.01 par value, 5,852,223 shares
        authorized, 143,399 shares and 134,250 shares issued and
        outstanding at March 31, 2000 and 1999, respectively                         1                      1

    Preferred stock, $.01 par value, 15,823 shares
        authorized, 3,617 shares and 3,622 shares Series AA
        convertible preferred stock issued and outstanding at
        March 31, 2000 and 1999, respectively, $39,425,000 and
        $39,475,000 liquidation preference at March 31, 2000
        and 1999, respectively, 1,606 shares Series BB convertible
        preferred stock issued and outstanding at March 31, 2000 and
        1999, $17,500,000 liquidation preference at March 31, 2000 and 1999         --                     --

    Additional paid-in capital                                                  58,303                 58,286

    Accumulated deficit                                                       (165,485)              (174,905)

    Other accumulated comprehensive loss, net of tax                            (2,208)                (2,688)
                                                                          ------------           ------------
    Total stockholders' deficit                                               (109,389)              (119,306)
                                                                          ------------           ------------

        Commitments and contingencies

      Total liabilities and stockholders' deficit                        $     303,812                299,000
                                                                          ============           ============







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

                                       26
<PAGE>


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

<TABLE>
<CAPTION>

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

                                                                             2000            1999              1998
                                                                      ----------------  ---------------  -----------------

<S>                                                                   <C>               <C>              <C>
Sales                                                                  $    546,710          520,343            533,335

Cost of sales                                                               456,445          439,091            461,407
                                                                      ----------------  ---------------  -----------------
     Gross profit                                                            90,265           81,252             71,928

Selling, general and administrative expenses                                 41,562           43,806             45,690

Amortization of goodwill                                                      2,619            2,527              8,537

Restructuring costs and other special charges                                    --            5,464              5,598
                                                                      ----------------  ---------------  -----------------
     Operating income                                                        46,084           29,455             12,103
                                                                      ----------------  ---------------  -----------------

Other expense (income):

   Interest expense                                                          33,963           36,242             38,956

   Interest income                                                             (165)            (165)              (143)

   Other, net                                                                   627            1,217                412
                                                                      ----------------  ---------------  -----------------

     Total other expense                                                     34,425           37,294             39,225
                                                                      ----------------  ---------------  -----------------

   Income (loss) from continuing operations
     before income taxes and extraordinary item                              11,659           (7,839)           (27,122)

Income tax expense                                                           (2,189)            (523)            (2,106)
                                                                      ----------------  ---------------  -----------------

   Income (loss) from continuing operations
     before extraordinary item                                                9,470           (8,362)           (29,228)

Discontinued operations:

          Estimated loss on shut down, net of tax                                --               --               (667)
                                                                      ----------------  ---------------  -----------------
     Income (loss) before extraordinary item                                  9,470           (8,362)           (29,895)

Extraordinary loss on early extinguishment of debt                               --           (4,106)                --
                                                                      ----------------  ---------------  -----------------
           Net income (loss)                                           $      9,470          (12,468)           (29,895)
                                                                      ================  ===============  =================

</TABLE>


See accompanying notes to consolidated financial statements.

                                       27
<PAGE>


                               ACG HOLDINGS, INC.
                Consolidated Statements of Stockholders' Deficit
                                 (In thousands)
<TABLE>
<CAPTION>

                                                  Series AA
                                                  and BB                                            Other
                                     Voting     convertible     Additional                        accumulated
                                     common      preferred        paid-in       Accumulated      comprehensive
                                     stock         stock          capital         deficit         income (loss)           Total
                                  ----------    -------------   ------------   -------------    ----------------     -------------
<S>                               <C>                <C>           <C>           <C>                  <C>            <C>
  Balances, March 31, 1997        $     1            --            57,499         (132,228)            (1,590)       $    (76,318)
                                                                                                                     -------------
  Net loss                             --            --                --          (29,895)                --             (29,895)

  Other comprehensive loss, net of tax:

      Change in cumulative
      translation adjustment           --            --                --               --               (410)               (410)

      Unfunded pension liability       --            --                --               --                (85)                (85)
                                                                                                                     -------------
  Comprehensive loss                                                                                                      (30,390)

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

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

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

  Balances, March 31, 1998        $     1            --            58,249         (162,250)            (2,085)       $   (106,085)
                                                                                                                     -------------
  Net loss                             --            --                --          (12,468)                --             (12,468)

  Other comprehensive loss, net of tax:

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


      Unfunded pension liability       --            --                --               --                (99)                (99)
                                                                                                                     -------------
  Comprehensive loss                                                                                                      (13,071)

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


  Executive stock compensation         --            --                37               --                 --                  37
                                  ----------    -------------   ------------   -------------    ----------------     -------------

  Balances, March 31, 1999        $     1            --            58,286         (174,905)            (2,688)       $   (119,306)
                                                                                                                     -------------
  Net income                           --            --                --            9,470                 --               9,470

  Other comprehensive income, net of tax:

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


      Unfunded pension liability       --            --               --                --                184                 184
                                                                                                                    -------------
  Comprehensive income                                                                                                      9,950

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

  Executive stock compensation         --            --                17               --                 --                  17
                                  ----------    -------------   ------------   -------------    ----------------     -------------


  Balances, March 31, 2000        $     1             --           58,303         (165,485)            (2,208)       $   (109,389)
                                  ==========    =============   ============   =============    ================     =============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>


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

                                                                                       Year ended March 31,
                                                                         --------------------------------------------------
                                                                              2000             1999               1998
                                                                         --------------    -------------     --------------
<S>                                                                        <C>              <C>                <C>
Cash flows from operating activities:

   Net income (loss)                                                       $ 9,470          (12,468)           (29,895)

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

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

Other special charges - non-cash                                                --              908              1,727

Depreciation                                                                30,067           29,651             28,124

Amortization of goodwill                                                     2,619            2,527              8,537

Amortization of other assets                                                 1,100            1,498              1,876

Amortization of deferred financing costs                                     1,326            1,412              2,292

Loss on shut down                                                               --               --                667

Loss (gain) on disposals of property, plant and  equipment                     286              501                (37)

Deferred income tax expense (benefit)                                          115           (1,303)               930

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

  (Increase) decrease in receivables                                        (7,832)           4,108             (9,079)

  (Increase) decrease in inventories                                        (2,676)           2,388             (1,122)

  Increase (decrease) in trade accounts payable                              8,611            9,846             (1,887)

  (Decrease) increase in accrued expenses                                     (178)            (753)             1,172

  (Decrease) increase in current income taxes payable                       (1,140)             694               (520)

  (Decrease) increase in other liabilities                                  (1,459)           4,133             18,588

  Other                                                                     (1,535)             889             (3,116)
                                                                         --------------    -------------     --------------
                        Total adjustments                                   29,304           60,605             48,152
                                                                         --------------    -------------     --------------
Net cash provided by operating activities                                   38,774           48,137             18,257
                                                                         --------------    -------------     --------------
</TABLE>



                                       29
<PAGE>


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

                                                                                       Year ended March 31,
                                                                         --------------------------------------------------
                                                                              2000             1999               1998
                                                                         --------------    -------------     --------------
<S>                                                                        <C>              <C>                <C>
Cash flows from investing activities:

 Purchases of property, plant and equipment                                (21,462)         (11,143)           (10,902)

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

 Proceeds from sales of property, plant and equipment                          169              765              1,067

 Other                                                                         (23)              14               (265)
                                                                         --------------    -------------     --------------
             Net cash used by investing activities                         (24,145)         (10,364)           (10,100)
                                                                         --------------    -------------     --------------

Cash flows from financing activities:
    Debt:
      Proceeds                                                               9,215           75,000             25,000

      Payments                                                             (15,893)        (103,185)           (24,899)

      Increase in deferred financing costs                                    (371)          (2,608)            (2,467)

      Repayment of capital lease obligations                                (7,504)          (6,938)            (6,349)

      Other                                                                    (23)             (81)               572
                                                                         --------------    -------------     --------------
             Net cash used by financing activities                         (14,576)         (37,812)            (8,143)
                                                                         --------------    -------------     --------------

Effect of exchange rates on cash                                               (53)              39                (14)
                                                                         --------------    -------------     --------------
Decrease in cash                                                                 0                0                  0

Cash:

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

Supplemental disclosure of cash flow information:

Cash paid for:

   Interest                                                              $  32,639           35,546             35,931

   Income taxes, net of refunds                                          $   3,111            1,201              1,751

Exchange rate adjustment to long-term debt                               $     (23)             (81)               (67)

Non-cash investing activities:

   Lease obligations                                                     $   1,262            5,095             12,811

</TABLE>


See accompanying notes to consolidated financial statements.


                                       30
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

    (1)      Summary of Significant Accounting Policies

             ACG Holdings, Inc. ("Holdings"), 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.

             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, 2000, Graphics' ability to pay dividends or
             lend to Holdings was either restricted or prohibited, except that
             Graphics may pay specified amounts to Holdings (i) to pay the
             repurchase price payable to any officer or employee (or their
             estates) of Holdings, Graphics or any of their respective
             subsidiaries in respect of their stock or options to purchase stock
             in Holdings upon the death, disability or termination of employment
             of such officers and employees (so long as no default, or event of
             default, as defined, has occurred under the terms of the Bank
             Credit Agreement, as defined below, and provided the aggregate
             amount of all such repurchases does not exceed $2 million) and (ii)
             to fund the payment of Holdings' operating expenses incurred in the
             ordinary course of business, other corporate overhead costs and
             expenses (so long as the aggregate amount of such payments does not
             exceed $250,000 in any fiscal year) and Holdings' obligations
             pursuant to a tax sharing agreement with Graphics. A significant
             portion of Graphics' long-term obligations has been fully and
             unconditionally guaranteed by Holdings.

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

             Significant accounting policies are as follows:

             (a)      Basis of Presentation

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

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

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

             (b)      Revenue Recognition

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

             (c)      Inventories

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

                                       31
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

             (d)     Property, Plant and Equipment

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

             (e)     Excess of Cost Over Net Assets Acquired

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

            (f)      Impairment of Long-Lived Assets

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

             (g)     Other Assets

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

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

             (h)     Income Taxes

                     Income taxes have been provided using the liability method
                     in accordance with Statement of Financial Accounting
                     Standards No. 109, "Accounting for Income Taxes" ("SFAS
                     109").

             (i)     Foreign Currency Translation

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

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


                                      32
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

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

             (n)     Stock-Based Compensation

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

              (o)    Impact of Recently Issued Accounting Standards

                     In December 1999, the SEC staff issued Staff Accounting
                     Bulletin No. 101 on "Revenue Recognition" ("SAB 101"). SAB
                     101 explains how the SEC staff applies by analogy the
                     existing rules on revenue recognition to other transactions
                     not covered by such rules and also addresses whether
                     revenue should be presented on a gross or net basis for
                     certain transactions. In addition, SAB 101 provides
                     guidance on the disclosures registrants should make about
                     their revenue recognition policies and the impact of events
                     and trends on revenue. SAB 101 is effective for the first
                     fiscal quarter beginning after December 15, 1999. The
                     adoption of SAB 101 is not expected to have a material
                     effect on the results of operations or financial position
                     of the Company.


                                       33
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

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

                     In March 2000, the Financial Accounting Standards Board
                     issued interpretation 44 "Accounting for Certain
                     Transactions Involving Stock Compensation" ("Interpretation
                     44"). Interpretation 44 answers questions dealing with
                     Accounting Principles Board Opinion No. 25 "Accounting for
                     Stock Issued to Employees" ("APB 25") implementation
                     practice issues. The Company has elected to follow SFAS 123
                     in accounting for its stock-based compensation plans. This
                     Interpretation does not address issues related to the
                     application of the fair value method of accounting for
                     stock-based compensation under SFAS 123.

     (2)     Discontinued Operations

             In February 1997, the Company made a strategic decision to shut
             down the operations of its wholly-owned subsidiary Sullivan Media
             Corporation ("SMC"). In the fiscal year ended March 31, 1998
             ("Fiscal Year 1998") the Company recorded an additional $0.4
             million estimated net loss on shut down.

             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.

     (3)     Inventories

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

                                                        March 31,
                                           -----------------------------------
                                                   2000              1999
                                           -----------------  ----------------
             Paper                           $    9,025             6,525

             Ink                                    275               232

             Supplies and other                   1,762             1,586
                                           -----------------  ----------------
                Total                        $   11,062             8,343
                                           =================  ================


                                       34
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

     (4)     Other Assets

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

                                                        March 31,
                                           -----------------------------------
                                                   2000              1999
                                           -----------------  ----------------
             Deferred financing costs,
             less accumulated amortization
             of $4,462 in 2000 and $3,278
             in 1999                         $    6,239             7,194

             Spare parts inventory, net
             of valuation allowance of
             $100 in 2000 and 1999                3,664             2,293

             Other                                2,366             2,278
                                           -----------------  ----------------
                Total                        $   12,269             11,765
                                           =================  ================


    (5)      Accrued Expenses

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

                                                        March 31,
                                           -----------------------------------
                                                   2000              1999
                                           -----------------  ----------------
             Compensation and related
             taxes                           $   11,870            10,114

             Employee benefits                    9,347             8,814

             Interest                             4,262             4,264

             Other                                6,179             7,564
                                           -----------------  ----------------
                Total                        $   31,658            30,756
                                           =================  ================




                                       35
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

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

             Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                          March 31,
                                                                            -----------------------------------
                                                                                 2000                  1999
                                                                            ------------            -----------
             <S>                                                            <C>                     <C>
             Bank Credit Agreement:

                      Series A Term Loan                                    $     9,642                 20,537

                      Series B Term Loan                                         39,643                 43,753

                      Revolving Credit Facility Borrowings                        8,764                     --
                                                                            ------------            -----------
                                                                                 58,049                 64,290

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

             Capitalized leases                                                  30,733                 36,304

             Other loans with varying maturities and
                  interest rates                                                  3,562                  3,995
                                                                            ------------            -----------
                     Total long-term debt                                       277,344                289,589

             Less current installments                                            7,727                  7,994
                                                                            ------------            -----------

                     Long-term debt and capitalized leases,
                         excluding current installments                     $   269,617               281,595
                                                                            ============            ===========

</TABLE>

      On May 8, 1998, the Company completed a refinancing transaction (the
      "1998 Refinancing") which included the following: (1) the Company
      entered into a $145 million credit facility with a syndicate of lenders
      (the "Bank Credit Agreement") which included an $11.5 million
      participation by Morgan Stanley Senior Funding, Inc., a related party,
      providing for a $70 million revolving credit facility which is not
      subject to a borrowing base limitation (the "Revolving Credit
      Facility") maturing on March 31, 2004, a $25 million amortizing term
      loan facility maturing on March 31, 2004 (the "A Term Loan Facility")
      and a $50 million amortizing term loan facility maturing on March 31,
      2005 (the "B Term Loan Facility"); (2) the repayment of all $57.0
      million of indebtedness outstanding under the Company's previous credit
      agreement, as amended (the "Old Bank Credit Agreement") (plus accrued
      interest to the date of repayment); (3) the repayment of all $25.0
      million of indebtedness outstanding under the $25 million term loan
      facility which included a $5 million participation by Morgan Stanley
      Senior Funding, Inc., a related party, which was to mature on March 31,
      2001 (the "Old Term Loan Facility") (plus accrued interest to the date
      of repayment) and (4) the payment of fees and expenses associated with
      the 1998 Refinancing. In addition, the Company recorded an
      extraordinary loss related to early extinguishment of debt of $4.1
      million, net of zero taxes, associated with the write-off of deferred
      financing costs related to refinanced indebtedness in the quarter ended
      June 30, 1998.

      As noted above, the Revolving Credit Facility provides for a maximum of
      $70 million borrowing availability. This availability includes a
      provision for up to $40 million of letters of credit. At March 31,
      2000, the Company had total borrowings and letters of credit
      outstanding under the Revolving Credit Facility of approximately $33.8
      million, and therefore, additional borrowing availability of
      approximately $36.2 million.

                                       36
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

      Interest under the Bank Credit Agreement is floating based upon
      existing market rates plus agreed upon margin levels. In addition, the
      Company is obligated to pay commitment and letter of credit fees. Such
      margin levels and fees reduce over the term of the agreement subject to
      the achievement of certain Leverage Ratio measures. The
      weighted-average rate on outstanding indebtedness under the Bank Credit
      Agreement at March 31, 2000 was 8.3%.

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

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

      The amortization for total long-term debt and capitalized leases at
      March 31, 2000 is shown below (in thousands):

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

          2001                              $   1,006              9,340

          2002                                  1,001              8,149

          2003                                  6,865              7,348

          2004                                 33,130              6,488

          2005                                 19,609              4,059

          Thereafter                          185,000              3,450
                                            -----------       ------------
             Total                          $ 246,611             38,834
                                            ===========

      Imputed interest                                             8,101
                                                              ------------
             Present value of
             minimum lease payments                               30,733
                                                              ============


      Capital leases have varying maturity dates and implicit interest rates
      which generally approximate 8%-10%. The Company estimates that the
      carrying amounts of the Company's debt and other financial instruments
      approximate their fair values at March 31, 2000 and 1999.

                                       37
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements


(7)   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, 2000 and 1999 are as follows
      (in thousands):
<TABLE>
<CAPTION>

                                                                              March 31,
                                                                -----------------------------------
                                                                    2000                   1999
                                                                -----------             -----------
      <S>                                                       <C>                     <C>
      Deferred tax liabilities:

         Book over tax basis in fixed assets                    $    25,294             $   29,579

         Foreign taxes                                                3,069                  2,631

         Accumulated amortization                                     1,712                    861

         Other, net                                                   4,233                  4,449
                                                                -----------             ----------
         Total deferred tax liabilities                              34,308                 37,520

      Deferred tax assets:
         Bad debts                                                    1,174                  1,143

         Accrued expenses and other liabilities                      24,415                 26,877

         Accrued loss on discontinued operations                         59                     55

         Net operating loss carryforwards                            34,314                 40,743

         AMT credit carryforwards                                     1,500                  1,262

         Cumulative translation adjustment                              896                    984
                                                                -----------             ----------
         Total deferred tax assets                                   62,358                 71,064

         Valuation allowance for deferred tax assets                 36,081                 41,460
                                                                -----------             -----------
         Net deferred tax assets                                     26,277                 29,604
                                                                -----------             -----------
       Net deferred tax liabilities                             $     8,031             $    7,916
                                                                ===========             ===========


</TABLE>
      Management has evaluated the need for a valuation allowance, and as
      such, a valuation allowance of $36.1 million has been recorded. The
      valuation allowance was decreased by $5.4 million during the fiscal
      year ended March 31, 2000.


                                       38
<PAGE>



                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements


       The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                         Year ended March 31,
                                                       ---------------------------------------------------------
                                                              2000                1999                1998
                                                       -----------------   -----------------   -----------------
            <S>                                        <C>                       <C>                <C>
            Amount attributable to
               continuing operations                   $    2,189                523                2,106

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

                 Total expense                         $    2,189                523                2,106
                                                       =================   =================   =================
</TABLE>


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

                                                                         Year ended March 31,
                                                       ---------------------------------------------------------
                                                              2000                1999                1998
                                                       -----------------   -----------------   -----------------
            <S>                                        <C>                    <C>                  <C>
             Current

               Federal                                 $      169                 --                   --

               State                                          251                237                  230

               Foreign                                      1,654              1,589                  946
                                                       -----------------   -----------------   -----------------
                  Total current                             2,074              1,826                1,176
                                                       -----------------   -----------------   -----------------


            Deferred

              Federal                                        (133)              (132)                (108)

              State                                           (15)              (102)                (157)

              Foreign                                         263             (1,069)               1,195
                                                       -----------------   -----------------   -----------------
                  Total deferred                              115             (1,303)                 930
                                                       -----------------   -----------------   -----------------
           Provision for income taxes                  $    2,189                523                2,106
                                                       =================   =================   =================
</TABLE>



                                       39
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

       The effective tax rates for Fiscal Year 2000, Fiscal Year 1999 and Fiscal
       Year 1998 were 18.8%, (6.7%) and (7.8%), 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,
                                           ---------------------------------------------------------
                                                  2000                1999                1998
                                           -----------------   -----------------   -----------------
      <S>                                        <C>                <C>                  <C>
      Statutory tax rate                          35.0%              35.0%                35.0%

      State income taxes, less
         federal tax impact                        1.3               (1.1)                (0.2)

      Foreign taxes, less federal
         tax impact                               10.9               (4.4)                (5.2)

      Amortization                                 5.1               (6.2)                (9.9)

      Change in valuation
         allowance                               (37.7)             (34.4)               (24.1)

      Other, net                                   4.2                4.4                 (3.4)
                                          -----------------   -----------------   -----------------
      Effective income tax rate                   18.8%              (6.7)%               (7.8)%
                                          =================   =================   =================

</TABLE>

       As of March 31, 2000, the Company had available net operating loss
       carryforwards ("NOL's") for state purposes of $59.6 million, which can be
       used to offset future state taxable income. If these NOL's are not
       utilized, they will begin to expire in 2001 and will be totally expired
       in 2019.

       As of March 31, 2000, the Company had available NOL's for federal
       purposes of $91.7 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 2019.

       The Company also had available an alternative minimum tax credit
       carryforward of $1.5 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 $76.1
       million, which will begin to expire in 2007 and will be completely
       expired in 2019.


                                       40
<PAGE>

                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(8)    Employee Benefit Plans

       Defined Benefit Pension Plans

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

       Supplemental Executive Retirement Plan
       In October 1994, the Board of Directors approved a new Supplemental
       Executive Retirement Plan ("SERP"), which is a defined benefit plan, for
       certain key executives. Such benefits will be paid from the Company's
       assets. The aggregate accumulated projected benefit obligation under this
       plan was approximately $2.6 million at March 31, 2000 and March 31, 1999.

       Defined Benefit Postretirement Plans

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

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

       401(k) Defined Contribution Plan

       Effective January 1, 1995, the Company amended its 401(k) defined
       contribution plan. Eligible participants may contribute up to 15% of
       their annual compensation subject to maximum amounts established by the
       Internal Revenue Service and receive a matching employer contribution on
       amounts contributed. The employer matching contribution is made bi-weekly
       and equals 2% of annual compensation for all plan participants plus 50%
       of the first 6% of annual compensation contributed to the plan by each
       employee, subject to maximum amounts established by the Internal Revenue
       Service. The Company's contribution under this Plan amounted to $4.1
       million in Fiscal Year 2000, $3.8 million during Fiscal Year 1999 and
       $3.3 million during Fiscal Year 1998.

                                       41
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

  The following table provides a reconciliation of the changes in the defined
  benefit plans' benefit obligations and fair value of plan assets for the
  Fiscal Years 2000 and 1999 and a statement of the funded status of such plans
  as of March 31, 2000 and 1999:
<TABLE>
<CAPTION>


                                                               Defined Benefit                          Defined Benefit
                                                                Pension Plans                         Postretirement Plan
                                                    -----------------------------------        ----------------------------------
                                                        2000                    1999               2000                  1999
                                                    ------------           ------------        ------------          ------------
  <S>                                               <C>                      <C>                  <C>                  <C>
  Change in Benefit Obligation

     Benefit obligation at beginning of year        $   58,332                55,064               2,646                3,766

     Service cost                                          425                   680                  26                   30

     Interest cost                                       3,946                 3,901                 178                  181

     Plan participants' contributions                       --                    --                 186                  148

     Actuarial (gain) loss                              (6,517)                1,468                  79                 (980)

     Benefits paid                                      (2,868)               (2,649)               (498)                (499)

     Curtailment gain                                      (56)                  (63)                 --                   --

     Settlement gain                                       (64)                  (69)                 --                   --
                                                    ------------           ------------        ------------          ------------

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

  Change in Plan Assets

     Fair value of plan assets at beginning of year $   49,483                45,306                  --                   --

     Actual return on plan assets                        9,313                 6,462                  --                   --

     Employer contributions                                544                   693                 313                  351

     Plan participants' contributions                       --                    --                 186                  148

     Benefits paid                                      (3,242)               (2,978)               (499)                (499)
                                                    ------------           ------------        ------------          ------------
     Fair value of plan assets at end of year       $   56,098                49,483                  --                   --
                                                    ============           ============        ============          ============

  Funded status                                     $    2,900                (8,849)             (2,617)              (2,646)

     Unrecognized net actuarial gain                   (13,220)               (2,501)             (1,348)              (1,537)

     Unrecognized prior service cost                      (290)                 (350)             (2,299)              (2,522)
                                                    ------------           ------------        ------------          ------------
     Accrued benefit liability                      $  (10,610)              (11,700)             (6,264)              (6,705)
                                                    ============           ============        ============          ============
</TABLE>


                                       42
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                       Defined Benefit Pension Plans          Defined Benefit Postretirement Plan
                                                    ----------------------------------     -----------------------------------------
                                                        2000                   1999            2000                          1999
                                                    -----------            -----------     -----------                   -----------
       <S>                                             <C>                    <C>             <C>                          <C>
       Weighted - average assumptions

          Discount rate - benefit obligation            7.75%                  7.00%          7.75%                        7.00%

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

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


       For measurement purposes under the defined benefit postretirement plan, a
       6.5 percent annual rate of increase in the per capita cost of covered
       health care benefits was assumed for March 31, 2000. The rate was assumed
       to decrease gradually to 5 percent through fiscal year 2003 and remain at
       that level thereafter.
<TABLE>
<CAPTION>
                                                         Defined Benefit Pension Plans         Defined Benefit Postretirement Plan
                                                    ------------------------------------    ---------------------------------------
                                                       2000        1999         1998           2000           1999           1998
                                                    ----------  ----------   -----------    -----------    -----------    ---------
      <S>                                           <C>          <C>          <C>              <C>            <C>            <C>
      Components of net periodic benefit cost

         Service cost                               $    425        680          769             26             30             46

         Interest cost                                 3,945      3,876        3,656            178            181            265

         Expected return on plan assets               (4,815)    (4,410)      (3,715)            --             --             --

         Amortization of prior service cost              (89)        55           76           (222)          (315)          (193)

         Recognized net actuarial gain                    (5)        --         (103)          (110)          (142)           (79)
                                                    ----------  ----------   -----------    -----------    -----------    ---------
         Net periodic benefit (income) cost         $   (539)       201          683           (128)          (246)            39
                                                    ==========  ===========  ===========    ===========    ===========    ==========

</TABLE>

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

                                                                        1% Point                     1% Point
                                                                        Increase                     Decrease
                                                                       ----------                   ----------
           <S>                                                         <C>                           <C>
           Effect on total of service and interest cost
           components of expense                                       $     171                       155

           Effect on postretirement benefit obligation                 $   2,337                     2,100

</TABLE>


                                       43
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(9)      Capital Stock

         At March 31, 2000, capital stock consists of Holdings' common stock
         ("Common Stock") and Series AA and Series BB convertible preferred
         stock collectively, ("Preferred Stock"). Each share of Common Stock is
         entitled to one vote on each matter common shareholders are entitled to
         vote on. The Preferred Stock has no voting rights. Dividends on the
         Common Stock and Preferred Stock are discretionary by the Board of
         Directors. Upon the occurrence of a Liquidation Event (as defined in
         the amended and restated Certificate of Incorporation), all amounts
         available for payment or distribution shall first be paid to holders of
         Series BB preferred stock, then holders of Series AA preferred stock
         and then to holders of Common Stock. Each share of the Preferred Stock
         may be converted, at the option of the holder, into shares of Common
         Stock using conversion ratios and subject to conditions set forth in
         the Company's Certificate of Incorporation.

 (10)    Stock Option Plans

         Common Stock Option Plan

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

         A summary of activity under the Common Stock Option Plans is as
         follows:
<TABLE>
<CAPTION>

                                                                   Weighted-Average
                                                                        Exercise          Exercisable
                                                    Options            Price ($)          Options (b)
                                                  -----------       -------------     ----------------
         <S>                                      <C>                   <C>                 <C>
         Outstanding at March 31, 1997                19,300            50.00

            Granted                                   30,014              .01

            Exercised                                (11,773)           14.95

            Forfeited                                   (334)             .01
                                                  ----------

         Outstanding at March 31, 1998                37,207             1.42(a)            1,147

            Granted                                    4,283            97.45

            Exercised                                     --               --

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

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

            Granted                                    2,665            18.02

            Exercised                                 (9,249)             .01

            Forfeited                                   (757)           88.72
                                                  ----------
         Outstanding at March 31, 2000                29,840            13.35               9,536
                                                  ==========
</TABLE>
(a)      Reflects Fiscal Year 1998 option repricing discussed below.
(b)      365 of the exercisable options at March 31, 2000 have a $240/option
         exercise price, all other exercisable options, in all periods, have a
         $.01/option exercise price.

                                       44
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

         The weighted-average grant-date fair value of options granted was $0
         for fiscal years ending March 31, 1999 and 1998. In Fiscal Year 2000,
         1,970 options were granted with weighted-average grant-date fair value
         of approximately $.01/option and 495 options were granted with
         weighted-average grant-date fair value of $539/option. These options
         were granted with a weighted-average exercise price of $.01/option.
         Also, in Fiscal Year 2000, 200 options were granted with a
         weighted-average grant-date fair value of approximately $.01/option and
         a weighted-average exercise price of $240/option. The fair value for
         all options was estimated at the date of grant using a Black-Scholes
         option pricing model with the following weighted-average assumptions
         for Fiscal Year 2000, Fiscal Year 1999 and Fiscal Year 1998: risk-free
         interest rates of 5.3 - 6.4%, 4.5 - 5.6%, and 5.5%, respectively; no
         annual dividend yield; volatility factors of 0; and an expected option
         life of 5 years. The weighted-average remaining contractual life of the
         options outstanding at March 31, 2000 was 7.3 years. 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. A total of 7,281 shares (including 362 previously exercised
         options that were subsequently cancelled) of Holdings Common Stock were
         reserved for issuance, but not granted under the Common Stock Option
         Plans at March 31, 2000.

         As a result of the SFAS 123 requirements, the Company recognized
         related stock compensation expense of less than $0.1 million in Fiscal
         Year 2000, and no compensation expense in Fiscal Year 1999 and Fiscal
         Year 1998.

         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 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                                                  --

           Forfeited                                                  --
                                                                 --------------
     Outstanding at March 31, 1998                                   526

           Granted                                                    29

           Exercised                                                  --

           Forfeited                                                  --
                                                                 --------------
     Outstanding at March 31, 1999                                   555

          Granted                                                     --

          Exercised                                                   --

          Forfeited                                                   --
                                                                 --------------
     Outstanding at March 31, 2000                                   555
                                                                 ==============


                                       45
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

         All options were granted with a $1,909 exercise price. The
         weighted-average grant-date fair value of options granted was $1,288
         and $1,091 for Fiscal Year 1999 and Fiscal Year 1998, respectively. The
         weighted-average remaining contractual life of the options outstanding
         at March 31, 2000 was 7.8 years. The fair value for these options was
         estimated at the date of grant using a Black-Scholes option pricing
         model. The following weighted-average assumptions were used for Fiscal
         Year 1999 and Fiscal Year 1998: risk free interest rate of 5.6% and
         5.5%, respectively; no annual dividend yield; volatility factors of 0;
         and an expected option life of 2 years. All of the options outstanding
         were exercisable at March 31, 2000. A total of 28 shares of Holdings
         Preferred Stock was reserved for issuance, but not granted under the
         Preferred Stock Option Plan at March 31, 2000.

         As a result of the SFAS 123 requirements, the Company recognized
         related stock compensation expense of less than $0.1 million in Fiscal
         Year 1999 and $0.6 million in Fiscal Year 1998. No grants of preferred
         options in Fiscal Year 2000 resulted in zero stock compensation expense
         for the year.

(11)     Commitments and Contingencies

          The Company incurred rent expense for Fiscal Year 2000, Fiscal Year
          1999, and Fiscal Year 1998 of $6.4 million, $6.9 million, and $6.4
          million, respectively, under various operating leases. Future minimum
          rental commitments under existing operating lease arrangements at
          March 31, 2000 are as follows (in thousands):

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

               2001                     $    5,157
               2002                          4,603
               2003                          3,344
               2004                          1,885
               2005                          1,294
               Thereafter                    4,070
                                        -----------
                    Total               $   20,353
                                        ===========

          The Company has employment agreements with three of its principal
          officers and eleven other employees. Such agreements provide for
          minimum salary levels as well as for incentive bonuses which are
          payable if specified management goals are attained. In addition, the
          Company has consulting agreements with two former employees. The
          aggregate commitment for future salaries at March 31, 2000, excluding
          bonuses, was approximately $5.0 million.

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

         In the quarter ended December 31, 1997, the Company entered into
         multi-year contracts to purchase a portion of the Company's raw
         materials to be used in its normal operations. In connection with such
         purchase agreements, pricing for a portion of the Company's raw
         materials is adjusted for certain movements in market prices, changes
         in raw material costs and other specific price increases. The Company
         is deferring certain contractual provisions over the life of the
         contracts, which are being recognized as the purchase commitments are
         achieved. The amount deferred at March 31, 2000 is $27.1 million and is
         included within Other liabilities in the Company's consolidated balance
         sheet.



                                       46
<PAGE>

                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

         Graphics, together with over 300 other persons, has been designated by
         the U.S. Environmental Protection Agency as a potentially responsible
         party (a "PRP") under the Comprehensive Environmental Response
         Compensation and Liability Act ("CERCLA", also known as "Superfund") at
         one Superfund site. Although liability under CERCLA may be imposed on a
         joint and several basis and the Company's ultimate liability is not
         precisely determinable, the PRPs have agreed that Graphics' share of
         removal costs is 0.46% and therefore Graphics believes that its share
         of the anticipated remediation costs at such site will not be material
         to its business or financial condition. Based upon an analysis of
         Graphics' volumetric share of waste contributed to the site and the
         agreement among the PRPs, the Company maintains a reserve of
         approximately $0.1 million in connection with this liability on its
         consolidated balance sheet at March 31, 2000. The Company believes this
         amount is adequate to cover such liability.

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

(12)     Significant Customers

         No single customer represented 10% or more of total sales in the fiscal
         years ended March 31, 2000, 1999, and 1998.

(13)     Interim Financial Information (Unaudited)

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

                                                                                 Income
                                                                                 (Loss)
                                                                                 Before
                                                                              Extraordinary      Extraordinary        Net Income
                                             Net Sales       Gross Profit         Item                Item              (Loss)
                                            -------------    -------------  ------------------  -----------------   ---------------
       <S>                                 <C>                   <C>              <C>               <C>                <C>
       Fiscal Year 2000

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

                     Total                 $    546,710          90,265            9,470                --               9,470
                                            =============    =============  ==================  =================   ===============

        Fiscal Year 1999

            Quarter Ended
               June 30                     $    127,813          18,562           (1,423)           (4,020)             (5,443)
               September 30                     126,965          20,014           (1,572)               --              (1,572)
               December 31                      144,296          26,000            3,557                --               3,557
               March 31                         121,269          16,676           (8,924)              (86)             (9,010)
                                            -------------    -------------  ------------------  -----------------   ---------------

                     Total                 $    520,343          81,252           (8,362)           (4,106)            (12,468)
                                            =============    =============  ==================  =================   ===============
</TABLE>


                                       47
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

(14)     Restructuring Costs and Other Special Charges

         Restructuring Costs

         American Color (Digital Imaging and Prepress Services). In March 1999,
         the Company approved a plan for its American Color division which was
         designed to consolidate certain facilities in order to improve asset
         utilization and operational efficiency, modify the organizational
         structure as a result of facility consolidation and other changes and
         reduce overhead and other costs. The cost of this plan 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 $4.6 million which were incurred as a direct result
         of this plan (excluding other special charges related to asset
         write-offs and write-downs - see below) included $2.5 million of
         employee termination costs, $1.2 million of lease settlement costs and
         $0.9 million of other transition and restructuring expenses. This
         restructuring charge was recorded in the quarter ended March 31, 1999.
         The majority of these costs were paid or settled before March 31, 2000.
         The $1.5 million balance in the related restructuring reserve at March
         31, 2000 primarily includes remaining payouts of involuntary employee
         termination costs and remaining payouts under lease commitments.

         Print. In January 1998, the Company approved a plan for its print
         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 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. These costs were paid or
         settled before March 31, 1999.

         Other Special Charges

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

         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 print segment to estimated
         fair values. The provision was based on a review of the Company's
         long-lived assets in accordance with SFAS 121. Fair value was based on
         the Company's estimate of held and used and idle assets based on
         current market conditions using the best information available.

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

                                       48
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

 (15)    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):

                                                        March 31,
                                               ------------------------
                                                   2000        1999
                                               -----------  -----------
          Balance sheet data

          Current assets                       $  82,270       71,591

          Noncurrent assets                    $ 221,542      227,409

          Current liabilities                  $  85,683       77,515

          Noncurrent liabilities               $ 327,958      341,264


                                                      Year ended March 31,
                                              ----------------------------------
                                                 2000         1999       1998
                                              ---------    ---------   ---------
           Statement of operations data

           Sales                               $ 546,710      520,343   533,335

           Operating income                    $  46,084       29,455    12,103

           Net income (loss)                   $   9,470      (12,468)  (29,895)



(16)     Industry Segment Information

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

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

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on segment EBITDA which is defined as
         earnings before net interest expense, income tax expense, depreciation,
         amortization, other special charges related to asset write-offs and
         write-downs, other income (expense), discontinued operations and
         extraordinary items. The Company generally accounts for intersegment
         revenues and transfers as if the revenues or transfers were to third
         parties, that is, at current market prices.

                                       49
<PAGE>


                               ACG HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

         The Company's reportable segments are business units that offer
         different products and services. They are managed separately because
         each segment requires different technology and marketing strategies. A
         substantial portion of the revenue, long-lived assets and other assets
         of the Company's reportable segments are attributed to or located in
         the United States.
<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

       1998
       Segment revenues                                            $  446,350           82,384             4,601           533,335

       EBITDA                                                      $   46,838            8,405            (2,876)           52,367
          Depreciation and amortization                                22,499            6,001            10,037            38,537
          Interest expense                                                 --               --            38,956            38,956
          Interest income                                                  --               --              (143)             (143)
          Other special charges - SFAS 121                              1,727               --                --             1,727
          Other, net                                                      207             (206)              411               412
                                                                   --------------    -------------    ---------------    -----------
            Income (loss) from continuing operations before
              income taxes                                         $   22,405            2,610           (52,137)          (27,122)

       Total assets                                                $  278,965           33,351            17,642           329,958

       Total capital expenditures                                  $   14,438            7,291             1,984            23,713

</TABLE>

                                       50
<PAGE>


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

                  None.

                                       51
<PAGE>


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS

The following table provides certain information about each of the current
directors and executive officers of Holdings and Graphics (ages as of March 31,
2000). All directors hold office until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>

         Name                       Age    Position with Graphics and Holdings
         ------------------         ---    -----------------------------------
         <S>                         <C>   <C>

         Stephen M. Dyott            48    Chairman, President of Holdings, Chief Executive Officer and Director
         Michael M. Janson           52    Director
         Eric T. Fry                 33    Director
         Joseph M. Milano            47    Executive Vice President and Chief Financial Officer
         Malcolm J. Anderson         61    President of Graphics
         Timothy M. Davis            45    Senior Vice President-Administration, Secretary and General Counsel
         Stuart R. Reeve             36    Executive Vice President, Operations of Graphics
         Larry R. Williams           59    Executive Vice President, Purchasing of Graphics
         Patrick W. Kellick          42    Senior Vice President/Corporate Controller and Assistant Secretary
</TABLE>

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

Michael M. Janson - Director of Holdings and Graphics since February 1998;
Managing Director of the general partners of The Morgan Stanley Leveraged Equity
Fund II, L.P. ("MSLEFII") and Morgan Stanley Capital Partners III, L.P.
("MSCPIII" and together with MSLEFII "MSDWCP") and of Morgan Stanley & Co.,
Incorporated ("MS&Co."); Joined MS&Co. in 1987; Joined MSDWCP in 1997; Managing
Director in MS&Co.'s High Yield Capital Markets Department before joining
MSDWCP; Director of Choice One Communications Inc., Silgan Holdings Inc., and
other private companies.

Eric T. Fry - Director of Graphics and Holdings since March 1996; Principal
of the general partners of MSDWCP and MS&Co. in 1987; Joined MS&Co. in 1989,
initially in the Mergers and Acquisitions Department and from 1991 to 1992 in
MSDWCP; From 1992 to 1994 attended Harvard Business School and received an MBA;
Rejoined MSDWCP in 1994; Director of Enterprise Reinsurance Holdings
Corporation, Vanguard Health Systems, Inc., The Underwriter Holdings Company
Limited and LifeTrust America, L.L.C.

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

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

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

                                       52
<PAGE>

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

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

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

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents information concerning compensation for services to
Holdings and Graphics during the fiscal years ended March 31, 2000, 1999, and
1998 to the Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") of Holdings and/or Graphics.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                                 Long-Term Compensation
                                                                                        ----------------------------------
                                                        Annual Compensation                      Awards            Payouts
                                                ---------------------------------       ------------------------   -------
                                                                                                      Securities
                                                                          Other                       Under-                   All
                                                                          Annual       Restricted     lying                  Other
   Name and Principal                                                     Compen-        Stock        Options/     LTIP      Compen-
        Position                Period           Salary        Bonus      sation        Award(s)      SAR's (#)    Payouts   sation
----------------------      ---------------    ---------    -----------  --------      -----------   ----------    -------   -------
<S>                         <C>                <C>          <C>             <C>           <C>          <C>           <C>       <C>
Stephen M. Dyott            Fiscal Year 2000   $ 575,000    $ 1,000,000     --            --              --         --        --
Chairman, President of      Fiscal Year 1999   $ 517,311    $   800,000     --            --              --         --        --
Holdings and Chief          Fiscal Year 1998   $ 475,000    $   525,000     --            --           9,462         --        --
Executive Officer &
Director

Joseph M. Milano            Fiscal Year 2000   $ 309,231    $   375,000     --            --              --         --        --
Executive Vice President    Fiscal Year 1999   $ 287,981    $   325,000     --            --              29         --        --
& Chief Financial Officer   Fiscal Year 1998   $ 275,000    $   290,000     --            --           5,217         --        --

Malcolm J. Anderson         Fiscal Year 2000   $ 319,231    $   325,000     --            --             691         --        --
President of Graphics       Fiscal Year 1999   $ 240,385    $   225,000     --            --              --         --        --
                            Fiscal Year 1998   $ 230,000    $   200,000     --            --           1,158         --        --

Timothy M. Davis            Fiscal Year 2000   $ 277,692    $   275,000     --            --              --         --        --
Senior Vice                 Fiscal Year 1999   $ 252,308    $   225,000     --            --              --         --        --
President-Administration,   Fiscal Year 1998   $ 233,200    $   160,000     --            --           2,626         --        --
Secretary & General
Counsel

Stuart R. Reeve             Fiscal Year 2000   $ 284,616    $   260,000     --            --             441         --        --
Executive Vice President,   Fiscal Year 1999   $ 234,134    $   225,000     --            --              --         --        --
Operations of Graphics      Fiscal Year 1998   $ 225,000    $   200,000     --            --           1,158         --        --

</TABLE>

                                       53
<PAGE>


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


                      Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>

                                                                                                              Alternative
                                                                                                              To (f) and
                                                                                                                  (g)
                                                                                                              Grant Date
                                             Individual Grants                                                   Value
-------------------------------------------------------------------------------------------------------   ---------------------
                                                     % of Total
                                                      Options/
                                 Number of              SAR's
                                 Securities          Granted to                                                 Grant
                                 Underlying          Employees          Exercise or                              Date
                               Options/SAR's         in Fiscal          Base Price         Expiration          Present
            Name                Granted (#)           Year 2000            ($/sh)             Date          Value ($)(b)
-------------------------    -----------------     --------------     ---------------    --------------   ---------------------
<S>                                 <C>                 <C>                 <C>              <C>                   <C>
Common Stock Option
Plans (a)
     Malcolm J. Anderson            691                 26%                 .01              07/27/09              --
     Stuart R. Reeve                441                 17%                 .01              07/27/09              --

Preferred Stock
Option Plan
    None
</TABLE>

---------------
(a)  All options granted pursuant to the Common Stock Option Plans have a
     vesting schedule providing for 25% vesting on the first anniversary of
     the date of grant and an additional 25% vesting on each of the next three
     anniversaries of the date of grant.

(b)  Holdings' common stock has not been registered or publicly traded and,
     therefore a public market price of the stock at the date of grant was not
     available. Holdings' believes the exercise price of the options ($.01) held
     by the Named Executive Officers at the date of grant, was in each case
     greater than the fair market value of the underlying shares of Holdings'
     common stock as of each date, and as such the Grant Date Present Value is
     zero.


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 3/31/00          SAR's at 3/31/00
                               on Exercise (#)      Realized($)       Exercisable/Unexercisable    Exercisable/Unexercisable ($)
                               ----------------    ---------------    -------------------------    ------------------------------
<S>                                <C>                  <C>              <C>                         <C>
Common Stock Option Plans (a)
     Stephen M. Dyott              3,577.75             $ 36             2,292.50 / 5,025.25         1,926,181 / 4,222,265 (a)
     Joseph M. Milano              2,126.75             $ 21             1,267.75 / 2,725.50         1,065,176 / 2,289,992 (a)
     Malcolm J. Anderson             452.25             $  5               320.75 / 1,301.25           269,497 / 1,093,323 (a)
     Timothy M. Davis                913.25             $  9               634.50 / 1,341.50           533,113 / 1,127,142 (a)
     Stuart R. Reeve                 452.25             $  5               347.25 / 1,042.75           291,763 /   876,129 (a)

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

</TABLE>

(a)  Holdings' common stock has not been registered or publicly traded and,
     therefore a public market price of the stock is not available. The values
     set forth in the table are based on our estimate of the fair market value
     of the common stock at March 31, 2000.

(b)  Holdings' preferred stock has not been registered or publicly traded and,
     therefore a public market price of the stock is not available. The values
     set forth in the table are based on our estimate of the fair market value
     of the preferred stock at March 31, 2000.

                                       54
<PAGE>


Pension Plan

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

In October 1994, the Board of Directors approved an amendment to the Pension
Plan which resulted in the freezing of additional defined benefits for future
services under such plan effective January 1, 1995 (see note 8 to our
consolidated financial statements appearing elsewhere in this Report).

At March 31, 2000, all of the Named Executive Officers had vested in the pension
plan. At March 31, 2000, the Named Executive Officers had the following amounts
of credited service (original hire date through January 1, 1995) and annual
benefit payable upon retirement at age 65 under the Pension Plan: Stephen M.
Dyott (3 years, 3 months; $8,220), Joseph M. Milano (2 years, 7 months; $5,820),
Malcolm J. Anderson (1 year, 3 months; $2,820), Timothy M. Davis (5 years, 5
months; $11,700) and Stuart R. Reeve (5 years, 4 months; $9,185).

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

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

Supplemental Executive Retirement Plan

In October 1994, the Board of Directors approved a new SERP, which is a defined
benefit plan, for the Named Executive Officers and six other 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 July 1, 1997 through June 30, 2002 for Messr. Reeve) and
retirement on or after attaining age 65 or the present value of such benefit at
an earlier date under certain circumstances. The Named Executive Officers have
the following basic annual benefit payable under this plan at age 65:

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

Such benefits will be paid from our assets (see note 8 to our consolidated
financial statements appearing elsewhere in this Report).

Compensation of Directors

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

Employment Agreements

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


                                       55
<PAGE>


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

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

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

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

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

Compensation Committee Interlocks and Insider Participation

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



                                       56
<PAGE>


Repriced Options

During Fiscal Year 1998, certain common stock option agreements were modified to
reprice options previously granted with a $50 exercise price to a $.01 exercise
price. Based upon the Board of Directors determination, the new exercise price
was not less than the fair market value of such options. See note 10 to our
consolidated financial statements appearing elsewhere in this Report. The
following table presents information concerning all repricing of options and
SARs held by any executive officer during the last ten completed fiscal years.

                        Ten Year Option / SAR Repricings
<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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



                                       57
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 31, 2000, concerning the
persons having beneficial ownership of more than five percent of the capital
stock of Holdings and the beneficial ownership thereof by each director and
Named Executive Officer of Holdings and by all directors and executive officers
of Holdings as a group. Each holder below has sole voting power and sole
investment power over the shares designated below.
<TABLE>
<CAPTION>

                                        Shares of Holdings         Percent        Shares of Holdings       Percent
Name                                       Common Stock           of Class         Preferred Stock        of Class
------                                  ------------------        ---------       ------------------      --------
<S>                                            <C>                  <C>                   <C>               <C>

The Morgan Stanley Leveraged Equity
Fund II, L.P.
1221 Ave. of the Americas
New York, NY 10020                             59,450               41.5                  2,727             52.2

MSCP III Entities (a)
1221 Ave. of the Americas
New York, NY 10020                             23,332               16.3                  1,070             20.5

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

Leeway & Co.
c/o State Street
Master Trust Div. W6
One Enterprise Drive
North Quincy, MA 02171                         10,667                7.4                    489              9.4

Directors and Named Executive Officers:

     Stephen M. Dyott (b)                       9,945                6.8                    315              5.7

     Joseph M. Milano (c)                       4,510                3.1                    175              3.2

     Malcolm J. Anderson (d)                    1,199                0.8                     --                --

     Timothy M. Davis (e)                       2,277                1.6                     88              1.7

     Stuart R. Reeve (f)                        1,207                0.8                     --                --

     Michael M. Janson                             --                 --                     --                --
     Eric T. Fry                                   --                 --                     --                --

All current directors and executive officers
as a group (g)                                 21,357               14.3                    578             10.0
</TABLE>


(a)      Includes Morgan Stanley Capital Partners III, L.P., Morgan Stanley
         Capital Investors, L.P. and MSCP III 892 Investors, L.P.
(b)      Includes 2,293 common stock options and 292 preferred stock options
         exercisable within 60 days.
(c)      Includes 1,268 common stock options and 175 preferred stock options
         exercisable within 60 days.
(d)      Includes 321 common stock options exercisable within 60 days.
(e)      Includes 635 common stock options and 88 preferred stock options
         exercisable within 60 days.
(f)      Includes 347 common stock options exercisable within 60 days.
(g)      Includes 5,545 common stock options and 555 preferred stock options
         exercisable within 60 days.

                                       58
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The 1993 Acquisition

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

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

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

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

Tax Sharing Agreement

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

                                       59
<PAGE>


Other

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

                                       60
<PAGE>

                                                              PART IV

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

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

              Reports of Independent Auditors

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

                          Consolidated balance sheets - March 31, 2000 and 1999

                          For the Years Ended March 31, 2000, 1999 and 1998:

                                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.
<TABLE>
<CAPTION>

                 Schedules                                                                                              Page No.
                 ---------                                                                                              --------
         <S>     <C>                                                                                                       <C>

          I.     Condensed Financial Information of Registrant:
                 Condensed Financial Statements (parent company only) for the years ended
                 March 31, 2000, 1999, and 1998 and as of March 31, 2000 and 1999 .........................................63

         II.     Valuation and qualifying accounts ........................................................................69
</TABLE>

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

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

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

         3.1      Certificate of Incorporation of Graphics, as amended to date*
         3.2      By-laws of Graphics, as amended to date*
         3.3      Restated Certificate of Incorporation of Holdings, as amended
                  to date
         3.4      By-laws of Holdings, as amended to date*
         4.1      Indenture (including the form of Note), dated as of August 15,
                  1995, among Graphics, Holdings and NationsBank of Georgia,
                  National Association, as Trustee**
         10.1     Credit Agreement, dated as of August 15, 1995 and Amended and
                  Restated as of May 8, 1998, among Holdings, Graphics, GE
                  Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties signatory
                  thereto++++
         10.1(a)  June 8, 1998, First Amendment to Amended and Restated Credit
                  Agreement dated as of May 8, 1998, among Holdings, Graphics,
                  GE Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties Signatory
                  thereto++++

                                       61
<PAGE>


         10.1(b)  February 3, 1999, Second Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  Signatory thereto****
         10.1(c)  November 9, 1999, Third Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation  Agent,
                  Morgan  Stanley Senior Funding, Inc. as Syndication  Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  Signatory thereto+++
         10.2     Resignation  letter, dated as of September 18, 1996, between
                  Graphics and James T. Sullivan***
         10.3     Employment Agreement, dated as of October 19, 1998, between
                  Graphics and Stephen M. Dyott
         10.4     Severance Letter, dated August 1, 1999, between Graphics and
                  Stuart Reeve
         10.5     Severance Letter, dated July 15, 1998, between Graphics and
                  Joseph M. Milano+
         10.6     Severance Letter, dated July 15, 1998, between Graphics and
                  Timothy M. Davis+
         10.7     Employment Agreement dated as of August 1, 1999, between
                  Graphics and M. J. Anderson*****
         10.8     Amended and Restated Stockholders' Agreement, dated as of
                  August 14, 1995, among Holdings, the Morgan Stanley Leveraged
                  Equity Fund II, L.P., Morgan Stanley Capital Partners III,
                  L.P. and the additional parties named therein**
         10.8(a)  Amendment No. 1, dated January 16, 1998, to Amended and
                  Restated Stockholders' Agreement dated as of August 14, 1995,
                  among Holdings, the Morgan Stanley Leveraged Equity Fund II,
                  L.P., Morgan Stanley Capital Partners III, L.P., and the
                  additional parties named herein++++
         10.9     Stock Option Plan of Holdings++
         10.10    Term Loan Agreement, dated as of June 30, 1997, among
                  Holdings, Graphics, BT Commercial Corporation, as Agent,
                  Bankers Trust Company, as Issuing Bank, and the parties
                  signatory thereto++++
         10.11    Holdings Common Stock Option Plan++++
         10.12    Holdings Preferred Stock Option Plan++++
         12.1     Statement Re: Computation of Ratio of Earnings to Fixed
                  Charges
         21.1     List of Subsidiaries
         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 the
      fiscal year ended March 31, 1999 - Commission file number 33-97090.
**    Incorporated by reference from Form S-4 filed on September 19, 1995 -
      Registration number 33-97090.
++    Incorporated by reference from Amendment No. 2 to Form S-4 filed on
      November 22, 1995 - Registration number 33-97090.
***   Incorporated by reference from the Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1996 - Commission file number 33-97090.
+++   Incorporated by reference from the Quarterly Report on Form 10-Q for the
      quarter ended December 31, 1999 - Commission file number 33-97090.
****  Incorporated by reference from the Quarterly Report on Form 10-Q for the
      quarter ended December 31, 1998 - Commission file number 33-97090.
++++  Incorporated by reference from the Annual Report on Form 10-K for the
      fiscal year ended March 31, 1998 - Commission file number 33-97090.
***** Incorporated by reference from the Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1999 - Commission file number 33-97090.

(b)  Reports on Form 8-K:
     -------------------

     The following report on Form 8-K was filed during the fourth quarter of
     Fiscal Year 2000:

     1.    Form 8-K filed with the Securities and Exchange Commission on
           February 2, 2000 under Item 5 to announce ACG's net income and EBITDA
           for the three months ended December 31, 1999.

     ACG did not file any other reports on Form 8-K during the three months
     ended March 31, 2000.

                                       62
<PAGE>


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

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

                                                                        March 31,
                                                          ----------------------------------------
                                                              2000                      1999
                                                          ----------------          --------------
    Assets
    ------
    <S>                                                   <C>                           <C>

    Current assets:

         Receivable from subsidiary                       $         377                     601

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

            Total assets                                  $         377                     601
                                                          ================         ==============

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

    Current liabilities:

         Income taxes payable                             $         (63)                    128
                                                          ----------------          --------------
            Total current liabilities                               (63)                    128

    Liabilities of subsidiary in excess of assets               109,829                 119,779
                                                          ----------------          --------------
            Total liabilities                                   109,766                 119,907
                                                          ----------------          --------------
    Stockholders' deficit:

      Common stock, voting, $.01 par value, 5,852,223
         shares authorized, 143,399 shares and 134,250
         shares issued and outstanding at March 31, 2000
         and 1999, respectively                                       1                       1

      Preferred Stock, $.01 par value, 15,823 shares
         authorized, 3,617 shares and 3,622 shares
         series AA convertible preferred stock issued
         and outstanding at March 31, 2000 and 1999,
         respectively, $39,425,000 and $39,475,000
         liquidation preference at March 31, 2000 and 1999,
         respectively, 1,606 shares Series BB convertible
         preferred stock issued and outstanding at March 31,
         2000 and 1999, $17,500,000 liquidation preference
         at March 31, 2000 and 1999                                  --                      --

      Additional paid-in capital                                 58,303                  58,286

      Accumulated deficit                                      (165,485)               (174,905)

      Other accumulated comprehensive loss, net of tax           (2,208)                 (2,688)
                                                          ----------------          --------------
            Total stockholders' deficit                        (109,389)               (119,306)
                                                          ----------------          --------------
    Commitments and contingencies

            Total liabilities and stockholders' deficit   $         377                     601
                                                          ================         ==============


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

                                       63
<PAGE>


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



<TABLE>
<CAPTION>
                                                                 Year ended March 31,
                                                     ----------------------------------------------
                                                          2000             1999            1998
                                                     --------------   --------------   ------------
    <S>                                              <C>                   <C>            <C>

    Equity in income (loss) of subsidiary            $       9,470         (12,468)       (29,895)
                                                      --------------  --------------   ------------

             Net income (loss)                       $       9,470         (12,468)       (29,895)
                                                      ==============  ==============   ============
</TABLE>





































See accompanying notes to condensed financial statements.

                                       64
<PAGE>


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


<TABLE>
<CAPTION>

                                                                 Year ended March 31,
                                                     ----------------------------------------------
                                                          2000             1999            1998
                                                     --------------   --------------   ------------
        <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.

                                       65
<PAGE>


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

Description of ACG Holdings, Inc.

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

Holdings has no operations or significant assets other than its investment in
Graphics. Holdings is dependent upon distributions from Graphics to fund its
obligations. Under the terms of its debt agreements at March 31, 2000, Graphics'
ability to pay dividends or lend to Holdings is either restricted or prohibited,
except that Graphics may pay specified amounts to Holdings to fund the payment
of Holdings' obligations pursuant to a tax sharing agreement (see note 4).

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

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

     1.  Basis of Presentation

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

     2.  Guarantees

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

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

                                       66
<PAGE>


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

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

         On May 8, 1998, ACG refinanced all outstanding indebtedness under the
         Old Bank Credit Agreement and the Old 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.  Refinancing Transaction

         On May 8, 1998, ACG completed a refinancing transaction (the "1998
         Refinancing") which included the following: (1) ACG entered into a $145
         million credit facility with a syndicate of lenders (the "Bank Credit
         Agreement") which included an $11.5 million participation by Morgan
         Stanley Senior Funding, Inc., a related party, providing for a $70
         million revolving credit facility which is not subject to a borrowing
         base limitation (the "Revolving Credit Facility") maturing on March 31,
         2004, a $25 million amortizing term loan facility maturing on March 31,
         2004 (the "A Term Loan Facility") and a $50 million amortizing term
         loan facility maturing on March 31, 2005 (the "B Term Loan Facility");
         (2) the repayment of all $57.0 million of indebtedness outstanding
         under ACG's previous credit agreement, as amended (the "Old Bank Credit
         Agreement") (plus accrued interest to the date of repayment); (3) the
         repayment of all $25.0 million of indebtedness outstanding under the
         $25 million term loan facility which included a $5 million
         participation by Morgan Stanley Senior Funding, Inc., a related party,
         which was to mature on March 31, 2001 (the "Old Term Loan Facility")
         (plus accrued interest to the date of repayment) and (4) the payment of
         fees and expenses associated with the 1998 Refinancing. In addition,
         ACG recorded an extraordinary loss related to early extinguishment of
         debt of $4.1 million, net of zero taxes, associated with the write-off
         of deferred financing costs related to refinanced indebtedness in the
         quarter ended June 30, 1998.

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

                                       67
<PAGE>


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

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

                                       68
<PAGE>


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


<TABLE>
<CAPTION>

                                                 Balance at        Additions                                            Balance
                                                 Beginning         Charged to                           Other          at End of
                                                 of Period           Expense         Write-offs      Adjustments         Period
                                              -------------     ---------------    --------------   -------------    --------------
                                                                                   (in thousands)
<S>                                           <C>                   <C>                <C>               <C>           <C>
Fiscal Year ended March 31, 2000

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

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

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



Fiscal Year ended March 31, 1999

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

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

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



Fiscal Year ended March 31, 1998

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

   Reserve for inventory obsolescence         $      169              184                 (47)              (41)       $      265

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




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

(b)   The increase in the valuation allowance primarily relates to current year losses for which no tax benefit has been recorded.
</TABLE>







                                       69
<PAGE>


                                   SIGNATURES

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

                               ACG Holdings, Inc.

                          American Color Graphics, Inc.


                                                                       Date
                                                                       ----


                            /s/ Stephen M. Dyott                   June 13, 2000
                      -------------------------------------       --------------
                                Stephen M. Dyott
                 Chairman, President and Chief Executive Officer
                               ACG Holdings, Inc.
                      Chairman and Chief Executive Officer
                          American Color Graphics, Inc.
        Director of ACG Holdings, Inc. and American Color Graphics, Inc.

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

<TABLE>
<CAPTION>

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

 /s/  Joseph M. Milano                       Executive Vice President            June  13, 2000
-----------------------------------                                              --------------
     (Joseph M. Milano)                      Chief Financial Officer



 /s/  Patrick W. Kellick                      Senior Vice President              June  13, 2000
------------------------------------                                             --------------
     (Patrick W. Kellick)                     Corporate Controller
                                               Assistant Secretary
                                          (Principal Accounting Officer)



 /s/  Michael M. Janson                            Director                      June  13, 2000
-----------------------------------                                              --------------
     (Michael M. Janson)



 /s/  Eric T. Fry                                  Director                      June  13, 2000
------------------------------------                                             --------------
     (Eric T. Fry)

</TABLE>



                                       70
<PAGE>


                               ACG HOLDINGS, INC.
                           Annual Report on Form 10-K
                        Fiscal Year Ended March 31, 2000

                                Index to Exhibits


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

         3.1      Certificate of Incorporation of Graphics, as amended to date*
         3.2      By-laws of Graphics, as amended to date*
         3.3      Restated Certificate of Incorporation of Holdings, as amended
                  to date
         3.4      By-laws of Holdings, as amended to date*
         4.1      Indenture (including the form of Note), dated as of August 15,
                  1995, among Graphics, Holdings and NationsBank of Georgia,
                  National Association, as Trustee**
         10.1     Credit Agreement, dated as of August 15, 1995 and Amended and
                  Restated as of May 8, 1998, among Holdings, Graphics, GE
                  Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties signatory
                  thereto++++
         10.1(a)  June 8, 1998, First Amendment to Amended and Restated Credit
                  Agreement dated as of May 8, 1998, among Holdings, Graphics,
                  GE Capital Corporation as Documentation Agent, Morgan Stanley
                  Senior Funding, Inc. as Syndication Agent, Bankers Trust
                  Company as Administrative Agent and the parties signatory
                  thereto++++
         10.1(b)  February 3, 1999, Second Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  Signatory thereto****
         10.1(c)  November 9, 1999, Third Amendment to Amended and Restated
                  Credit Agreement dated as of May 8, 1998, among Holdings,
                  Graphics, GE Capital Corporation as Documentation Agent,
                  Morgan Stanley Senior Funding, Inc. as Syndication Agent,
                  Bankers Trust Company as Administrative Agent and the parties
                  Signatory thereto+++
         10.2     Resignation letter, dated as of September 18, 1996, between
                  Graphics and James T. Sullivan***
         10.3     Employment Agreement, dated as of October 19, 1998, between
                  Graphics and Stephen M. Dyott+
         10.4     Severance Letter, dated August 1, 1999, between Graphics and
                  Stuart Reeve
         10.5     Severance Letter, dated July 15, 1998, between Graphics and
                  Joseph M. Milano+
         10.6     Severance Letter, dated July 15, 1998, between Graphics and
                  Timothy M. Davis+
         10.7     Employment Agreement, dated as of August 1, 1999, between
                  Graphics and M. J. Anderson*****
         10.8     Amended and Restated Stockholders' Agreement, dated as of
                  August 14, 1995, among Holdings, the Morgan Stanley Leveraged
                  Equity Fund II, L.P., Morgan Stanley Capital Partners III,
                  L.P. and the additional parties named therein**
         10.8(a)  Amendment No. 1, dated January 16, 1998, to Amended and
                  Restated Stockholders' Agreement dated as of August 14, 1995,
                  among Holdings, the Morgan Stanley Leveraged Equity Fund II,
                  L.P., Morgan Stanley Capital Partners III, L.P., and the
                  additional parties named herein++++
         10.9     Stock Option Plan of Holdings++
         10.10    Term Loan Agreement, dated as of June 30, 1997, among
                  Holdings, Graphics, BT Commercial Corporation, as Agent,
                  Bankers Trust Company, as Issuing Bank, and the parties
                  signatory thereto++++
         10.11    Holdings Common Stock Option Plan++++
         10.12    Holdings Preferred Stock Option Plan++++
         12.1     Statement Re: Computation of Ratio of Earnings to Fixed
                  Charges
         21.1     List of Subsidiaries
         27.0     Financial Data Schedule

                                       71
<PAGE>


-----------

*        Incorporated by reference from Amendment No. 2 to Form S-1 filed on
         October 4, 1993 - Registration number 33-65702.
+        Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1999 - Commission file number 33-97090.
**       Incorporated by reference from Form S-4 filed on September 19, 1995 -
         Registration number 33-97090.
++       Incorporated by reference from Amendment No. 2 to Form S-4 filed on
         November 22, 1995 - Registration number 33-97090.
***      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1996 - Commission file number 33-97090.
+++      Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1999 - Commission file number 33-97090.
****     Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended December 31, 1998 - Commission file number 33-97090.
++++     Incorporated by reference from the Annual Report on Form 10-K for the
         fiscal year ended March 31, 1998 - Commission file number 33-97090.
*****    Incorporated by reference from the Quarterly Report on Form 10-Q for
         the quarter ended September 30, 1999 - Commission file number 33-97090.













                                       72